Tuesday, November 24, 2009



November 24 2009

WHICHEVER WAY YOU look at it, the protocol on the East African Community that was signed in Arusha last week is a major leap towards integrating the economies of the five member states.

Admittedly, we are still very far away from reaching the levels we were when the original East African Community collapsed in 1977. In those days, we had a common customs administration authority, a common harbours authority, a railway company and a jointly-owned post and telecommunications company.

We had The East African Development Bank, the only institution which survived the collapse of the Community.

The fact that we are not yet there notwithstanding, what happened in Arusha last week is something worth celebrating. The five leaders of the region have made a powerful statement that they want one strong economic bloc. The political will is, indeed, strong.

Following the signing of the protocol, the East African Community is now way ahead of all the 14 sub-regional economic groupings on the continent.
The Lusaka-based Common Market for Eastern Africa (Comesa) may be bigger in size and number of countries, but it is yet to move significantly in terms of liberalising trade within the grouping.

A few months ago, Comesa announced that it had progressed into a customs union. But in reality, this was a mere political statement. Even as the grouping was making the announcement, the truth of the matter is that several member states had not even signed the Free Trade Area Protocol.

As it is, very few countries have signed the Comesa Customs Union Protocol. Neither SADCC, nor Ecowas have come close to doing what happened in Arusha last week.

What explains the success ? In my view, the most important factor has been commitment to a step-by-step formula.

When you bring economies that are unequally-yoked into one economic grouping, you have to listen to, ,and appreciate the concerns of the smaller economies. Kenya, the stronger economy, was willing to make sacrifices and accept the concerns of Uganda and Tanzania.

When we signed the customs union protocol, Kenya agreed to open up its economy to Uganda and Tanzania by giving the two brothers States duty-free access to goods and services.

Tanzania was allowed to charge duties of up to 25 per cent under an arrangement where the duties would be reduced gradually and finally eliminated by December this year.

UGANDA WAS ALLOWED TO CHARGE duties on Kenyan products up to a maximum of 10 per cent and to gradually eliminate them in five years.

At the time the customs protocol was being signed, Tanzania and Uganda feared they would lose too much revenue if they accorded free access to Kenyan goods and services.

Five years later, those fears turned out to be misplaced. Studies have shown that Tanzania’s revenues from trade with Kenya have been increasing steadily even as the country reduced duty.

The same phenomenon has happened with regard to trade between Uganda and Kenya. The lesson is then the following: when you liberalise trade with a major partner and neighbour, volumes increase substantially, allowing you to earn what you missed in the tariffs you have eliminated from internal taxes.

As it is, East Africa will now be going into the year 2010 with zero tariffs. Had we approached the negotiations for a customs union as if it was a zero-sum game, we would not have achieved a full customs union.

Negotiating a common market protocol came with its own challenges. A customs union is the easy part because you are merely dealing with trade in goods and services. When it comes to a common market, you are dealing with movement of factors of production: land, labour and capital.

Two major factors complicated matters further. First, a top-down initiative by presidents Benjamin Mkapa, Mwai Kibaki and Yoweri Museveni to popularise a political federation only served to entrench the sovereignty impulse among the citizenry, and the political elite.

Secondly, there emerged from Tanzania an influential business elite allied to South African interests bent on influencing Dar es salaam to seek stronger links within the SADCC grouping.

Thirdly, the political turmoil in Kenya in 2008 and an increase in reported cases of robberies and other criminal activities in Kenya reduced the appeal of introducing free movement of persons, especially among the elite of Tanzania.

That the five governments have managed to surmount these challenges is a testament to the fact that the political will to create a strong economic bloc is growing stronger.