EAC’s Half-Hearted Approach To Integration Is Slowing The Union
By Kevin Amirehsani ~ From Global Risk Insights
For some, the 1977 dissolution of the East African Community (EAC) finally marked the forlorn end of Africa’s decades-long flirtation with Pan-Africanism. For others, it represented the triumph of sovereignty and nationalism over unrealistic infatuations with asymmetric economic marriages.
The last fifteen years of the organization’s newest iteration have fallen somewhere in between the two – with ambitious pronouncements foreshadowing economic and even political integration coexisting with regional rivalries that have threatened to scupper the entire project.
However, what is most needed is not wasted political capital nor governments looking inward, but a balanced solution: concrete steps to solidify the existing union and increase free flows of capital and labor, while giving each of the EAC’s member states the ability to craft domestic policies to suit their own domestic environments.
How to achieve this? First, focus on improving the EAC’s economic mainstay – the customs union that binds together Tanzania, Kenya, Uganda, Rwanda, Burundi, and, very soon, South Sudan.
It all starts with the Customs Union
Since 2005, EAC member states have been able to trade goods and some services with each other free of tariffs, in most cases. They have also synchronized and often reduced most of their external tariffs, reducing the transaction costs of international trade for foreign exporters and reducing the likelihood of one East African state engaging in a costly trade war with one or more of its neighbors. In addition, since 2010, the EAC has had bits and pieces of a “common market,” meaning crossing its borders became much easier for many types of workers and many classes of financial assets.
The net impact of both of these developments have been cheaper goods and services for consumers, more investment for industries, and more opportunities for laborers.
Still, despite the fact that the customs union has essentially eliminated tariffs and quotas on goods originating in an EAC member state, progress on non-tariff barriers (NTBs) has been much slower. These include both trade impediments at the border (e.g. customs documentation requirements) as well as those within member states (e.g. administrative or police checkpoints).
Such obstacles are part of the reason why the World Bank estimates that intra-African trade costs about 50% more than equivalent intra-East Asian trade, which is a frightening statistic given that growth in many of East Africa’s major trading partners – China, Europe, and North Africa – has slowed considerably. This means that intra-regional trade needs to help cover this growing gap.
A tangible way forward
EAC lawmakers should renew their effort on further integrating the customs union by building on some modest successes from the past year: increases in the monitoring and evaluation of agricultural supports, better coordination in regional railway infrastructure, and the reduction of a number of trade permits required, which has greatly contributed to the 14% reduction in the average time taken to import goods from one EAC country to another.
Moreover, there is even more work to be done in ensuring that EAC member states fully implement the “Four Freedoms” called for in the Common Market Protocol – free movement of goods, labor, services, and capital. Only small steps have been undertaken in relation to the latter three. With the exception of engineering qualifications, standards for professional services like law and accounting have not been harmonized between EAC countries, and the region continues to see high-profile deportations of laborers from time to time, such as Tanzania’s recent decision to expel several thousand foreign teachers – many (if not most) of whom were Kenyan.
Capital is also unable to move around freely as it would in a normally-functioning common market. In fact, the East African Legislative Assembly publishing a damning report last year indicating that only two of 20 capital operations – external borrowing and repatriating proceeds from the sale of assets – are free from restrictions in all EAC member states.
Yet, even here, regional policymakers should know that the foundation for progress has been laid in the last year: a number of key business manuals have been standardized and operationalized throughout the EAC, the driver education curriculum of Kenya was recently chosen to be the model for the other five member states, and agreements on not double taxing EAC nationals are close to being ratified by parliaments across the region.
Other tangible steps which officials from Tanzania, Kenya, Uganda, Rwanda, Burundi, and South Sudan should endeavor to accomplish include increasing the harmonization of domestic taxes (especially VAT and excise taxes), promoting regional industrialization and investment policies which take into account different countries’ comparative advantages and development levels, and simply increasing public awareness of the EAC, which is abysmally low outside of political and business circles (Tanzania President John Magufuli’s recent order that the EAC flag and anthem be given equal prominence to their Tanzanian equivalents is a step in the right direction).
If this sounds less like a manifesto and more like a laundry list of tasks, it is because it should. The EAC has too much economic potential and has come too far for business transaction and compliance costs to still be as high as they are across the region, and for smuggling – of duty-free goods, ironically – to still be rife. Infrastructure deficits admittedly play a part, and they need to be addressed by Dodoma, Nairobi, Kampala, Kigali, Bujumbura, and Juba.
Regional politics behind the economics
Yet the biggest stumbling block thus far has arguably been a lack of political will, and much of this is down to political capital being needlessly spent on impractical pipe dreams of political federation.
The ambition of EAC leaders for a political union should be commended, especially given that none of the other seven major regional economic communities on the continent have a goal this lofty. But this kind of ambition pales in importance with the gritty and often unglamorous trade, investment, customs, and logistics progress that can boost incomes and broaden export markets for millions.
What’s more, talk of political union can often serve to scare governments, who are elected, first and foremost, to represent largely parochial interests. Last year’s push by Kenya, Uganda, and Rwanda to fast-track the community’s Political Federation Protocol (at the implicit expense of working on more attainable matters, like a common currency) resulted in a falling out of sorts with Tanzania – complete with almost humorous passport confiscations of visiting delegations and denials of tourist vans. This was only repaired by last October’s change of government in Dodoma.
It is much easier to convince politicians to boost their economies than it is to share power. And, in most regards, the tools for boosting EAC economies through regional and international trade linkages are there for the taking. The East African Community needs to focus on delivering what it was initially founded for – developing and maintaining a customs union and common market – before it dreams of far more.