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November 05, 2003

VIEWPOINT BY KENYA'S PRESIDENT MWAI KIBAKI ON THE EAST AFRICAN COMMON MARKET

Fifty years ago, I set off from my hilly countryside home of Othaya, boarded a train in Nairobi, and headed to Kampala to establish my new scholarly home at Makerere University. Transversing through the Central Kenya countryside by bus, hearing the train engines roaring through the vast Rift Valley, then briefly anchoring on the shores of Lake Victoria, before finally arriving in Kampala, the sounds of East Africa began ringing loud in my mind.

I must say that this exposure to East Africa, during my early days, converted me into an East African. The socialization I got through interaction of people from Uganda and Tanzania incalculated in me the true spirit of East Africa. It was a spirit that was put to the test in my latter days, when I served in government in the 1960's and 1970's. As Kenya's Finance Minister, I remained fully committed to regional integration, in the knowledge that we were better of enjoying the economies of large scale production. The East Africa Railways and Harbours, Airlines and a host of other shared services, indeed contributed to the economic strengthening of the region. By then we were ahead in our thinking and achieved, nearly twenty years earlier, what many regional blocs are today achieving.

However, some politicians in the region were to have their way and narrow interests led to the break-up of the East Africa region. The break-up was costly and led to our individual countries looking inwards in areas that an outward looking approach had led to efficient service delivery.

In the last two years we have seen a strong movement and desire to have a strong regional bloc following re-establishment of the East African Co-operation. The Treaty establishing the East African Community was signed by the Heads of State of Kenya, Uganda and Tanzania on 30th November, 1999. The Treaty provides for the establishment of a Customs Union, a Common Market, a Monetary Union and ultimately a Political Federation.

Now, as President of Kenya, I have the opportunity, again to draw on my strengths to ensure fulfillment of the dreams I heard while I transversed through the region as a student.

In the eight months that I have managed the affairs of my country, my message has been a simple one. The East African Common Market is on its way to fruition. Regional integration is made a myth by our detractors but we shall overcome any doubts, and we will make it easy for our people to cross borders to trade and socialize.

We have began taking the message of East Africa Co-operation, out of high level summit meetings of heads of state, to the boardrooms of our private and public corporations, the streets of East African urban centers and homesteads in our rural households. A visit to any of our border towns best illustrates, what the true East African spirit is. This is what we want to translate into, so that East African co-operation is not seen as high level political rhetoric but a movement that represents opportunity for our people.

On the cultural point of view, regional integration solidifies the unity of the communities with a common history, language, culture and personal ties. It also provides an environment for a peaceful neighbourhood. This is true for the EAC where the three peoples share common culture and traditions.

Lessons learnt from the defunct East African Community which collapsed in 1977 show that apart from political will from Governments and political leaders, there is need for strong participation of the private sector, civil society and the people of East Africa in general for the integration to work.

The Community is also founded on fundamental principles of good governance including adherence to the principle of democracy, the rule of law, accountability, transparency, social justice, equal opportunities as well as the recognition, promotion and protection of human and people's rights .

Under the Community Treaty, the Customs Union is provided as the entry point of the integration process. The process of establishment of the Customs Union is at an advanced stage and it is expected that the necessary protocol will be signed later in the year.

The Customs Union provides for free movement of goods across the region and a common external tariff. The Customs Union will closely be followed by finalization of instruments for the Common Market, which mainly includes the freedom of labour, freedom of establishment and residence across the region. It is notable that the Common Market will be pursued from a working Customs Union which also incorporates important elements of advanced integration stages including already working cross-border movement instruments like the East African passport, harmonized macroeconomic policies, convertible currencies and working capital market with cross-listing of stocks among others.

I am a firm believer that regional integration in the contemporary world, is not a choice but a necessary strategy for rapid and sustainable development.

In these times of globalization, integration into World Markets is needed if countries don't want to remain marginalized at the rear of international development. In view of the heavy costs involved, however, most small states will not individually support globalization efforts. The best option for them is economic integration by way of regional grouping. Regional integration helps, among others, under-utilized and over protected firms to adjust by increasing markets and competition without exposing them too quickly to international competition. The regional markets are a training ground for competitiveness on international markets.

In East Africa, for instance, a larger combined population of about 90 million people offers a more economically viable market for local products. Regional Integration combines markets, making it possible to reduce monopoly power as firms from the partner states are brought into more intense competition.

Since the launching of the EAC, the integration of the three Partner States has proved to be a reality. The Community has concentrated most of its efforts in identification and elimination of physical and policy related constraints which could slow the progress in the establishment of a single market and investment area. Much work has focused on formulation of programmes for easing the movement of people, goods, services and capital; provision of adequate and reliable basic infrastructure; harmonization of macro-economic and Sectoral policies; achievement of convertibility of the East African currencies; and maintenance of peace and security within the region. The Customs Union Protocol whose signing is expected soon will enhance this process.

The above efforts have had an impact by way of business firms responding to the unfolding single market and investment area in an enthusiastic manner. Already there are indications that cross-border investment has picked up and firms are now basing their business plans on the East African Market rather than the local markets, in an effort to enjoy economies of scale.

With the operationalisation of the Customs Union and thereafter East African Common Market, there will be free movement of goods and services. The Protocol establishing the East African Customs Union provides for zero-tariff on all trade within the region.

While working towards free movement of goods and services, the Partner States recognize that ad hoc interventions create distortions in the market and narrow the choices for traders in terms of margins. These interventions would normally send wrong signals to traders, thus discouraging them from doing their business. This is not a desirable situation and the role of the three Governments will remain that of facilitating through the creation of an enabling environment for the operation of the private sector.

It is in this view that the establishment of the EA Customs Union is market-centered with the private sector playing a leading role. The East African Business Council (EABC) which brings together the private sector organizations in the region is active in ensuring that this market-centered integration is achieved. The Partner States, on the other hand are facilitating the EABC and the private sector in general to play this role effectively.

The Common Market, especially through the established institutions of the East African Community, will guarantee business operations across the borders of the Partner States without the intervention of Governments of the Partner States. In fact, today cross border listing in the regional stock markets is picking up and several companies have had their shares listed across the borders. The necessary legislation and the harmonization of the tax regimes are being finalized to facilitate this cross-listing.

The EA Customs Union has offered both opportunities and challenges to Kenya. The free movement of goods and services means that each Partner State will have to concentrate on those areas that it has comparative advantage.

Finally, experience on trade performance for the last one-decade shows that the success of a Customs Union will offer a wider market for the participating states. Since the signing of the EAC Treaty, the intra-trade among the three partner states has been rising. Today, Uganda is the largest single market for Kenyan products while Tanzania is in the third position. Kenya's exports to the EAC region, as a proportion of total exports, rose from 8% in 1990 to 26% in 2002. Kenya, on the other hand is the second and sixth largest market for Ugandan and Tanzanian products respectively. These are the figures we are working with, because they clearly indicate that the East Africa Community is not just a myth but a reality.

This article was published in the October edition of The Banker Magazine. The Banker, an extremely influencial publication, is the Financial Times' global banking and general interest magazine.