THE EAST AFRICAN COMMON MARKET IS HERE: CAN WE HANDLE IT?

NEW VISION
Friday, 27th November, 2009

By Paul Busharizi

It might not be practical to set up an Odi (ground nut and sim sim paste) factory in western Uganda, just as it might not be a good idea to have an eshabwe (whipped cream) factory in northern Uganda.

The climate, soils and generations of planting simsim and groundnuts have given northern Uganda a headstart in husbanding groundnut and sim sim fields and the processing of odi, with the distinctive taste we have come to love and expect.

An attempt to start an odi industry in western Uganda would come against the problems of scale and technology that would ensure the industry would be dead on arrival.

For similar reasons, it might be hard to justify building an eshabwe factory in west Nile.

That is why we trade. So, westerners with a taste for odi can buy it from the north and northerners with a taste for eshabwe can buy it from the west.

Trade means that we need not produce all we consume, neither does anyone else. This allows for specialisation and the development of competitive advantage.

The ease with which trade is carried out therefore determines the quality of life of the citizens of a region. War, artificial borders, roadblocks and poor transport infrastructure hamper trade and therefore compromise the quality of life.

Following from this simple example, the East African common market, therefore, should be celebrated.

Last week the leaders of the East African Community (EAC) signed into effect a common market protocol which will see goods, services and labour flow through the region unhampered.

The region is regularising the customs union, which allows for a common external tariff for goods coming into the EAC, which was a necessary precursor to the common market.

The main sticking points in bringing this situation to fruition were the fear that Kenya’s more developed industrial and commercial base would swamp the region with its products styming industrialisation in the rest of the region.

In addition the free movement of labour was met with a jaundiced eye particularly by Tanzania, which felt its human resource would be out competed at home and regionally.

As seen above, classical economics preaches that the benefits of free trade will far outweigh the challenges.

Returning to the Odi-eshabwe analogy with freer markets the respective producers will have a larger market to pitch to, leading to increased production and a corresponding increase in jobs both at the production centres and down the line in sales and marketing.

Carrying this to its logical conclusion, we can expect that there will be a lot of industries that fall by the wayside across the region because they cannot compete.

There will be loss of jobs, the extent of which is not known yet, but the political fallout from such stress may shake political resolve in the five capitals. For the long term viability of the common market, there is need therefore for a sort of compensation fund that will go towards mitigating such consequences.

The fund to which member states would contribute would target such things as retooling of factories and retraining affected labour.

But on the plus side we can expect that competitive advantages will be sharpened.

Ten years ago a study of what competitive advantages can be developed by Uganda vis-à-vis its neighbours highlighted education, health and financial services, ICT, agro processing, power generation, tourism and more recently petroleum products.

If ever there was a time to focus our efforts, that time is now. For example, it makes little economic sense for East African Breweries to have five plants brewing Tusker in the region and therefore will choose to brew all its Tusker in Kenya.

It would be in government’s interest therefore to promote research into beers brewed using locally-sourced inputs barley from Kapchorwa or sorghum from Teso, for instance, in order to retain industrial capacity and jobs in Uganda.

Similarly, we can retool our syllabus to prepare the region’s workforce to compete internationally or raise our health service standards to the point where we are a regional hub of health care.

Let us have no illusions, the bringing down of barriers in the region will have its losers. Government will be best served not to treat the losers as statistics.

pbusharizi@newvision.co.ug