East Africa: Waiting to Reap the Fruits of The Common Market
By Peter Omondi
Citizens of the five East African Community (EAC) member states will soon begin to reap the fruits of the common market that came into effect on 1 July. The protocol—aimed at expanding the existing customs union—will enable the free movement of people, capital, goods and services across the region and abolish import duties. Significantly, the five EAC member states have already adopted a common external tariff, an identical tax applied to imports from outside the bloc, and allowed duty-free regional trade.
The benefits of a common market for the EAC cannot be overstated. Covering an area of 1.85 million square kilometres with a combined population of 127 million people who share history, languange and culture, the five East African countries namely Kenya, Tanzania, Uganda, Rwanda and Burundi have a combined Gross Domestic Product (GDP) of US$73 billion, providing the member states with a unique framework for regional co-operation and integration. Indeed, the countries’ ambition is to adopt a common currency by 2012, eventually moving into a political federation.
“As we did with the EAC common market, we have to come up with an EAC Monetary Union Protocol that we will negotiate and agree on”, Central Bank of Kenya governor Prof Njuguna Ndungu told a media briefing in Nairobi.
But with poor infrastructure including power hiccups, the quest for free trade will remain a pipe dream for a while, with analysts predicting that the full benefits may only be realised after 2015. Notably, non -tariff barriers still stand in the way of free trade. Even though the common market protocol came into effect on 1July, the region's poor roads and lengthy customs procedures, long seen by businesses as hindering cross-border trade, are still the order of the day. It is not lost on observers that owing to bureaucracy in all the five EAC partner states, passport requirements and work permit fees are still in force, hindering the free movement of people across borders. In Kenya, for instance, President Mwai Kibaki gave a directive for the abolition of work permit fees but this has yet to be effected.
Kenyan immigration officials say they cannot allow the use of national identity cards in place of passports as they are open to forgery. With travellers being forced to go through the tedious process of filling in forms and producing passports, it is not uncommon to see long queues of human and vehicular traffic forming at border posts. According to Kenneth Omboga, Kenya’s Immigration Officer in charge of Lunga Lunga, the Kenya-Tanzania border post, Kenya hasn’t opened its borders for free movement of people and goods due to health and security reasons, especially following the recent twin bombings in neighbouring Uganda. The border checks will therefore continue until adequate standards have been put in place.
“We want to avoid counterfeit and hazardous goods entering and flooding the market while at the same time addressing security concerns in the wake of the recent terrorist attacks in Kampala”, says Omboga.
Meanwhile, Kenyan businesmen are not a happy lot due to delays experienced at Kenya-Tanzania border posts. While the Kenyan side of the border posts operate 24 hours, the Tanzanian side operates for only 12 hours.
“In Tanzania, in particular, it takes a long time to get cleared. We have had drivers waiting at borders for as long as four days”, says Eric Omondi, Retail Operations Director, Dormans, the Kenyan coffee roasters and exporters. “These things make the final price of our coffee up to three times that of the local product.”
It is also noteworthy that despite the common market coming into effect, government policies that impact on the free movement of goods, labour services and capital have yet to be harmonised. Kenya, for instance, levies Value Added Tax (VAT) at 16 per cent while the rest of the countries in the region charge VAT at 18 per cent. Excise Duties are also yet to be harmonised.
Besides the tariff and non-tariff barriers, citizens of the other member states fear that Kenya, the largest economy of the five, could end up dominating its neighbours. Kenya, the region’s largest economy is already attracting huge investment in the Business Process Outsourcing (BPO) sector. Notably, fears abound that Kenyans, who are a more skilled workforce could end up taking all the competitive jobs in the region, given that a number of them are already well established in the neighbouring countries. Observers opine that if the migrant Kenyan labour occasions job losses in other member states, the common market will not be a welcome idea. Their argument is that free movement of labour should be encouraged only to a level that does not deprive local people from accessing local jos. It is, however, encouraging to note that on the eve of the commencement of the common market, Tanzania’s Minister for East African Co-operation, Dr Deodorus Kamala urged Tanzanians to brace for the open labour market and for expanded business opportunities in the EAC.
Kamala said that labour movement was unavoidable and urged Tanzanians to grab the challenges and stop seeking state protection for jobs and businesses. With this, there is definitely some light at the end of the tunnel, especially following EAC Secretary General Juma Mwapachu’s announcement that the community was organising a stakeholders’ meeting in Nairobi in October to discuss how to speed up integration.
Even so, the teething problems currently being faced by the common market are not unique to East Africa, if the history of the European Union is anything to go by. It follows that the implementation of policies aimed at operationalisation of a common market entail long periods, coupled with hard work. In the words of Kenya’s immediate former Trade Minister Amos Kimunya, the declaration of the common market on 1July was just a ‘recognition’, with actual implementation expected to take longer, the signing of the Treaty notwithstanding.
It is also against this background that the Ugandan Revenue Authority (URA) clarified to Ugandan businesses that cross-border goods and services will still be taxed for the time being. There is no gainsaying that basic details such as whether or not goods that have been taxed upon entry into the common market should move freely within the zone have yet to be worked out among the participant countries.
The teething problems notwithstanding, businesses in the region stand to gain from the common market. Of worth noting is the fact that East Africa’s common market will give the region more leverage in international trade negotiations with other economic blocs such as the European Union. Professionals will also be able to seek jobs in countries where their services will be better rewarded.
The commom market protocol was signed by the five heads of state in November 2009. It followed the Treaty for the Establishment of the East African Community which was signed in November 1999, entering into force in July 2000, following its ratification by the three original Partner States, Kenya, Uganda and Tanzania. The Republic of Burundi and the Republic of Rwanda acceded to this EAC Treaty on 18 June 2007 and became full members of the Community with effect from 1 July 2007. The first trading bloc collapsed in 1977 after being in existence for only 10 years, partly due to incessant wrangling among the then presidents Jomo Kenyatta (Kenya), Idi Amin (Uganda) and Julius Nyerere (Tanzania).