EDITORIAL: Deeper political ties will cool off EAC trade rows

Saturday January 18 2020

A milk processing plant in Kenya. This week,

A milk processing plant in Kenya. This week, Uganda lodged a formal protest against Kenya, over blockage of its milk exports. PHOTO FILE | NMG 

The EastAfrican
By The EastAfrican
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A decade since it came into force, the East African Community Common Market Protocol, is going through a reality check. This week, Uganda lodged a formal protest against Kenya, over blockage of its milk exports.

Kenya also accuses Uganda of imposing hefty duties on some of its exports especially beverages. Tanzania has been involved in several trade skirmishes with Kenya even as they were united in disputing Uganda’s sugar surplus and for a while blocking Ugandan sugar from their markets.

In a case of selective amnesia, Uganda also does not believe Tanzania has a rice surplus although many Ugandan entrepreneurs rent land in southern Tanzania to grow rice.

When the common market was conceived, it was believed free trade would be a vehicle for efficient allocation of resources across the economic spectrum. For instance, free movement of labour would allow skills to move from areas of surplus to areas in the community that had a deficit.

Theoretically, application of those skills would over time raise the productive capacity of such an economy, creating a degree of parity with the rest of the region. What the framers might have anticipated but did not state, was that open markets would trigger a realignment of the regional economy as investors look for the most cost efficient production bases.

Uganda got a taste of this early on when multinationals Bata and British American Tobacco shifted their manufacturing operations from Uganda to Kenya. This seeming loss has however, been more than compensated for by the entry of Kenyan capital and expertise into new growth areas, such as dairy in Uganda.

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Before they became competitors, the EAC partner states were united in protecting their rice and sugar industries through prohibitive tariffs on the two commodities. This created the incentives for the local industry to grow, resulting in Tanzania achieving unmatched cost-efficiencies in rice production and Uganda in sugar.

Previously a supplier of mostly raw exports to its neighbours, Uganda’s rise as an industrial competitor is being felt in the increasing presence of its manufactured output on retailer’s shelves in the region. With a smaller industry, Rwanda has focused on high level value addition and for now is not a competitor in East Africa because of a lucrative market in central Africa. It will not be long however, before it demands its share of the common market.

With hindsight, one can say that the current trade disputes were predictable. The EAC still harbours pockets of disharmony. Domestic tax rates, monetary policies, justice systems and economic growth, are still discordant.

Tariffs and non-tariff barriers represent a reluctance to accept the transient costs of regional economic integration. They are also a reflection of weaknesses in rule of law which allow powerful individuals to act outside the law, tossing regional commitments into the wind.

Scary as it might be, only a deeper integration at the political level, will dampen the pull of sovereignty currently clouding the East African project.

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