Kenyan president Mwai Kibaki outlines progress towards an East Africa Common Market from which the region can develop and flourish.Fifty years ago I set off from my hilly countryside home of Othaya, boarded a train in Nairobi, and headed to Kampala to establish my new scholarly home at Makerere University. Travelling through the central Kenya countryside by bus, hearing the train’s engine roar through the vast Rift Valley, then briefly anchoring on the shores of Lake Victoria, before finally arriving in Kampala, the sounds of East Africa began reverberating through my mind.
I must say that this exposure to East Africa during my early days converted me into an East African. The socialisation I got through interaction with people from Uganda and Tanzania inculcated in me the true spirit of East Africa. It was a spirit that was put to the test in my latter days, when I served in government in the 1960s and 1970s. As Kenya’s finance minister, I remained fully committed to regional integration, in the knowledge that we were better off enjoying the economies of large scale production. East Africa’s railways and harbours, airlines and a host of other shared services, contributed to the economic strengthening of the region. By then we were ahead in our thinking and achieved, nearly 20 years ago, what many regional blocs are only now achieving.
However, certain politicians in the region had their way and narrow interests led to the break-up of the East Africa region. The break-up was costly and led to our individual countries looking inwards in areas in which an outward-looking approach had led to efficient service delivery.
Re-establishing co-operation
In the last two years, we have seen a strong movement and desire to have a strong regional bloc following the re-establishment of East African co-operation. The treaty establishing the East African Community (EAC) was signed by the heads of state of Kenya, Uganda and Tanzania on 30 November 1999. The treaty provides for the establishment of a customs union, a common market, subsequently monetary union and ultimately a political federation.
Now, as president of Kenya, I once again have the opportunity to draw on my strengths to ensure that the dreams I had while travelling through the region as a student are fulfilled.
In the eight months that I have managed the affairs of my country my message has been a simple one. The East African Common Market is nearing fruition. With regional integration we shall overcome our detractors and make it easy for our people to cross borders to trade and socialise.
We have begun to take the message of East Africa co-operation out of high level summit meetings of heads of state, to the boardrooms of our private and public corporations, the streets of East African urban centres and homesteads in our rural communities. A visit to any of our border towns best illustrates the true East African spirit. This is what we want to translate East African co-operation into, so that it is not seen as high level political rhetoric but a movement that represents opportunity for our people.
On a cultural level, regional integration solidifies the unity of communities with personal ties and a common history, language and culture.
Lessons learned from the defunct East African Community, which collapsed in 1977, show that apart from political will from governments and political leaders, there is a need for strong participation from the private sector, civil society and the people of East Africa in general for integration to work.
Founding principles
The EAC is founded on fundamental principles of good governance, including adherence to the principles of democracy, the rule of law, accountability, transparency, social justice and equal opportunities, as well as the recognition, promotion and protection of human rights.
Under the Community Treaty, the customs union is the starting point of the integration process. The establishment of the customs union is at an advanced stage and it is expected that the necessary protocol will be signed later in the year.
The customs union provides for free movement of goods and a common external tariff. The customs union will be closely followed by the finalisation of instruments for the common market which include the freedom of labour and residence across the region. It is notable that the common market will be pursued from a working customs union which also incorporates important elements of advanced integration stages, including already working cross-border movement instruments like the East African passport, harmonised macroeconomic policies, convertible currencies and efficient capital markets with cross-listing of stocks.
I firmly believe that regional integration is not a choice but a necessary strategy for sustainable development. In these times of globalisation, integration into world markets is essential if countries don’t want to remain marginalised in international development. In view of the heavy costs involved, however, most small states will not individually support globalisation efforts. The best option for them is economic integration by way of regional grouping. Regional integration helps firms to adjust by increasing markets and competition without exposing them too quickly to international competition. The regional markets are a training ground for competitiveness on international markets.
Enlarging markets
In East Africa, a larger combined population of about 90 million people offers a more economically viable market for local products. Regional integration combines markets, making it possible to reduce monopoly power as firms from partner states create more intense competition.
Since the launch of the EAC, the integration of the three partner states has become a reality. The Community has concentrated most of its efforts in identifying and eliminating the physical and policy-related constraints which could slow the progress in establishing a single market and investment area. Much work has focused on formulating programmes for easing the movement of people, goods, services and capital; providing an adequate and reliable basic infrastructure; harmonising macro-economic and sectoral policies; achieving convertibility of the East African currencies; and maintaining peace and security within the region. The Customs Union Protocol, which is due to be signed soon, will enhance this process.
These efforts have had an impact, with businesses responding to the unfolding single market and investment area in an enthusiastic manner. Already there are indications that cross-border investment has picked up and firms are now basing their business plans on the East African market rather than the local markets, in an effort to enjoy economies of scale.
When the Customs Union is in operation – and thereafter East African Common Market – there will be free movement of goods and services. The protocol establishing the East African Customs Union provides for a zero-tariff on all trade within the region.
Creating the right environment
While working towards the free movement of goods and services, the partner states recognise that ad hoc interventions create distortions in the market and narrow the choices for traders in terms of margins. These interventions would normally send the wrong signals to traders, discouraging them from doing their business. This is not a desirable situation and the role of the three governments will remain that of facilitating, through the creation of an enabling environment, the operation of the private sector.
It is in this view that the EA Customs Union will be market-focused, with the private sector playing a leading role. The East African Business Council (EABC), which brings together private sector organisations in the region, is active in ensuring that this market-focussed integration is achieved. The partner states, meanwhile, are facilitating the EABC, and the private sector in general, to play this role effectively.
The Common Market, especially through the institutions of the EAC, will guarantee business operations across the borders of the partner states without intervention from the governments of the partner states. In fact, today cross-border listing in the regional stock markets is picking up and several companies have had their shares listed across the borders. The necessary legislation and the harmonisation of the tax regimes are being finalised to facilitate this cross-listing.
Customs Union has offered both opportunities and challenges to Kenya. The free movement of goods and services means that each partner state will have to concentrate on those areas in which it has comparative advantage.
Finally, trade performance in the last decade shows that a successful Customs Union will offer a wider market for the participating states. Since the signing of the EAC Treaty, trade among the three partner states has been rising. Today, Uganda is the largest single market for Kenyan products while Tanzania is the third largest. Kenya’s exports to the EAC region as a proportion of total exports rose from 8% in 1990 to 26% in 2002. Kenya, meanwhile, is the second and sixth largest market for Ugandan and Tanzanian products respectively. This clearly shows that the East Africa Community is not just a myth but a reality.
