What lies ahead for the EAC?

What lies ahead for the EAC?
14 Flares 14 Flares ×

While the EAC has made substantial progress, its future is threatened by multiple overlapping preferential trade agreements and plans for a larger continental economic community.

Among developing countries, the East African Community (EAC) is both the most ambitious and most advanced regional integration initiative. Comprised of Kenya, Tanzania, Uganda, Rwanda and Burundi, the EAC has implemented a customs union with a common external tariff (CET) and is currently in the very early stages of a common market.

Within the next decade, the EAC aims to have a monetary union with a common currency, the East African Shilling. However, several factors hamper the EAC’s ability to meet this highly ambitious plan—varying levels of economic development of member states, political barriers to harmonizing trade policies, and numerous overlapping preferential trade agreements. Moreover, with the Tripartite Free Trade Agreement (TFTA), will the EAC be irrelevant?

The EAC’s rapid progression

In 1999, Kenya, Uganda, and Tanzania resurrected the EAC after years of political rhetoric emphasizing regional cultural ties and integration as a means to economic development. The EAC adopted a Customs Union in 2005, with the goal of progressing to a common market, then monetary union, and ultimately a political federation.

The addition of Rwanda and Burundi to the Community in 2007 has delayed implementation of the Customs Union, however, as the Community has grown from three economies with varying levels of development to five even more disparate economies.

Untitled

Plans for the expansion of the EAC

While the Customs Union was officially adopted in 2005, there remain substantial exceptions to the CET, especially for the latecomers Rwanda and Burundi. Customs procedures have not been harmonized and modernized at border crossings, and administrative delays still present a substantial barrier to intra-regional trade.

Despite the incomplete implementation of the customs union, the EAC launched the common market in 2010 with the Common Market Protocol (CMP). Though implementation of the CMP is in the very early stages, the EAC is the only regional organization outside of the EU to advanced as far in conceptualizing a framework for cross-border movement of labor.

However, many have questioned whether the EAC is moving ahead too quickly and not taking enough care to fully implement each step along the way.

Challenges moving forward

While the EAC is the most advanced regional trade organization, it is far from the only one. Each of the five EAC countries is also a member another economic communities in Africa.

The advancement of the Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA) pose threats to the EAC’s ability to harmonize trade policies among its member states. Moreover, with the Tripartite Free Trade Agreement (TFTA) complicating matters further, the EAC is potentially at risk of being rendered irrelevant before it is able to achieve a monetary union.

COMESA and SADC have similar integration strategies to the EAC—beginning with a customs union, then progressing to a common market, monetary union, and some ultimate, although largely rhetorical, greater federation. COMESA has the largest Free Trade Area in Africa, and intra-COMESA trade is nearly five times the volume of intra-EAC trade.

However, both COMESA and the SADC are far behind the EAC. Neither has made much progress on implementing a customs union. As each customs union has its own set of complicated rules and exceptions, agreeing on a common tariff involves technical and often lengthy negotiations. The SADC has delayed implementation of its customs union several times now, as it struggled to reconcile the existing Southern African Customs Union (SACU), which is just for a subset of SADC, with the larger Community.

In order to move forward with an integrated common market, EAC member states will need to choose between competing trade bloc membership. It does not make logical sense to participate in multiple customs unions.

The current system makes transaction costs of regional trade high, as exporters face different tariffs and regulations in one neighboring market from another. Moreover, the confusing web of economic communities also hinders investments, as it is unclear whether tariffs will change in the future and which economic community will last.

This problem can potentially be mitigated if the EAC-COMESA-SADC customs unions were harmonized. Recently, an agreement among member states to form the Tripartite Free Trade Area (TFTA) may do just that.

In 2008, the 26 countries that comprise EAC-COMESA-SADC signed the TFTA agreement in Kampala, agreeing to eventually establish a free trade area and CET that would span the majority of Central and Eastern Africa from North to South. The second summit was held in Johannesburg in 2011, and a roadmap was launched to establish the FTA. Since 2011, however, not much has been done beyond the establishment of working groups and other bureaucratic processes.

If implemented, the TFTA will encompass 527 million people and a little over half of the total GDP in Africa. The African Union envisages an operational TFTA by 2016, which will serve as a building block for a more comprehensive Continental Free Trade Area (CFTA) by 2017. While these deadlines are outrageously ambitious, they do show eagerness among African countries to push ahead with regional integration.

Political will to implement the processes necessary for integration, however, remains questionable. So far, the EAC has been the only economic community to progress beyond an FTA. Nonetheless, as economic Pan-Africanism appears to be on the rise, the very existence of the EAC is threatened by growth of the TFTA. If the goal is a TFTA or CFTA, why not just join the largest existing regional community, COMESA, instead of continuing to push the EAC forward?

There are likely several reasons EAC leaders are still anxious to strengthen the EAC despite the growth of pan-African economic movements. For one, it is much easier to start small, with five countries that already have close economic ties.

A TFTA or CFTA is not very feasible in the short-term. Such a large agreement will take years of negotiation, and perhaps decades to fully harmonize external tariffs and implement a full customs union. EAC leaders seem to be choosing to move forward with their own community instead of waiting for a larger one to slowly come together.

About Author

Marina Tolchinsky

Marina Tolchinsky has previous experience with economic policy research in sub-Saharan Africa and monitoring and evaluation of development programs. She has lived and worked in Liberia, Ghana, and South Africa. Marina is currently pursuing a Masters degree at the Johns Hopkins School of Advanced International Studies (SAIS) concentrating in International Economics and African Studies.