Regionalization strategy for East African Community

Posted on September 26, 2013 12:19 am

East African countries should adopt a regional strategy to enhance exports among the member states of East African Community. Why would for example EAC countries import cement from Egypt and Pakistan instead of filling their country’s deficit with Uganda cement manufacturers. For EAC region to attract continuous foreign investment to support the rapid economic growth and cover chronic shortage of employment in the labor-intensive agriculture sector that accounts for more than 80% of employment for East Africans. Research shows that for the foreseeable future, East African Countries require short-term, mid-term and long-term foreign capital to finance budget deficits that have for long relied upon donors and grants from western countries, World Bank and IMF among others to satisfy other financing needs. Since their independence more than half a century ago, East African countries just like other African countries there has been a reliance on foreign investment. Me think that policy makers should be aware of the impact of short-term capital flow on the exchange-rate movements and external reserves something that has affected and continues to drag down the business in the region of estimated 136 million people. To rally regional savings and drive domestic market to absorb more government and private sector bonds, East African countries should encourage the savings culture that is rare largely driven by high inflation and wobbling of regional currencies. Policy makers should encourage East Africans to embrace pension funds schemes and insurance wholeheartedly. While writing a report for a research company recently, I realized that strategy in regionalization of economic blocks demands full liberalization of current account and capital account of the balance of payments, as well as the financial sector.

Just like studies have shown elsewhere, closer integration of the regional economies to global markets allow individual countries to expand exports and tap global financial resources and ultimately driving the growth that creates jobs, equality and prosperity.  A research conducted after the economic recession hit Euro zone showed that export driven strategy can be successfully used to tap into skilled laborers and other global factors of production, upgrade infrastructure and technology for development as has happened in Germany and Poland. In Australia, growth strategy largely driven by developing industrial bases, rather than specializing according to comparative advantages has proved to be the most effective way to develop. East African countries need to promote regional competitiveness to raise economic productivity through training and education as well as building institutions some of which are laughable. The region’s failure can be traced to large import costs even from imports of some products available within the region and I cannot fail to cite the capital outflows from multi nationals that operate in the region. Deregulation policies with unclear objectives have allowed East Africans to exploit comparative advantages of the region economy as a producer of raw materials but the fact remains all East African countries are depending on imported food, fruits and manufactured consumer goods than ever before as the region’s population continues to grow. Products produced by farmers and manufacturers in the region have failed to compete with imports from other parts of the world especially China, India and East Asian countries.

All the way from our high-end shopping malls in Nairobi Kenya down to outlet shops in Kariokoo Dar Es Salaam and traditional markets in remote villages of northern Uganda’s town of Gulu are selling Chinese and Asia’s made manufactured products and imported fruits from South Africa and northern African countries continues to sell like hot cake in supermarkets across the region.Due to discoveries of oil, gas and other mineral resources over the past few years, East African countries of Kenya, Uganda and Tanzania have seen an increased participation from foreigners in the mining sector, as well as in our service industry such as infrastructure, banks and telecom business. Promoting structural transformation from low productivity of the non traded sector of the East African economies to high productivity requires building strong and durable institutions. In my wish list for this involve protection of property rights that has seen the region gain global notoriety for infringements and theft of intellectual rights. Foreign investors have also complained a lack of enforcement in contracts issued by both government and private companies operating in the region. One would wish to see eradication bureaucracy that has hampered the regional integration and development. This and other policies will no doubt vastly improve investment climate and the cost of doing business in the five countries of Uganda, Rwanda, Tanzania, Burundi and Kenya.

Contador Harrison