REGIONAL INTEGRATION IN EAST AFRICA
NEED TO RE-EXAMINE THE INTEGRATION STARTEGY
(A paper presented at the First Summit of the Tanzania Professional Network, held at the Mlimani City, Dar Es Salaam, Tanzaniaon 04 December 2011).
It is a great pleasure for me to participate in this very First Professional Summit, especially at a time when Tanzania and some of the other African countries are celebrating 50 years of independence ( politically that is?). I have been requested to make a presentation on “Regional integration: Equitable distribution of resources and opportunities in Education, Trade, Media and Employment.” I changed the topic a bit because I do not believe a regional integration arrangement should ever have the power to manage regional resources, opportunities in education, trade, media and employment, however, successful such an arrangementis.
My responsibility today is to share with you some thoughts on regional integration and the integration model the East African Countries have adopted.I reckon, that I was requested to make a presentation on regional integration because of my 10.5 years’ experience as the Director for Legal and Institutional Affairs of the Preferential Trade Area whichlater became the Common Market forEastern and Southern Africa (COMESA) comprising 25 member countries in Eastern and Southern African region. The COMESA Treaty,which is substantially the same as the Treaty Establishing the East African Community, was largely drafted under my leadership with drafting experts from the member states over a period of over 2 years.
HISTORY OF REGIONAL INTERGRATION IN AFRICA
Regional economic integration has a relatively recent history in Africa goingback to the 1970s and 1980s. The arrangements, then, (the East African Community) were based on a muchlauded but failed strategy of import substitution industrialization. Tanzania is the only country that implemented the strategy, at the national level, more enthusiastically.The result was disastrous. The Tanzanian national economy became captive to poor quality but expensive goods produced locally from clothes to bread to soaps to building materials to the whole of our lives!! One has to have lived through it to understand the price we paid for import substitution. This was not helped by the fact that the state was also the main investor often with monopolies in most economic activities. There was no competition. The people had nowhere else to go for their daily requirements.
At the regional level industrialization was mechanically allocated amongst the member states and investments were by the states and the focus was for the industries to source materials locally.Import substitution, was a very inward- looking strategy that failed miserably at both levels.
Thefailure of the strategy was attributed to poor implementation, monopolies at national levels, overvalued currencies, small markets etc.Lolette, Kritzinger, Senior economist, World Bank Country office in S.A writing on regional integration, Concepts, Advantages, Disadvantages and Lessons of Experience, concluded that the inward-looking regional strategy failed for the same reasons as the underlying national import-substitution policies. The reason whythe import substitution industrialization strategy failed was purely economic. The strategy did not make any commercial sense.
Frankly speaking, the experience of regional integration arrangements in Europe, Latin America, Africa, and East Africa is not encouraging. The integration model of Europe which the arrangements in Africa and, in particular, East Africa have imitated is, essentially, undemocratic in structure and in practice and unnecessarily costly. Regional decisions have to take timeand, as such, the structure is unsuited to the electronic age where decisions have to be made instantly. The East African Community model is similar to that of the European Union without theEast African member states having the sameability to fund the project or the frequent meetings that must take place for regionaldecisions to be taken.
The African position is further complicated by un-excusable multiple memberships in similar regional arrangements within the same sub-regions. For instance, Tanzania is a member of SADC as well as East African Community. Kenya is a member of COMESA, East African Community as well as IGAD. Uganda is a member of COMESA and East African Community. The same applies to Burundi and Rwanda.This erodes any confidence the public might have that the governments are serious about regional integration.
THE EAST AFRICAN INTEGRATION MODEL
The implementation of the East African regional integration model, so far, is at the regional level particularly fast and deep from common market to monetary union and political federation without achievements to match the stages and without any measurable minimum thresholds of macro-economic targets or fiscal discipline or budgetary limits adopted to have to have been achieved.
At the internal member state level, the national markets integrated are far from being integrated. For instance, the Tanzanian market is not a nationally integratedmarket; it is divided into more than 300 small local government areas in which to operate in any one of them requires a separate license and business registration. At the Union level, the Zanzibar market is a separate market from the Tanzania Mainland market. The markets in the other East African markets arenot fully open. One needs to open up the national markets from within as well as physically link the member states by roads, rail, telecommunications etc. to open up the regional markets between the member states.In any case, open national markets and linked national markets to each other in the region would be a pre-requisite for the kind of regional integration provided in the Treaty.However, such physical links would be needed even if East Africa opted to practice regional integration pragmatically-forthe recommended regional cooperation and coordinationimplementation strategy instead of the strategy in place.
The East African regional integration arrangementhas the objective of creating a common market, customs union, a single market, single currency and political federationgradually.Implementa
If the Treaty was implemented gradually carrying the will of its people with it, East Africa would not move beyond the pragmatic stage of cooperation and coordination for decades or forever. Member states would simply have adopted harmonized macro- economic policies, building infrastructure to physically link the countries, adopt common environmental policies, agree on heavier investment in education and health and we would negotiate as a region in international trade negotiations. We would not have moved to integrate the economies, create monetary union, fiscal union, common currency or political union mechanically.
For some reason, however, there are politicians and other zealots who wish to accelerate the process to start with the end-namely a federation and a political union.It is the first regional integration arrangement in the world to be implemented in reverse. Those who are pushing for fast tracking the process are ahead of the democratic will of the people, if not in the whole of East Africa, then certainly in Tanzania. In excess of 75% of Tanzanians opposed fast tracking the process.
Already preparation are in process for passing east African regional laws to replace national laws in important key aspects of the economic, monetary and fiscal policies as well as social behavior, social life, employment, which will effectively transfer national sovereigntyto a regional government made up of unelected regional executiveswho thendecide when the time is right to move from one stage to the next higher stageoften without any reference back to the electorate. This is what is happened and is happening in Europe and it is what is happening in East Africa!
The East African regional integration model requires that member states trade more closely amongst themselves and invest more within the group but also become one- economically and politically! That is a tall order given that intra-member state trade is below 5% and even that cannot be attributed to regional integration. If you are heavily dependent on commodities or produce largely the same goods, or produce those goods too costly relatively there is little incentive to trade intra regionally, as the low tariffs offered regionally are offset by lower production cost in countries afar, such as in China, Vietnam, Cambodia etc. The world should bethemarket for East Africa and not merely the region. That is where our focus should be. The electronic age has helped make it easier to trade globally rather than locally or regionally.
The electronic age also requires countries to decide faster on economic, monetary and fiscal issues at an electronic speed which the regional integration model reflected in the establishing treaty does not provide.
LOST DECADES
East Africa has lost decades by not consistently implementing economic reforms that make it easier to do business for both domestic and foreign investments. Hard hit are foreign investments which are reflected in the low rate of direct investment flows of about 2%of the world’s foreign direct investment into Africa. Foreign direct investments are needed in higher rates if Africa, East Africa is to grow its economy beyond the average of 5% percent of GDP.
Africa generally and, in particular, East Africa haslow rates of domestic saving relative to GDP of between 10-15% of GDP (the same applies to Tanzania), which confirms the observation that the demand for investment in order to achieve the levels of growth rates high enough to reduce poverty is very high and that such demand cannot be met through domestic investment alone.
Economic reforms in Africa have yielded economic growth. LoletteKritzinger, Senior Economist, World Bank Country Office in S.A, in 2003, 16 African countries achieved an average economic growth rate of 3%, 16 countries growth of 3-5% and 18 countries more than 5%. Tanzania fell in the 18 countries category of more than5% growth rate. The position has not changed much since then.However, the above economic growth rates have not grown high enough to bring about substantial reduction to the widespread poverty existing in the region.
Most African governments, East African governments included, recoil back, and allow nationalism to dominate, make it difficult for foreign investments to grow to augment domestic investments when faced with the expected negative impact of reforms. This leads to less foreign investment flowing into their countries and erodes investor confidence. Less volumes of investment lead to less growth which leads to more poverty and into more reform policy reversal.I believe there is no way to reducing poverty than growing the economy and the economy cannot grow unless there is constant growth in private investment both domestic and foreign but especially foreign.
Investment in human capital development is equally key to any economic growth. Africa, and, in particular, East Africa, has consistently underinvested in its human capital development relative to the levels required. Underinvestment in human capital development has led to East Africa’s single most weaknesses- namely the lack of capacity to provide efficient public services, develop practical development strategy and manage the economy efficiently. The result is clear for all to see; Africa (the same applies to East Africa) has not been able to integrate into the world economy in a way in which it could have todrawfrom the benefits of globalization which would have increased its resources to productive investment.
WHY ASIA GOT IT RIGHT
The Asian region has succeeded economically despite the lack of deepened economic integration of their economies. They succeeded becausethey adopted pragmatic economic policies, invested heavily in human capital development and curved out a niche (export led economic strategy) in the world economy at a time when that was a viable strategy and are quick to correct imperfections of their reforms.
The Asian region did not spend years integrating their economies, monetary and fiscal policies or formed a political union within their region. They invested in integrating into the world economy in a manner in which they benefited out of it. They took a more cost effective approach to regional cooperation.
WHERE DOES THIS LEAVE US IN EAST AFRICA?
My advice is: There is no need to amend the Treaty Establishing the East African Community. Just implement the East African Community treatypragmatically and gradually but not fully. Start with integrating the market with things that can be implemented regionally practically; such as roads, railways, environment, macro- policies, and trade negotiations etc.Cooperate and coordinate things that are best implemented together. Untimely advice given that the East African leaders have already signed us all into a federation!!!
East Africa is not yet ready and should not be ready for a single currency, monetary union, fiscal union or a fast tracked federation.The necessary economic achievements and fiscal targets are absent. The East African Community isinto a fast tracked federation on EMPTYand without the East African population behind it.
CONCLUSION
The political leaders should be persuaded to slow down the integration process and relate the stages to realities on the ground. Most importantly no deeper integration should be committed by any member state, in particular Tanzania, thattransferspower to the Community on monetary and fiscal policywithout consulting the people ina referendum. If consulted, the people of East Africawill not accept what the Community is pushing us to do. This article is personal.
By
Dr. Eve HawaSinare
REXATTORNEYS
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