Saturday, 14 August 2010

Community Building

As I mentioned in my first Kenyan post, a big part of my job is working with the East African Community (or EAC for short). If 2010 is a big year for Kenya, it is huge year for East Africa.

The EAC has a long history that dates back to the African pre-Independence period. Then, the EAC consisted of only Uganda, Rwanda and Tanzania. It was a short-lived regional fling; for ten years the members bickered about differences in political and economic policy. As I mentioned before, Tanzania was socialist and Kenya more capitalist. The final blow to the EAC came when Idi Amin rose to power in Uganda and did the whole crazy dictator thing. The leaders of Kenya and Tanzania refused to work with him and the old Community soon collapsed.

In more recent times, the leaders of East Africa's Great Lakes countries (Burundi, Rwanda, Kenya, Uganda and Tanzania) have rebuilt the EAC. And these recent efforts have been much more promising. For many years now, the new (5 member) EAC has been making progress towards customs, legal, monetary and even political integration.

So what is regional integration exactly? It means that neighboring countries join up in some way, perform certain government functions jointly, or lower the barriers between their countries. Some familiar examples of regional blocs for Western readers include the EU, NAFTA, NATO, OPEC and ASEAN -- although those organizations are all very different from each other.

Integration usually happens in steps; it takes time, and deeper integration efforts need to build on the simpler, earlier steps. There isn't agreement among experts on how integration needs to happen. One professor of African regionalism I spoke with, Dr. Richard Oppong from Lancaster University, sees integration as taking place over six discrete steps. But I would argue that there are five:

1. Technical cooperation (helping each other out on crime, infrastructure, tech. investment, education. example: cooperation among police forces)
2. Legal harmonization (agreeing to make each other's laws similar to trade, business, investment or further cooperation. examples: the OHADA countries in West Africa agreed to a uniform commercial law; OAS has a supranational human rights courts)
3. Common market (putting in place some form of free movement of goods, people and money. example: NAFTA; the EU)
4. Monetary union (having one currency. examples: EU, Eastern Caribbean Currency Zone, French West Africa)
5. Political federation (becoming one nation-state. examples: USA, UAE, Germany and Italy)

Things get more serious (or integrated) as you move down the list. Almost all countries take part in step (1), and very few have reached step (5). There are a variety of possibilities: early in American history, the US had achieved steps (3)-(5) but purposefully avoided any significant technical cooperation or legal harmonization at the state level. It's one country, but each state can do many things their own way. The EU is the opposite: member countries share a common market, a European Parliament, minimum human-rights standards and the Euro, yet each country retains its statehood and national identity.

So is integration a good thing? That's a tough question, but I tend to think that regional arrangements have a lot to offer.

A basic justification for regional arrangements is the benefit of comparative advantage. In the EAC, for instance, wealthy Kenyans have capital to invest, Uganda has surplus labor it can provide, and Tanzania has large stretches of arable land and a stable political climate. By combining those three factors of production, the three countries are jointly better off than if they operated independently. Rwanda -- self-promoted as the "Switzerland of Africa" -- has tremendous security*, good infrastructure and limited corruption and red tape; the other countries hope it could become a hub of agribusiness, banking, investment and insurance. By removing the barriers to cross-border trade and movement of workers, a common market can help the region grow.

There are also substantial benefits for countries that could come the stabilization offered by having a single currency: no exchange rate risk between local currencies, no issues swapping francs for shillings at border crossings, smaller fluctuations in currency prices, and greater facilitation of cross-border investment. Enough people have written about this that I won't go into it here, but it's probably a plus if the common currency happens and the member states have reached the necessary macroeconomic convergence,.

A third reason (not often voiced) is that the final stage of political federation will break the control of powerful ethnic groups over the national governments. In the past, Baganda control of Uganda, Gikuyu power in Kenya, or Hutu/Tutsi domination in Burundi and Rwanda have led to major bouts of conflict, patronage politics, anger and even genocide. In the EAC, no single ethnic group can possibly achieve a majority or even a strong enough position to dominate the region's politics.

Of course, there is a gap between the potential of regional blocs and the reality; they don't always work out so well. Many regional groups stagnate as toothless and uninteresting entities with nice websites and no real power (think the African Maghreb Union or the South Asian Association for Regional Cooperation). Even when they do work, their disintegration can get ugly (think Yugoslavia, the Central American Common Market, or even the Soviet Union).

The East African Community is a region with strong fundamental characteristics in terms of regional potential. Perhaps more importantly, there is considerable political will among the current five heads of state to try and make the agreement work. The EAC leaders committed to an extremely ambitious timeframe for its integration process: customs union by 2005, common market (free movement of people, goods, money) by 2010, a common currency by 2012, and full political federation by 2015. The customs union is in place, as is the common market, although there are a number of implementation problems (which is where my work comes in). Most analysts believe that 2012 is too early for the region to successfully launch a common currency, and many people believe that the political federation (e.g., forming a single United States of East Africa) will never happen at all. Despite the problems the Community faces, however, progress so far has been quite good.

My work itself focuses on building the EAC's common market. One of the main challenges facing the region's common market is the differences in the business laws in each of the countries. When the laws for businesses are very different across countries, investors and workers find it harder to do cross-border business.

Here are a few examples of why this matters. Imagine an dairy-industry entrepreneur from Mombasa who wants to set up a factory in Rwanda. She has a registered, licensed company in Kenya and her Kenyan products conform to national standards. Suppose that Rwanda has completely different rules for the quality of milk, the way the businesswoman runs her factory, and the licenses she needs to obtain... setting up shop in Rwanda is going to be a nightmare. The entrepreneur might not even go at all. If the business rules different enough across countries, many investors (who mostly come from Kenya) will be afraid to invest elsewhere in the region.

Other problems relate to something known as "private international law," which means the laws that apply to deals between people from different countries. Imagine what happens if a Uganda businessman comes to Tanzania and wants to set up a contract with a Tanzanian producer. Suppose that the Tanzanian party is worried about being cheated by the Ugandan businessman in a contract. The Tanzanian could take the Uganda to Tanzanian court and probably win, but winning (getting a "judgment") is no good unless the Ugandan courts agree to enforce it. If they don't, the Tanzanian won't do business with the Uganda in the first place because he knows that he has no way to protect himself.

So you get the idea. There are dozens of areas of law that need to be harmonized for the common market to work, and it needs to happen soon. To make matters trickier, the English-speaking members have a common law legal system, whereas the French-speaking countries have a continental-type civil code (like most of Europe).

My day-to-day work involves working with law reform experts in each of the 5 member countries and planning what laws need to be reformed, and when that harmonization will takes place. Fortunately, I won't have to actually sit down and comb through all the various laws to be harmonized. That work is best done by politicians and lawyers; my work is about picking what laws need to be harmonized. In the upcoming weeks, I'll probably head to many of the national capitals to talk with the relevant officials in person.

The work is exciting for a couple of reasons. The project is a chance to work with senior politicians, integration experts and lawyers from all five of the EAC countries. Those I've met so far have been talented and eager for outside support. It's a fascinating glimpse inside the struggles of career technocrats who are trying to build something important while navigating tricky political waters and stretched Ministry budgets.

But the main reason it’s exciting is that EAC integration is probably a one-time shot. Regional blocs very rarely organize and try for a complete economic and political union. Most of the time, they flounder at early stages of technical cooperation or dissolve after inter-member conflict (such as after Central America's "soccer war"). The EAC already failed once. Most politicians here recognize that if it fails again, the vision of a united East Africa will probably be gone for good.

On the other hand, The EAC is the most advanced of Africa's official Regional Economic Communities. If integration works out, it could raise a rally flag for regionalism in Africa and prove to other countries that a successful union is possible.

The next few years will be decisive. I feel lucky to be working on this project at such an interesting time.

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