The East African Community (EAC) entered into a Common Market starting 1st July 2010. This milestone was reached after 5 years of implementing a customs union. However the EAC Intergration Challenges are yet to be resolved. EAC has not implemented yet a fully fledged Customs Union(CU). Under fully fledged CU, goods manufactured in one partner State should move to another Partner State without suffering any import duties. Goods imported into the CU should, move freely from one Partner State to another.
However, this is not the case now despite the feeling that EAC is advancing faster. EAC Intergration Challenges need to prioritised if the region is to enjo a fully fredged Customs Union and a Common Market. The EAC Common Market has is operating without a common customs, each partner State is collecting import duties individually.The states have not even agreed on revenue collection and sharing mechanism. This brings me to the these intriging questions;
However, this is not the case now despite the feeling that EAC is advancing faster. EAC Intergration Challenges need to prioritised if the region is to enjo a fully fredged Customs Union and a Common Market. The EAC Common Market has is operating without a common customs, each partner State is collecting import duties individually.The states have not even agreed on revenue collection and sharing mechanism. This brings me to the these intriging questions;
1. Is the EAC implementing a Common Market or something else?
2. What could be the EAC integration challenges associated with this kind of a Customs Union now that the region has progressed to a common market?
EAC Priorities: Minimising trade diversion and maximising trade creation
The EAC Priorities should aim at minimising trade diversion and maximising trade creation through a Single Customs territory, Monetary Union and infrastructure development.
While addressing his maiden press conference at the EAC Secretariat headquarters on May 10th 2011 in Arusha, the new Secretary General of the EAC Amb. Dr. Richard Sezibera identified the realization of a single Customs territory, making the Common Market work, achieving a Monetary Union, infrastructure development and industrialization as the priorities for his term. These priorities appear appealing on the face value. They are any not farfetched; they actually reflect the ambition of the Community. However, Amb Richard Sezibera will have to solve the challenges ahead of him if he is to achieve the listed priorities.
As the community focuses on achieving the full Customs Union and a Monetary Union, Trade Creation should also be attained along. An attempt has to be made to ensure that high cost Partner States producers are replaced with lower cost producers. The Community has to aim at shifting resources from less efficient users to more efficient production and trade expanding utilizers. Overall Partners States must achieve welfare gains. This implies that the Community must be approached as a single production and trade zone and not just a block segmented with Partner States economic jurisdictions.
Partner States must reduce the Non-tariff barriers (NTBs) so as to improve on intra trade and ease movement of factors of production and enable efficient utilization of resources. This however creates a challenge given that Partner States are at different levels of development. They will always try to invoke the principals of a symmetry viriable geometry and subsidiarity in the interest of their concerns relating to employment, infant industries and food security among others. Where Partners states are not able to push for their interests at the Community level, they will always resort to NTBs in disguise of protecting their economies. The absence of an effective dispute mechanism on NTBs does not augur well for the EAC integration.
The EAC is yet to minimize the trade diversion which was created by the Common External Tariff which shifted trade from lower-cost nonmember suppliers to higher-cost Partner suppliers, especially where the tariffs were raised for products from nonmember States. Although this was done in the interest of protecting internal producers and enable them grow, their inefficiency could result in welfare loses. The Community therefore must come up with strategies to ensure that internal producers are enabled to efficiently increase outputs.
The EAC must not be a trade restricting economic bloc, it has to enhance welfare. The economic bloc needs to harness the complementarities and competitiveness of the individual economies. The supply side constraints should not be seen as a responsibility of individual Member States. The community should tackle this problem with a one territory perspective. The linkages between States have to be considered in trying to develop infrastructure aimed at improving trade and investment within the region. Instead of being dragged down on ways of how to collect and share revenues, the Community should mind get concerned more with how to link Partner States and how to reduce the cost of doing business within the Community.
The EAC must therefore consider the development of infrastructure such roads, railways and ports, energy among others with a regional perspective if the Community is to achieve an effective Customs territory and Common Market. The Community needs to come up with regional development projects upon which infrastructure will be developed. Infrastructure is meant to facilitate production or transaction of an economic product.
If the above dynamics are put into consideration, the community will surely attain the desired industrialization where the private sector is an engine of growth that Dr. Sezibera’s is targeting to achieve. Of course innovation and research are the underlying catalysts for having the private sector integrated within the economy of the Community.
EAC and World Bank Sign $16m Grant
On 14 February 2011, the East African Community and the World Bank signed a grant agreement worth USD 16 million to support a project that will transform the EAC integration challenges in relation to the financial services sector.
The Project to be implemented in two phases over a nine year period will support EAC efforts towards building a single financial services market for the region. The $16 million grant which will cater for the first phase of the project (EAC- FSDRP I) was approved by the World Bank Board on 31 January this year.
The project has six components on Financial Inclusion and Strengthening Market Participants, Harmonization of Financial Laws and Regulations, Mutual Recognition of Supervisory Agencies, Integration of Financial Market Infrastructure, Development of the Regional Bond Market and Capacity Building
Under Financial Inclusion and Strengthening Market Participants the project will leverage the establishment of a single market and the benefits of scale associated with regionalization to make a broader range of formal financial services/products available to a more diversified client profile, including those that are currently unserved.
The Harmonization of Financial Laws and Regulations component will support the move towards legal and regulatory harmonization in banking and accounting, securities markets, insurance, pensions, investment funds critical to achieve an effective functioning of a single market in financial services via EAC Acts.
Under the Mutual Recognition of Supervisory Agencies, the The EAC will support establishment of a system in which a financial institution or market intermediary licensed by the supervisory authority in one Partner State will be allowed to operate in all Partner States upon simple notification to the supervisory authority of the host State.
In regard to Integration of Financial Market Infrastructure, the project will support establishment of an efficient market infrastructure, compatible at the regional level
The project will under the Development of the Regional Bond Market support the development of the government bond market in each Partner States, to ensure bond issuers in individual EAC Partner States having access to a deeper pool of liquidity in a single market
The project under Capacity Building will strengthen capacity at both the regional and the national level to ensure that the integrated market functions effectively and that all economic agents in the regional area aware of and able to realize the benefits from the process of integration
The project aims to benefit all participants in financial markets in the Partner States, including national regulators, market participants and the EAC citizens.
The project is expected to have various outputs by the end of the implementation period. The harmonization of standards and rules in legal, regulatory and accounting frameworks will be implemented. This will permit to achieve an EAC capital markets regime that permits capital to flow and participants to operate freely across EAC borders and which becomes increasingly attractive to foreign as well as regional investors.
At the end of the development and regionalisation process of the financial sector, the Community shall enjoy among others the following benefits:
• Market intermediaries should be able to offer their services and deliver them in each of the EAC countries
• EAC investors should be able to invest in other EAC domestic markets through local intermediaries
• EAC issuers should be able to seek investors in any part of the EAC
• Transfer of funds and securities across EAC borders would be quick, easy, secure and cost effective
• A single East African Stock Exchange should be established
According to the EAC Deputy Secretary General in charge of Planning and Infrastructure, Mr. Alloys Mutabingwa, the harmonization of the financial services sector will play a key role in unlocking some of the benefits of the Common Market by removing barriers to the free movement of capital across the EAC region, as provided for by the Common Market Protocol. For more information refer to EAC
