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Lessons the East African common market offers to Islamic countries

By MUHAMMAD K. MAYANJA

ARTICLE SUMMARY: The Fourth Organisation of Islamic Cooperation (OIC) Think Tank Forum held in Cairo on 26 – 27, March 2013, focused on the theme: Economic Integration within the OIC: Prospects and Challenges.  Muhammad K. Mayanja attended the meeting and made a presentation entitled: Common market in the OIC countries: the experience of the East African Community. Below is the full presentation.

 AUTHOR BIOGRAPHY: Muhammad K. Mayanja is the Chairman of Uganda’s Justice Forum (Jeema) Party and Director at the Institute of Governance, Education and Development.

Executive Summary

The lack of progress in promoting trade amongst member countries of the OIC over the last 40 years calls for a rethink of the approach so far which had been adopted and search for more effective means of realizing this goal.

The development paradigm of the South Asia Tigers which had been advocated by many of our policy makers, which emphasized liberalization and individual state export-led growth models, is gradually being overtaken by events. The last 25 years have seen the growth of regional blocs with economic as well as political imperatives as yet a complementary paradigm for driving the prosperity of countries.

All processes of economic integration include two aspects: the elimination of obstacles and the harmonization of policies. Uganda is a member of the OIC and also a member of the East African Community. The way the East African Community has been dealing with the obstacle and harmonization of policies among member countries provides a very rich experience from which those still in the initial stages of integration can learn and derive meaningful lessons.

The conclusion of this paper is that the formation of economic integration among Muslim countries is the way forward for promoting intra-trade amongst the OIC member countries. Basing on the experience of the East African Community, the OIC countries should swing into action in the direction of integration sooner than later. The vision of economic integration must be upheld in spite of the current Arab Spring and some superficial paradoxes and contradictions particularly at country level.

Statement of the Problem

In the age of globalization that we find ourselves in, the aspiration of member countries of the OIC to increase trade amongst themselves will face an uphill task if it is divorced from the strategy of economic integration. The breakthrough of the tigers in the last 40 years of the last century had given rise to a new development paradigm. Many of our policy makers sought to follow through the footsteps of the tigers, which emphasized individual state export led growth models of South East Asia tiger nations. The tigers made it through liberalization, albeit it was managed and directed by the states.

However, the last 25 years have seen the growth of regional blocs with economic as well as political imperatives as yet a complementary paradigm to liberalization in building the prosperity of countries.

The organization of Islamic Cooperation has been in existence for now almost 40 years, and right from its inception, the goals of promoting trade amongst member countries has been a priority. However, up to now, import and export from member countries remain in the region of 20 percent. The 57 member bloc of OIC countries located at the heart of the world and spreading to 3 continents, namely Africa, Asia and Europe, needs to redefine where it wants to go and how to reach there.

In spite of the political independence attained by Muslim countries, the Muslim world still finds itself politically weak and economically exploited. The countries are not taking full advantage of the opportunities that the global economy offers. Globally, we are seeing an unprecedented growth in the popularity of regional blocs as vehicles for delivering economic prosperity.  Are we just going to be onlookers in this process and later on we blame the world for conspiring against the Muslim world? 

The process of economic integration rotates around two aspects: the elimination of obstacles and the harmonization and coordination of existing instruments. Those aspiring to establish integration blocs would highly benefit from the experiences of other countries which are ahead in tackling the obstacles and harmonization of policies for the integration process.

The East African Community (EAC)

Kenya, Tanzania and Uganda have had a history of co-operation dating back to the early 20th Century. The Customs Union between Kenya and Uganda in 1917, which Tanganyika (now Tanzania) joined in 1927, was followed by the East African High Commission from 1948 to 1961, the East African Common Services Organization from 1961 to 1967, and then the 1967 to 1977 East African Community.

Since the signing of the treaty for the East African Community in 1999, the EAC has been growing vertically and horizontally. Horizontally it has expanded from three nations namely Uganda, Tanzania and Kenya to include Burundi and Rwanda on 6, July 2009. Potential candidates now for East African Community include South Sudan, Sudan, Ethiopia and Somalia.

Vertically, the Treaty on the Establishment of the East African Community envisages integration among the East African countries from a Customs Union to a Common Market, then a Monetary Union and ultimately a Political Federation (Article 5(2) of the Treaty).

The EAC has a total population of 135 million people with total GDP of 85 billion. The EAC has the following organs: The Summit, Council of Ministers, Co-ordination Committee, Sectoral Committees, East African Court of Justice, East African Legislative Assembly and the  Secretariat.

The East African Common Market Protocol took effect in 2010. This established the principals of the free movement of goods, persons, workers; the right of establishment; the right of residence; free movement of services and free movement of capital.

It also embodies all elements of a Customs Union in the antecedent step where participating countries had already agreed to get rid of all internal tariffs and other trade impediments and agreed to practice common and coordinated trade policy towards the rest of the world. There are, for example, annual pre-budget consultation among the ministers of finance in order to review and agree on common areas for incorporation in the national budgets.

The East African Community has played a key role in the free flow of trade on a regional level. The reduction of Non-tariff barriers such as One-Stop Boarder Post (OSBP) facilitates movement of persons and goods and allows border control officers from partner states to conduct joint inspection. This facilitates regional trade and ensures that the private sector thrives and creates jobs needed to make the region prosper.

The Common Market makes the EAC a more attractive investment destination, which brings in technology and opportunities for innovation. Since 2005, the partner states of the EAC have grown significantly faster than the rest of Sub-Saharan Africa. Three of the five countries in the EAC (Uganda, Tanzania and Rwanda) are among the top 20 fastest growing economies in the world. Contrary to the initial fears of revenue losses resulting from the implementation of the Customs Union, revenue yields in the three original Partner States have continuously increased.

Table 1and Table 2 present a picture of the trade by Uganda with its partners in the EAC and the rest of the world.

Table 1 shows that Ugandan exports to member countries of the EAC have been growing gradually, from 23 percent in 2007 to 26 percent in 2011.

Imports from EAC which decreased from 33 percent in 2007 to 27 percent in 2011 are three times as large as exports, indicating deficit trade balance.

Table1: Uganda Export by Region and Country of Destination (000 USD) 2007-2011

Table1: Uganda Export by Region and Country of Destination (000 USD) 2007-2011

 

2,007

2,008

2,009

2,010

2,011

COMESA

998,600

1,472,888

1,450,729

1,266,112

1,323,967

Kenya

204,204

272,510

276,730

284,369

296,039

Tanzania

69,085

87,899

94,695

90,927

71,057

Rwanda

122,413

192,141

170,226

182,227

228,568

Burundi

42,919

45,383

63,575

59,330

54,067

EAC

438,621

597,933

605,226

616,853

649,731

Europe

415,757

619,200

442,466

430,939

600,294

Middle East

190,847

139,064

96,384

131,221

159,780

Asia

71,937

99,918

104,773

106,388

184,535

Total

1,867,294

2,532,004

2,366,153

2,146,940

2,514,914

% of EAC

23

24

26

29

26

 

 

 

 

 

 

Table 2: Uganda Import by Region and Country of Origin (000 USD) 2007-2011

 

2,007

2,008

2,009

2,010

2,011

COMESA

614,673

668,684

657,915

671,249

798,203

Kenya

522,724

551,954

545,913

549,061

671,606

Tanzania

33,686

61,365

46,437

61,600

40,337

Rwanda

4,191

4,044

5,047

8,855

9,543

Burundi

0

0

0

0

0

EAC

1,175,274

1,286,047

1,255,312

1,290,765

1,519,689

Europe

717,642

877,988

752,757

727,490

713,445

Middle East

566,590

740,652

688,784

747,827

840,701

Asia

1,169,008

1,573,959

1,612,387

1,976,768

2,583,730

Total

3,552,630

4,603,973

4,339,623

4,730,833

5,684,783

% EAC

33

28

29

27

27

Source: UBOS 2012 Statistical Abstract

The challenges to integration include: dealing with the non-tariff barriers, political will to implement the protocol, unequal distribution of benefits and participation in multiple integration blocs.

To deal with non-tariff barriers (NTBS), the EAC set up a Monitoring Mechanism for Identification and Elimination of NTBs. The successful implementation of the Mechanism has been achieved through the establishment and operationalization of the National Monitoring Committees (NMCs) on NTBs in all Partner States.

The second challenge is lack of political will to implement the protocol. A report by the EAC Secretariat shows that the EAC partner states are still lagging behind in the process of implementing the protocols of the common market. The biggest challenge is the delay and low commitment to harmonizing national laws to fit the requirements of the protocols. Two years after signing the protocol in 2010, out of 71 NTBs only 36 have been removed. Entrenched national interests were frustrating the elimination of NTBs.

In terms of intra-trade, this is dominated by Kenya due to its geographic location and better developed infrastructure and investment. In 2011, Kenya trade surplus with the rest of the EAC was USD 258 million. Uganda had trade deficit of USD 48 million, Tanzania a Surplus of 14 million, Rwanda a deficit of USD 87 million and Burundi a Deficit of 20 million.

Mechanisms put in place to address imbalances include institutions such as the East African Development Bank. This was established in 1967 as a development finance institution to promote industrial development in East Africa as well as address industrial imbalances.

Another challenge is membership to alternative integration blocs. Besides the EAC, there is COMESA and SADC. COMESA is the Common Market for Eastern and Southern Africa. It is a free trade area with twenty member states stretching from Libya to Zimbabwe. Other members are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, Zimbabwe, Rwanda, Burundi the Comoros and Libya.

SADC stands for Southern African Development Community. This is an inter-governmental organization headquartered in Gaborone, Botswana. Its goal is to further socio-economic cooperation and integration as well as political and security cooperation among 15 southern African states. Membership to the EAC, COMESA and SADC have sometimes generated conflict of interest for some partners and sometimes it slows down the integration of the EAC.

Over the last five years, COMESA, EAC and SADC have cooperated in the coordination and harmonization of programmes through a Tripartite Task Force (TTF) made up of the three Chief Executives, supported by their officials of the secretariats of the three Regional Economic Communities. A Tripartite Summit of Heads of State and Government of the three Regional Economic Communities was held in Kampala, Uganda on 22, October 2008, and this provided guidance on how to advance cooperation and coordination of programmes under the tripartite arrangement.

Lessons and Recommendations

Economic integration is not something that can be achieved overnight. It takes time. The EAC started the journey in 1917 and has been at it for now almost a century.  While members signed a Common Market Protocol in 2010, they have yet to amend their national laws to effect the free flow of goods, services, labor and capital. The lesson for the OIC is that the earlier we embark on this long journey of the Common market the better. We cannot afford to lose more time.

Major obstacles to integration are many. They include unequal development and unequal benefit from the integration. The EAC is dominated by Kenya and it reaps more benefit from the EAC. This has always been a sticky issue. Owing to more developed infrastructure and a deepened financial sector, the cost of doing business is much lower in Kenya than the other EAC member countries.

At the same time an efficient manufacturing sector in Kenya means that Kenya has more to export to the other partner states than the rest of the other members. The partner states have tried various means of ensuring that other partner states equally benefit from the integration. They have put in place institutions to ensure that the benefits of integration are equitably distributed in all member countries.

Since the signing of the East African Customs Union, the competitiveness of the EAC as an investment destination has significantly improved, and a number of countries have grown faster.  Despite the issue of unequal development and unequal benefit, the entire region has performed better under the Customs Union.

Furthermore, three of the partner states (Uganda, Rwanda and Burundi) are land-locked states, and these would directly benefit from the implementation of the common market protocol to remove non-tariff barriers associated with boarders. The private sector in all the five partner states is pushing for immediate implementation of the protocol to facilitate business and investment.

While politics can pause real obstacles to integration, there are always ways of getting around it, and this is where public diplomacy across boarders comes in. Much as the partner states in the EAC are at different levels of transiting to democracy, this may not have significantly affected the integration process.

On the other hand, integration can also accelerate the democratization process. It is more difficult to relinquish powers to an external OIC superstructure than to share powers with internal people with opposite views. If the government can relinquish power to an external superstructure, it will eventually become more receptive to opposite local views.

For integration at regional level to be accelerated, there is need for consensus on the minimum democratic institutions and systems that must be put in place in each individual state. These may include things like the parliament and the executive and how they are elected; gender issues; the judiciary and its independence and the internal devolution to local authorities.

Integration is most likely to aid the process of democratization than to stifle it. Much as we oppose the ruling National Resistance Movement in Uganda today, we support the steps they are taking to build the East African Common Market and political federation.      

Multiple membership to regional blocs can slow down the pace of integration as members are faced with conflict of interest. Some blocs, in an attempt to deal with possible conflict of interest, include clauses in their protocols that limit participation in alternative organizations. It may be a blessing in disguise that Turkey is still denied membership to the European Union.

If Turkey had joined the EU, It is doubtful whether it would be actively involved in initiating integration amongst the OIC member countries. However, this also emphasizes the urgency of moving very fast in establishing the common market among the Muslim countries. Procrastination in forming the common market may see some backbone members in the OIC joining other Blocs and complicating their participation in the OIC Common Market.

Those who are ready should get started

It is not a must that all potential partners join the integration truck at the beginning. If you want to wait until everybody is ready to join, this is not attainable. Those who are ready should take the lead, but make it clear that they are open to expansion. The EAC started with three nations, namely, Kenya, Uganda and Tanzania.

The members have increased to five with two French speaking members, namely, Rwanda and Burundi. In the next five years, membership to the EAC may double as we have pointed out. So a block of Muslim Countries with common boarders can start and the other will join in due course.

In conclusion, globally, we are seeing an unprecedented growth in the popularity of regional blocs as vehicles for delivering economic prosperity. Let us not be onlookers in this process and later on blame the world for conspiring against the Muslims. Basing on the experience of the EAC, the OIC countries should swing into action in the direction of integration sooner than later. In the words of Ralph Marston, failure is not the worst thing that can happen; the worst thing that can happen is to do nothing. Each and every result, whether it’s the intended result or not, means that you’re making an effort. Learn each time, from the desirable results and the undesirable ones, and boost your confidence with each step.

 

Bibliography

Christabel Ligani 2013 The East African Newspaper March 2-8th 2013

EAC Secretariat 2013: Report on progress of implementation of the Common Market Protocol

East African Community 2010   Protocol on Establishment of the East African Common Market Arusha, Tanzania 

East African Community Secretariat (2012) East African Community Facts and Figures, Arusha, Tanzania 

East African Community (2010)   Secretariat Trade Report 2010, Arusha, Tanzania

Government of Uganda, Ministry of Finance and Planning 2011: Background to the Budget 2011/2012 Fiscal year

Ozev Hilmi Muharrem 2012 (Ed) Public Diplomacy in the OIC Countries TASAM Istanbul, Turkey

Rashid A. Naeem and Rabia Naz (2005), Pakistan Economic and Social Review Vol XLIII No 2 PP227-248

Uganda Bureau of Statistics (2012), Statistical Abstract, Kampala Uganda

 

Comments   

 
0 #1 Mr. P 2013-05-26 11:27
Quite elaborate. Thnx
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