EAC still a long way to free market zone

Despite the fanfare which characterised the signing of the protocol for a common market for the East African Community - the partner states would appear to be still far from rolling out a robust common market where labour and capital can move freely.

What emerges from a close scrutiny of the fine print of the protocol that was signed in Arusha by the presidents of Tanzania, Uganda, Kenya, Rwanda and Burundi- shows that movement of workers and professionals within the region will remain restricted, with borders only being opened in phases.

According to schedules of implementation annexed to the protocol, Tanzania will, for instance, not be obliged to open the doors to doctors, land surveyors and science teachers from the partner states until 2015. In contrast, Kenya, Uganda and Burundi have all agreed to grant unrestricted access to professionals-including doctors, accountants and journalists- by the end of next year.

Rwanda still stands out as the only country in the region to have abolished work permit requirements for citizens of East Africa. Even movement of capital within the region will have to be implemented gradually, in some cases- the implementation schedules stretch to 2015. Tanzania, with the most rigid capital controls, has negotiated to temporarily retain most of the controls on movement of capital.

Currently, Tanzanians are only permitted to purchase shares and stock from Kenya, Uganda or Rwanda when the funds for the purchases are externally acquired. Under the new protocol, Dar es Salaam has now made a commitment to eliminate these restrictions by the end of next year. The rule restricting Tanzanians from participating in IPOs in Kenya, Uganda or Rwanda will also be eliminated by end of next year.

However, non-Tanzanian citizens and institutions from partner states will still be restricted from purchasing securities of maturities of more than five years. This restriction will stay in force until December 2012. Currently, non-Tanzanians are not permitted to sell or issue collective investment schemes.

Under the protocol, Dar es Salaam has committed to eliminating this restriction by December 2012. Kenya, Uganda and Rwanda- long liberalised their financial markets - allowing citizens of East Africa to participate in IPOs and to purchase government securities.

A self-employed East African citizen seeking to do business in any country in the region will also have to go by a phased-out schedule, depending on the type of business and until the restrictions are eventually eliminated by, latest 2015. A schedule for liberalisation of professional services- accountancy, legal, architectural, educational and consultancy - has also been annexed to the protocol.

Whichever way one looks at it, the recent signing of the protocol in Arusha-the slow and nuanced pace at which the common market protocol is being implemented notwithstanding- has thrust the East African Community way ahead of the two main rival regional economic groupings - Comesa and SADC.

The EAC is now in a position where it can play the anchor role in resolving the problem of overlapping memberships in regional trading blocs in the east and southern Africa. Apart from Mozambique, every country in the sub region belongs to more than one trading bloc. The upshot has been a subterranean battle for loyalty between Comesa- the largest grouping --SADC and the EAC.

Tanzania- despite hosting the headquarters of the EAC- has especially found itself entangled in the mix-having to divide loyalties between the south African-led SADC and EAC. For instance, while Kenya, Uganda, Rwanda and Burundi have been negotiating Economic Partnership Agreements (EPAs) with the EU under Comesa, Tanzania has been negotiating under the SADC grouping.

While it is still too early to predict how the contradictions will play out, Tanzania will sooner or later be forced to weigh the cost of dramatically switching allegiance to a relatively advanced EAC against political solidarity with southern Africa.

Dar es Salaam has had longstanding political and economic ties to South Africa, going back to relations with the African National Congress during the party’s exile days. In addition, Tanzania has been a recipient of extensive South African Foreign Direct Investment inflows.

With Comesa having turned into a customs union- and with the grouping having adopted a Common External Tariff (CET) analogous to the one for the EAC- chances are that Kenya, Uganda, Rwanda and Burundi- who are members of both EAC and Comesa- will elect to apply the EAC CET and maintain a preferential Free Trade Area relationship with other Comesa members.

During a Comesa Heads of State meeting in Kampala in October last year, a communiqué put out by the meeting called for a single free trade area covering the 26 countries of Comesa, EAC and SADC. Whether the experiment will work remains to be seen.