The East African Community needs to address the disproportionate gains that Tanzania gets from hosting most of the trading bloc’s agencies, particularly Dar es Salaam’s 73 per cent earnings from the $31.5 million annual average budget of the organs.
All EAC partner states contribute equally to the bloc’s budget through annual subscriptions.
A new report by the EAC secretariat has revealed that Tanzania earns $23 million from hosting five of the eight EAC organs, much more than Kenya, which earns $4 million, Uganda $3 million, Rwanda $1 million, and Burundi which receives $500,000.
The report, however, notes that Kenya gains the most from trade within the EAC, earning $38 million annually, followed by Uganda ($22 million) and Tanzania ($15 million).
Rwanda, Burundi and South Sudan make net losses from trading with the region, according to the draft report titled Equitable Sharing of Benefits and Costs of EAC Integration Process.
“Given the current reality and lessons from the former EAC community, which collapsed mainly as a result of unequal share of benefits, there is a need to share the costs and benefits in a fair and equitable manner for sustainability of the EAC Community which generates far more benefits than the costs,” states the draft report.
It further states that provisions in the EAC Treaty such as equal contribution to the EAC budget “may no longer be sustainable given the huge differences in population size and GDP of partner states”.
The draft report, which is yet to be approved and adopted, proposes a review of the formulae for equitable sharing of costs and benefits.
Tanzania’s benefits from the five organs that it hosts come from local employment, rent income and supplies. The five are the secretariat, the East African Court of Justice, the East African Legislative Assembly, the East African Kiswahili Commission, and the Competition Authority.
Uganda hosts the East African Development Bank, the Lake Victoria Fisheries Organisation, the Inter University Council of East Africa, and the Safety Oversight Agency.
Kenya hosts the Lake Victoria Basin Commission, Rwanda the East African Science and Technology Commission and Burundi hosts the EAC Health Research Commission.
The study was commissioned after the EAC Council of Ministers at its 18th meeting held in Arusha on September 4, 2009, observed that to actualise the fundamental and operational principles of the EAC required equitable distribution of benefits accruing to or to be derived from operation of the Community.
The EAC secretariat, in an interview on Friday, insisted that the draft report is yet to be finalised and could not therefore publicly discuss its findings.
“This [the earnings by Tanzania] is the percentage of gains from hosting EAC organs and institutions only. It does not include gains from trade where Kenya benefits most,” said Liberat Mfumukeko, the East African Community Secretary-General, in a response.
Further studies are ongoing to quantify other benefits from hosting and implementing various protocol provisions under the Customs Union and the Common Market, according to Wilberforce Mariki of the EAC secretariat.
The EAC, initially made up of Tanzania, Kenya and Uganda, broke up in 1977 after the then-socialist Tanzania complained that capitalist Kenya was benefiting more than the other two partners.
Other issues that caused the collapse included Kenya’s demand for more seats than Uganda and Tanzania in decision-making organs, and disagreements with Ugandan dictator Idi Amin who demanded that Tanzania as a member state of the EAC should not harbour forces fighting to topple his government.
The disparate economic systems of socialism in Tanzania and capitalism in Kenya also contributed to the fall.
Kenya had a more developed manufacturing sector than Tanzania and Uganda, resulting in large income transfers from Dar es Salaam and Kampala.
The report observes that regional integration, by its very nature, creates imbalances in gains if partner states do not take effective measures to maximise the prospective and potential benefits and minimise costs.
The overall objective of the study was to assess whether there is equitable sharing of costs and benefits of the EAC integration so far, and provide a remedial mechanism where possible.
The study suggested that EAC institutions and organs allocate jobs equitably and sustainably as per the Treaty provisions as integration deepens.
The study also suggested that job distribution should be proportional to partner states’ contribution to the EAC budget.
High profile and technical jobs should be competitively awarded, and others should be rotational and allocated on a quota basis.
The study suggests a review of the current system of equal contribution to the EAC budget by partner states, given that they are structurally different in terms of GDP, imports, exports to the region and population.
It suggests that partner states can contribute based on their capacity to pay as represented by GDP. This mode of financing has been successfully used by the Southern African Development Community, the African Union, the Caribbean and Pacific Group of States, and the Organization of American States.
Partner states with bigger economies and population are seen to benefit more, or the impact of integration could be higher in bigger economies than smaller ones. But sharing costs based on GDP remains a parameter that relatively satisfies the principle of solidarity, equity, balance and mutual benefit.
The partner states’ contribution to the 2018/19 total budget was $56,245,162 (56 per cent of the total budget) through the respective ministries of EAC Affairs ($50,227,920), the ministries responsible for education ($4,466,210) and ministries responsible for fisheries ($1,551,032).
Development partners will contribute $42,925,613 to the budget, and member universities will give $333,970. The miscellaneous revenue is pegged at $265,971.
The percentage contribution to the budget by EAC partner states has been increasing over time. It increased from 10 per cent in 2011/12 to 56 per cent in 2018/19.
The analysis of contribution per capita shows a big gap, from $0.94 (Burundi) to $0.19 (Tanzania).
As a result of reforms, trade within the EAC has increased. Intra-EAC trade was $1.7 billion in 2005, rising to $3.5 billion in 2013 and falling to $2.4 billion in 2017.
The report says the shrinking of trade among partner states since 2015 may be as a result of national production patterns becoming more similar, and movement of capital investments where products are manufactured locally.
The EAC intra-trade share is below 20 per cent, compared with the EU where it is 61.7 per cent. Among the members of the North American Free Trade Agreement, the share is 50.3 per cent and 24.3 per cent within the Association of Southeast Asian Nations.
The elimination of tariffs on intra-EAC trade led to an average annual loss of Customs duty of $1,689.07 million between 2013 and 2017.