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EAC market widens: Will we compete favourably?

By Vision Reporter

Added 5th December 2006 03:00 AM

IT is the wish of every investor to capture a market of over 100 million people, especially if the market is organised under one economic bloc. The East African Community (EAC) market base stands to become a one-stop investment centre south of the Sahara.

IT is the wish of every investor to capture a market of over 100 million people, especially if the market is organised under one economic bloc. The East African Community (EAC) market base stands to become a one-stop investment centre south of the Sahara.

By Arthur Baguma

IT is the wish of every investor to capture a market of over 100 million people, especially if the market is organised under one economic bloc. The East African Community (EAC) market base stands to become a one-stop investment centre south of the Sahara.
The market has over 100 million people following the acceptance of Rwanda and Burundi to the East African Community.

The two countries with a combined population of about 14.6 million people will now fully enjoy the rights to free trade under the Customs Union Protocol.
Before the admission of Rwanda and Burundi, Uganda, Kenya and Tanzania had an integrated market of nearly 90 million people with a combined Gross Domestic Product of $25b.

But analysts have warned of several challenges ahead as a result of different historical backgrounds of member states created by former colonial masters. However, all stakeholders hold a general consensus that there is no disadvantage in integrating, but only challenges. But critics say ‘challenges’ is just a political word to cover up the disadvantages that some countries will face.

Officials at the EAC Secretariat say there are no dis-advantages in the integration. The community will have to contend with the challenges.

Rwanda and Burundi have a historical background different from Kenya, Tanzania and Uganda. The two are former colonies of Belgium, a French speaking country.

Also within the community, the member states belong to different economic blocs. Uganda and Kenya belong to COMESA, while Tanzania belongs to SADC
But senior economists say in integration, language differences are not a problem, but how a country positions itself economically in terms of markets. For example German is a major economy in the European Union (EU), yet it is not an English-speaking country.

“In regional economic blocs, communication is not a problem, but how you position yourself economically. Here, we are talking about competitiveness,” says Augustus Nuwagaba, a lecturer and consultant on poverty eradication.

Nuwagaba says the major problem that caused the collapse of the defunct EAC in 1977 was Kenya selling almost everything to Uganda, while Uganda was offering little in return. It was the same quarrel Amin had with Kenya in 1977, Kenya was selling everything to Uganda and little was coming from Uganda to Kenya.

Nuwagaba says people should not be surprised if this arises again, if Rwanda, Uganda and Burundi don’t find something serious to sell to the community in terms of products.

Others are already questioning the ideology of emphasising numbers vis-à-vis the purchasing power of the population.

Dr Abedi Bwanika former Presidential candidate says the ideology based on numbers with less regard to the purchasing power of these people is a wrong assumption.

“We should ask how much money Rwanda and Burundi are bringing to the community. The ideology used for the justification of a common market is based on a wrong justification. Our ideology should be based on utilisation of resources. Our heads-of-state are talking about investors, but investors won’t look at numbers, they will look at the purchasing power of the people,” says Bwanika.

However, Japheth Katto, the chief executive officer Capital Markets Authority, says the issue of large numbers with little purchasing power is irrelevant. He says the size of a country cannot be a disadvantage in integration.

“Countries don’t get disadvantaged from integrating regardless of the size and purchasing power. As long as everything is done in a transparent and well-thought manner. Each country has a comparative advantage. It’s about sitting down and letting each country provide what it does best in one basket. In integration we have advantages of a large market, advantages in sharing infrastructure and other common resources. We are even looking at having one Capital Markets Authority for all member countries,” Katto explains.

Katto says the example of Ireland, in the European Union attests to the fact that size doesn’t matter. Portugal and Ireland were small countries compared to other members. But joining EU helped them develop; today Ireland is doing very well,” Katto says.

The general feeling is that the market economies of member countries will benefit from the integration. The pioneer member states have tested the benefits and challenges of integration, especially the Customs Union Protocol implementation. The main thrust of the Customs Union is the realisation of a viable integrated market, which will stimulate production, investments, intra-regional and international trade. This will accelerate the socio-economic transformation of members.

Rwanda and Burundi import most goods and services from Kenya, Tanzania and Uganda. The operations of the Customs Union were launched on January 1, 2005 putting the integration process at a stage where it is expected to offer tangible benefits to East Africans.

Burundi, a country, which is trying to get back on its feet following years of civil strife, is joining with a limping economy.

With a population of about 6.3 million, Burundi joins the community at a time when it needs collective effort to recover from years of instability. Rwanda is joining after a decade of rapid economic recovery following the 1994 genocide.

Diplomats believe that regardless of Burundi’s level of development, it stands to benefit equally from the integration. Officials at the Burundi Embassy in Kampala, view it as a great boost in the reconstruction process of the country.

“Economically, it will help us recover quickly, we don’t have to be at the same level of development with other countries. Within the EAC, we shall have more investors and free movement of our business people,” says an official at the embassy.

Richard Kabonero Uganda’s ambassador to Burundi and Rwanda, cites regional security as one of the major benefits to come with the integration.

“Regional security will spar recovery in Burundi. Remember, even the peace process in Burundi was a regional initiative spear-headed by President Yoweri Museveni.

:Secondly, the free movement of people and the integration of economies will enhance the capacity of Burundi. It is a positive step for Burundi, despite their level of development compared to other partner states,” Kabonero adds.

In view of the global trend, where trade negotiations are increasingly being carried out under regional blocs, Rwanda and Burundi joining the EAC was viewed as a necessity. But should East Africans thump their chests over this development? If all the plans under the EAC’s blue print are implemented, the answer is yes.

Beatrice Kiraso Birungi, the deputy Secretary General in charge of fast tracking of a political federation, says ultimately, the integration is going to benefit the ordinary people.

That is why the integration is people-centred. Rwanda views its acceptance to the community as a positive move. James Musoni, Rwanda’s finance minister says Rwanda is committed to the advancement of the agenda of regional economic integration. “We are already involved in a lot of development initiatives in different areas with partner states in EAC. Following our admission, we will continue to advance and strengthen these initiatives,” Musoni said.

EAC heads-of-state at their Consultative Summit Meeting in Dar-es-Salaam in May 2005, directed the Council of Ministers to expedite the process of the admission of Rwanda and Burundi. Analysts viewed the rush as a move to expedite the integration process-aimed at removing bottlenecks that hinder free flow of goods and services within the region.

The past trend of trade between Uganda and Rwanda is an indicator of how regional integration will propel development in member countries. Trade between Uganda and Rwanda has shot up in the recent past. Between January and June, 2006, the trade was worth sh48b.

Musoni says this trade will continue to grow as barriers to trade (including non-tariff barriers) are removed. The continued efforts to improve infrastructure, transport and communication between the two countries has also continuously eased the movement of business people between the two sister countries.

If this spreads to all member countries, the level of development will move at a break-neck speed. The increase in volume of trade between the two countries is also a result of the initiatives undertaken aimed at creating a favourable environment for private sector development.

EAC plans to propel the East African countries to a stronger bargaining bloc economically and politically at regional and international fora. The countries will co-operate on matters of trade, collectively handle issues such as one passport for all East Africans, regional approach to fighting corruption, fast-tracking towards political federation and development of science, technology and human resource.

Admission of Rwanda and Burundi to the EAC was among the critical issues in the integration process.

EAC market widens: Will we compete favourably?

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