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Regional Integration in East Africa

Regional integration in East Africa

- To the United States of Africa -

Tatenda Zingoni

Masters in Development Finance

University of Stellenbosch

Table of Contents 2 PAGE

Definition of Terms 3

List of Tables and Figures 4

Regional Integration

1.1 Overview of regional integration 5

1.2 Regional blocs Africa 6

Overview of the first attempt by the East African Community regional integration 10

Economic landscape of the countries of the African Community Oriental

3.1 Structure of the economies 13

Establishment of new East African Community (EAC 2)

4.1 of the Customs Union 17

Common Market Protocol 4.2 18

Conclusion 19

Bibliography 21

Definition of Terms

Preferential trade area (PTA) arrangements in which members apply lower tariffs to imports produced by other members than to imports produced by nonmembers. Members can set tariffs on imports from countries not members

Free free trade area - a preferential trade area with no tariffs on imports from other members. As in preferential trade areas, Members can set tariffs on imports from countries not members

Customs Union - a free trade area in which members impose common tariffs on nonmembers. Members may also cede sovereignty to a single customs administration.

Common Market, a customs union that allows free movement of production factors

(Ie, capital and labor) through national borders in the area of integration.

Economic Union - a common market with unified policies monetary and fiscal policies, including a common currency.

Political union, the last stage of integration, in which members become a nation. National governments cede sovereignty over economic and social policies to a supranational authority, the establishment of common institutions and judicial and legislative processes, including a common parliament.

1. Regional Integration

1.1 Overview of regional integration

Regional integration is the process by which countries within a geographical area decide to join forces in particular with respect to their markets and economies. In Africa, the current structure of regional integration follows the pattern of market integration linear. The model has sequential phases of the integration of goods, labor and capital markets and monetary and fiscal integration, finally (McCarthy, 2007).

In the linear integration model, the countries of the region begin by establishing a free trade area, and a common external tariff import form a customs union and subsequently, the establishment of a common market.

Africa has lagged in the field global development. With a population approaching one billion, and a number of countries with different economic structures, the continent has lagged behind on the agenda development. One of the most cited reasons for the lack of significant progress in African countries is the small size of the economies that make them unable to compete global market. Regional integration is seen as a response to the "small market size" of each country.

As McCarthy (1999), "... the economic unit is the solution to Africa's development problems and political unification is required to do the job economic integration. "The author goes on to acknowledge that political considerations are the ones who actually give a boost to many integration agreements (McCarthy, 1999: 15-6).

In an attempt to catch up in development through industrialization, the Organization of African Unity (OAU), together with the Economic Commission for Africa (ECA) came up with the Lagos Plan of Action (LPA) in 1980. APL is focused on developing a strategy regional development in Africa, with stairs leading to an African Common Market (OAU, 1981).

The Economic Commission of United Nations Africa (ECA) led the primary building blocks from which the subsequent integration of the continent was to be based on. Economic Community of States West Africa (ECOWAS) was established in 1975 and therefore predates the LPA. Before the Common Market for Eastern and Southern Africa (COMESA), a Trade Zone Preferential (PTA), which covers eastern and southern Africa were instituted. Central Africa was represented by the Economic Community of Central African States (ECCAS) to Central Africa. The Arab Maghreb Union (UMA) was established in 1989, which then led to a complete coverage of all the different regions of the continent (ECA, 2004).

In an attempt to avoid dependence on apartheid South Africa, the Southern African Development Coordination Conference (SADCC) was established in 1980. During the period when South Africa was still under the apartheid regime was not included in regional groupings. The block was later SADCC became the African Development Community (SADC) in 1992, with South Africa joining in 1994 after the end of apartheid (ECA, 2004).

In 1991 the adoption of the Abuja Treaty, acted as a contributing factor to stimulate the development agenda in Africa, following the LPA. The primary principles of the Treaty were, "Solidarity and collective self-reliance, the premise of a self-sustainable and endogenous development and a policy of self-sufficiency in basic needs "(African Development Bank, 2000: 11).

1.2 Africa 's regional blocs

Despite the initiation of an initial framework for the OAU, which was followed by African countries, the proliferation of regional blocs occurred which led to a number of countries belonging to more than one block. The following table shows the current existing regional blocs and also indicates the overlap complex are in stock. One problem these coincidences caused confusion about issues such as harmonization of trade policies, tariffs, etc.

Table 1: Africa 's regional economic communities

Community

Member

Specified Objective

Current Status

Arab Maghreb Union (UMA)

Algeria, Libya, Mauritania, Morocco, Tunisia

Complete Economic Union

Free trade area was not achieved, but the agreements in place for investments, payments and land transport

Economic and Monetary Community of Central Africa (CEMAC)

Cameroon, Central African Republic (CAR), Chad, Democratic Republic of Congo (Congo) Gabon, Equatorial Guinea

Complete Economic Union

Monetary and customs union achieved, competition laws and harmonized business

Common Market for Eastern and Southern Africa (COMESA)

Angola, Burundi, Comoros, Democratic Republic of Congo (DRC), Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe

Common Market

The common market is in operation, but due to members who belong to other regional economic communities there are challenges in coordinating

Community of Sahel-Saharan States (CEN-SAD)

Benin, Burkina Faso, Central African Republic, Chad, Djibouti, Egypt, Eritrea, Gambia, Libya, Mali, Morocco, Niger, Nigeria, Senegal, Somalia, Sudan, Togo, Tunisia

Free Trade Area and the integration in some sectors

In July 2010, leaders agreed to raise with the new framework on the structure, objectives and programs of agencies of the Community.

East African Community (EAC)

Kenya, Tanzania, Uganda, Rwanda, Burundi

Full economic union

Common Market Protocol began in July 2010

Economic Community of Central African States (ECCAS)

Angola, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Congo, Eq Guinea, Gabon, Sao Tome and Principe Rwanda

Full economic union

Not much progress has been experienced throughout the trade liberalization agenda in the region

Economic Community of Great Lakes Countries (CEPGL)

Burundi, Congo, Rwanda

Full economic union

Current Arrears have members of the bloc activities in stalemate

Economic Community of West African States (ECOWAS)

Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo

Full economic union

Preferential agreements trade (PTA), signed

Indian Ocean Commission (IOC)

Comoros, Madagascar, Mauritius, Reunion, Seychelles

Sustainable development through cooperation in diplomacy, trade and environment

Vibrant trade program

Intergovernmental Authority on Development (IGAD)

Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan, Uganda

Full economic integration

Progress has been made on the fronts, such as peace keeping troubled given the situation in the region

Mano River Union (MRU)

Guinea, Liberia, Sierra Leone

Multi-sectoral integration

Southern African Customs Union (SACU)

Botswana, Lesotho, Namibia, South Africa, Swaziland

The customs union

Customs Union in place along with Rand Economic and Monetary Union (excluding Botswana)

Southern African Development Community (SADC)

Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe

Full economic union

As shown in the table above, the main objective of the Most regional economic communities is to establish a full economic union. The East African Union is the only regional grouping that has made significant progress toward the goal of full economic union. A number of factors act as obstacles to the same progress in other blocks.

The Southern African Customs Union (SACU) is currently in the process of customs union within the linear integration model. Although the countries of the SACU members of SADC, it is prudent to build on the foundations of the integration of SACU in southern Africa. Namibia, Swaziland and Lesotho are currently operating in the Rand Monetary Area (RMA). Zimbabwe is currently operating under a multi-currency regime in which the U.S. $, SA rands, Botswana pula and the British pound was used in transactions. This was caused by the economic downturn and a hyperinflationary environment that decimated the value of local currency.

Existing commercial links between SA and Zimbabwe provide a possible motive for the inclusion of Zimbabwe in the RMA. This measure will fund measures to be made in the integration of African countries South.

Wide overlap of the regional groups comes as an obstacle to the integration agenda. Policy coordination between the countries is hampered due to differences in objectives of the groups. Although Member States may have come in groups in particular because of the perception benefits of doing so, which belongs to several groups has actually remained an obstacle for a number of countries.

The BURKT countries (Burundi, Uganda, Rwanda, Kenya and Tanzania), which form the East African Community belong to at least one of the regional groups. Kenya and Uganda, both belong to three, while Tanzania, Burundi and Rwanda are two. This is a complex (if not impossible) for the process of countries to try to balance between the requirements of different blocks belonging.

Potential trouble spots include: implementation of the agreement rules of origin, have a common position on the tariff levels applied, the alignment with the World Trade Organization (WTO) and Economic Partnership Agreement (EPA). Members of the regional economic communities will have to decide between membership competition / alliance (Braude, 2008).

2. Summary of the first attempt EAC regional integration

The East African Community project did not start with current being taken as BURKT countries are moving towards full economic integration. In the 1960 Kenya, Uganda and Tanzania (Kut) was established to create the first East African Community (EAC 1). Most focus on the history of EAC 1 is often focused on the 1960, but the foundation of the community can really be regarded as having been established in 1922.

The Kut countries had previously been all British territories, which have made a number of things in common that were seen as fertile ground for the formation of an integrated market. Similar political institutions, schools, judicial systems and administration public provides an institutional framework that allows the community to be founded. KUT was common services used to operate jointly. Until 1966, the three countries they use the same currency, the shilling (Mvungi, 2002).

Although there were a number of similarities between countries, some marked differences could also be noted that later contributed to the abortion of the integration project. Kenya to attract private capital flows in relation to others countries in the region, leading to increasingly industrialized (Mvungi, 2002). Different political ideologies that were bred by the founding fathers countries differed. For example, while the capitalist line drove in Kenya, Tanzania was a socialist under the system of Julius Nyerere, Ujamaa (Nyerere, 1967).

In accordance with socialist ideology, the investment in controlled Tanzania's economy, which saw the nationalization major industries. On the other hand, the capitalist system promoted Kenyan foreign / Western countries participating in the process of economic development. Due to the general inefficiency facing the government when they are involved in most economic transactions, economic growth in Tanzania had stopped. As observed in socialist countries like Russia in the United States, Soviet Republic (USSR) was centralized control of "the bonds of the invisible hand" economic activities of market forces leading to allocative and productive inefficiency.

Prior to independence in East Africa the region and was operating as a common market without the formalization of the structure. Presence of a colonial administration saw post and telecommunications, railways, ports, airways, customs and excise departments, training institutions and higher education research be coordinated across by an authority (Mwase, 1982).

Unraveling of Education and Culture 1 was taken on a number of factors that existed before the formation Union, along with other events that dragged on until later. The dominance of Kenya in the East African common market and industry resulted in imbalances trade between the three countries. Manufacturing sector was developed in conjunction with a well developed infrastructure makes Kenya attracting more investments.

Kenya's geographical location has also worked in his favor, and it was well situated to serve the entire East Africa. Despite the talk of "community" each country tends to focus on protecting their own national interests. Tanzania's socialist ideology was turning to the countries of Eastern Europe. Taking into mind the gap between capitalist and socialist schools of thought, the policy decisions in different countries are inherently opposed.

1971 coup of Idi Amin contributed a powerful blow to the EAC. The government of Tanzania does not recognize the government of Amin, while Kenya did. The paralysis of the was prompted by the impasse and could not make decisions concerning the community (Mvungi, 2002). In addition to monetary policy, exchange control foreign exchange restrictions were conflicts between some of the other issues that derailed the train of CHD (Mwase, 1979).

An agreement in 1964 (according to Kampala) which focused on the new industrial policy for the allocation of industries deficit countries did not take off as expected. This was due to lack of ratification of the agreement in Kenya. Tanzania unilaterally, "he proposed to establish industries in competition with those already in Kenya and against to impose quotas of Kenya manufactures "(Mahinga, 1976).

Tanzania and Kenya have already been addressed and the lack of ratification by Kenya became the proverbial "straw that broke the camel's back" due to the unequal distribution of benefits among the three partners (O'Connor 1988). The breakdown of trust between Member States led to the demise of the EAC 1.

3. The If the EAC 2: Economic Outlook of the Member States

3.1 Structure of the economies

Countries East Africa have a number of similarities with the way economies are structured. As with most African countries there is a predominance primary sector of agriculture and mining are the main part. The chief export of Burundi, Uganda and Rwanda, is coffee, horticultural products Kenya and Tanzania is snuff.

The growth rates of GDP for the EAC countries have historically been fairly high, fluctuating within the 3-7% band. Because resources from the economic structures of these countries, fluctuations in world commodity prices impact on GDP countries. The advent of globalization has led to an increase of interconnections between the economies of the region with the global village.

The stroke suffered in 2008/2009 in different countries was the result of the environment in the global economic recession which led to the fall in demand for materials commodities in world markets. Given the EAC countries are heavily dependent on the export market, the slowdown in global markets had a major hit in the performance of economies.

Socio-economic

Socio-economic indicators for countries BURKT, 2008

Country

Literacy

Population

Urban population

Hope life

Burundi

65.9%

8.0 m

10.4%

Uganda

74.6%

31.7 m

13.0%

Rwanda

70.3%

9.7 m

18.3%

Kenya

86.5%

38.5 m

21.6%

Tanzania

72.6%

42.5 m

25.5%

Source: World Bank

Tanzania has the largest population of the member states of the EAC. Burundi and Rwanda have a very low population in relation to the other partners. The urban population of East African Community is low and the majority of people residing in areas rural areas. Literacy levels are relatively high in all countries of the EAC. Kenya is in pole position when it comes to literacy. Despite the recent unrest in Rwanda and Burundi, life expectancy in these countries is relatively high in line with other EAC countries.

Investment Foreign Direct

Foreign direct investment in the EAC have been largely goes in Tanzania and Uganda. In Tanzania, the mining industry (with special emphasis in the mining of gold) represented the largest batch of entries along with tourism. Uganda's recent debut in the oil sector has largely explain the increase FDI in the country.

FDI inflows to Rwanda and Burundi have been generally muted due to poor investor confidence. Burundi in 2008 drew only 3.8 million U.S. dollars of FDI, while Rwanda attracted $ 103.4 million. Despite Rwanda Burundi figure above, the level of foreign investment direct is far from the other EAC countries.

FDI inflows in Kenya have been silenced for too at some point. Factors explaining the low inflow of FDI include market maturity (ie, in general there is less potential for growth), local companies expanding in the region rather than national level, relations with donor countries and perceptions of high levels of corruption (Koigi, 2006). The big jump in foreign direct investment between 2006 and 2007 in Kenya, reflecting the influx of French Telecom $ 390 million acquisition of a 51% in Kenya Telecom (Durchslag, 2008).

The economic downturn that gripped the global economy contributed to a decline in FDI in the EAC during the period 2009/2010. Instability that gripped Kenya after the presidential elections in 2008 contributed to a negative impact on investor sentiment related to the country as an investment destination.

A review of developments in the sector is divided by the GDP of the member of the EAC shows a relatively stable distribution. Rwanda, Uganda and Burundi have agriculture as the dominant sector. Kenyan industry services is dominated by tourism and financial sector. Although agriculture is the second dominant sector in the Kenyan economy, as other countries of the EAC, which employs most of the country's workforce.

Industrialization of the EAC level is generally low. Although Kenya is the most industrialized country in the region, industrial sector contributes less than 20% of the GDP of the nation.

4. Establishment of the new East African Community (EAC 2)

The first experience of the East African Community allowed the architects of Education and Culture 2 for a benchmark to work on the development of the new structure. As a result of CHD, measures were taken background from the original principles of the first East African Community. Described below is the process of formulating the EAC 2 that emerged from the wealth of experience of previous attempts at integration.

EAC 2 steps establishment

Year

Description

1999

EAC treaty signed between Kenya, Uganda and Tanzania

2005

Customs union established in November

2007

Rwanda and Burundi join the Union

2009

Common Market Protocol signed in November

2010

Common Market commenced operations on July 1

2012

Target for Monetary Union

4.1 Customs Union

In 1999, the East African Community treaty was signed between Kenya, Uganda and Tanzania. The treaty outlines the process to be followed in the establishment of the customs union. The integration processes in Africa has been observed that the linear model in which the steps move from a customs union, common market, the union currency and eventually a political union. The market model of linear integration goes through successive stages of integration of goods, labor and markets capital, and monetary and fiscal integration finally (McCarthy, 2007).

The establishment of the customs union was Kenya, Uganda and Tanzania establish a common external tariff (CET) regime. The rationalization of the CET treatment allowed regions to other economies. Parallel to individual members blocks that raises a concern for the customs union, due to rules of origin issues. In order to ensure the proper functioning of the union, there is no need to harmonize the regional economic communities. Overlaps cause inefficiencies in the implementation and coordination of policies due to duplication of efforts.

Although Rwanda and Burundi are still relatively unstable politically, and joining the EAC is expected to allow stabilization of their small economies. Access to the resources of more established member states are set to help countries jump in the development process.

4.3 Protocol Common Market

The Common Market is a step in the process of integration into a customs union allows free movement of production factors (Ie, capital and labor) across national borders in the area of integration. The main objective of the EAC protocol was "broadening and deepening cooperation among the partner states in the economic and social benefit of the associated states "(Common Market Protocol, 2009). Kenya, Uganda, Tanzania, Burundi and Rwanda, officially entered the market policy July 1, 2010.

As indicated in the stated objective of the protocol, search for a common market transcended both social and economic areas. To facilitate the free movement of investments, etc. labor, capital, there is a series of processes that the region has to establish. Issues such as the "removal of restrictions on the movement of labor, harmonization of policies employment, programs, legislation, social services, social security benefits and establishing common standards and measures for the association of workers and employers, the establishment of employment promotion centers and the eventual adoption of a common employment policy "must be addressed if the common market to function correctly.

With the common market being launched, a number of controversial issues are still unresolved. Three key issues they are seeing now Tanzania faced against the other EAC member States are with respect to land ownership, permanent residency and documentation trip. The other countries that accept foreign nationals to own land in their countries and people that are considered permanent residents once they have been in the country for 5 years. Regarding the issue of travel documents, Tanzania insists people should use passports while the other countries are content with the use of identity documents.

Conclusion

Despite a number of challenges facing in the EAC countries are to be applauded for achieving the common market step on the scale of integration. Rationalization of policies related to labor, capital flows, role of trade unions, among other factors should ensure the smoothness of the transition of the common market of the monetary union.

The plan for the establishment of monetary union by 2012 could be a bit too ambitious by the Directors of Education and Culture. Instead of being difficult set in the desire to meet this deadline, it is better for Member States to consolidate its achievements so far. The areas that still need to have been strengthened time to focus on ensuring that when the time comes for deployment of EU monetary policy, there will be a breakdown of the achievements already made.

According to the EAC Monetary Affairs Committee (MAC) there are still a number of challenges facing the region's central banks, which could act as an obstacle for a controversial 2012 launch of monetary union. Extends high interest rates, budget deficits, high domestic debt and relatively high levels delinquency are some of the major challenges currently facing. (Kisambira, 2008)

Lessons from the integration process East African Community is expected to contribute substantially to regional economic communities in Africa.

The EAC is expected to signal the likely direction the aspirations of the continent to the United States of Africa. Although some political leaders may provide for the establishment of a federation earlier than Later, prudence requires the strengthening of regional groups before embarking on a continent-wide merger of the countries.

Bibliography

Braude, W. 2008: "Regional integration in Africa: Lessons from the East African Community Oriental "South African Institute of International Affairs, SAIIA: August 2008

Common Market Protocol of 2009, "Protocol on establishing the East African Common Market "

Durchslag, A. 2008: "The global game of numbers" Acquisitions Monthly

[Accessed: August 9, 2010]

ECA. 2004, "Assessing Regional Integration in Africa ", the Economic Commission for Africa

Kisambira, E. 2008: "Challenges of Education and Culture Monetary Union, "East African Business Week

Koigi, J. 2006: "Africa: Kenya is losing ground to Tanzania and Uganda, foreign direct investment "

Source: [Online: August 9, 2010]

Mvungi, EA. 2002; The draft treaty establishing the East African Community: A critical review of Dar es Salaam University Press Ltd

Mahinga, AP. 1976 "National Development Strategies and Regional Integration: Tanzania and Kenya in the East African Community" Taamuli, A Forum of Political Science vol. December 6, 1976

McCarthy, C. 2007, "Rethinking the African regional integration Saharan "

Mwase, N. 1979, "Regional economic integration and the unequal distribution of benefits: the background of the disintegration and the collapse of East African Community "African Development Volume 4 Number 2 and 3, 1979

Nyerere, J. 1967: "The Arusha Declaration, "presented to the Tanganyika African National Union (TANU)

OAU. 1981, "Lagos Plan of Action for African Economic Development, 1980-2000 "International Institute for Labour Studies, Geneva

O'Connor, AM. 1988, "A general East African Economic Union Some geography" The Journal of Modern African Studies, Volume 6 Number 4 (1968), pp 485-493

About the Author

I am an aspiring development economist currently working on a Masters in Development Finance at the University of Stellenbosch Business School. I have a Bachelor of Commerce (Honours) degree in Financial Analysis and Portfolio Management, plus a Bachelor of Commerce in Economics and Finance- both from the University of Cape Town.

I am currently working as a Research Analyst at Frost & Sullivan in Cape Town, South Africa. My research focus is the sub-Saharan African chemicals market, looking at growth opportunities, emerging trends and macroeconomic analysis of the region.

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