Several recent trade wars between Kenya, Tanzania and Uganda emphasize some of the key challenges faced by the East African Community for a successful economic integration.
The drive for political and economic integration within East Africa has been a work in progress ever since the East African Community (EAC) was revived in 1999.
The community – consisting of Kenya, Tanzania, Uganda, Rwanda and Burundi – made important steps towards economic integration with removal of internal customs tariffs in 2010, and further with the 2015 establishment of a common external tariff (CET) for imports into the member countries.
But several contentious violations of customs rules have over the last months shown how domestic pressure, coupled with underfunded and slow bureaucracies, presents major challenges for further integration
Sugar, beef and rice
The problems began when the region experienced a shortage of sugar in 2011, prompting the EAC to introduce a licensing system to allow for import quotas from outside of the region at low tariffs.
The Kenyan sugar industry, a large and significant political group domestically, soon accused Ugandan traders of repackaging sugar bought cheaply from outside the region and selling it in Kenya as Ugandan products. This circumvention of EAC Customs Union protocol, which provides for free movement of goods between the member states, lead to an import ban on Ugandan sugar in 2012.
In a tit-for-tat reprisal the government in Kampala enacted a ban on Kenyan beef and beef products, and the trade war was just recently settled in a high-level meeting between presidents Kenyatta and Museveni.
Soon Uganda’s attention turned on Tanzanian rice, a sector where Tanzania in recent years has made efforts to increase domestic production, leading to a surplus.
Amidst allegations that Tanzanian traders had repackaged and relabelled rice bought cheaply from Asia, Uganda added an 18% value added tax (VAT) on rice imports from Tanzania. As Ugandan rice and cereal products are exempt from VAT, Dar Es Salaam accused them of violating of the Customs Union rules.
Ugandan officials argued that East African countries has not yet harmonized domestic tax laws and that this move was necessary to protect local rice farmers from damaging competition.
Old habits die hard
These type of disagreements are not new to the region and also extend to other areas such as visa rules, tuition rate for regional students and bureaucratic requirements to conduct business or invest within the region.
The EAC has shown a willingness to advance the agenda of regional integration, both in rhetoric and in practice, for example as Global Risk Insights have earlier covered the efforts towards establishing a single currency in East Africa. The recent protectionist actions – in blatant violations of the newly accepted rules – questions whether the process of integration can continue without both domestic changes and a change in government practices.
Part of the explanation is found in the political systems in the region. Despite the appearance of stability in Rwanda, and to a lesser extent in Uganda, the member states are generally characterized by moderate levels of instability, which are frequently manifested around election time.
There will soon be elections in both Uganda and Tanzania, making the government particularly susceptible for pressure from domestic groups, and farmers are too important to be ignored in the largely agrarian economies.
Another challenge is the overall poor performance of the agricultural industries, which suffers from structural inefficiencies that make them unable to compete with cheaper products abroad.
Better regulatory mechanisms needed
The EAC countries have made efforts for industrial developments in different sectors, increasing their willingness to fall back on protectionist tendencies when they feel these efforts are being undermined.
The common market framework of the EAC is however intended to strengthen industrial development in the region and should not be regarded as an obstacle for growth. Better regulatory mechanisms are needed in order to capitalize on this potential, both to cut red tape and allow for easier trade within the region, but also to enforce existing regulations and prevent traders from circumventing the system.
For the success of regional integration in a long-term perspective, the member states would also need to show a stronger commitment to their shared goals – and established framework – even when faced with substantial pressure from sensitive domestic groups.