/ 19 November 2007

East Africa integration ‘good for growth’

The momentum towards regional integration in East Africa received encouragement from the United States this week, with US Treasury Secretary Henry Paulson saying that it should boost economic growth in the five-member East Africa bloc.

“This is a region that has showed great economic growth over the last couple of years,” Paulson told reporters on November 15 in Arusha, Tanzania, following a meeting with East African finance ministers. “Economic integration is a very powerful force.”

The East African Community (EAC), comprising Uganda, Kenya and Tanzania, as well as newcomers Rwanda and Burundi, formed a customs union in 2005 that cuts duties on most exports within the region.

The five nations plan to strengthen trade ties with the introduction of a common market by 2010 and then adopt a European Union-style single currency. The ultimate goal is to achieve closer political cooperation with a regional parliament and one president governing an East African federation.

Paulson said he supports the drive for East African nations to work together. “Economic integration is very important,” he stressed. “This is a great region to invest in and has real potential.”

A top priority for the bloc should be the harmonisation of markets selling stocks and bonds in order to spur “balanced and inclusive” growth, he said. Already, Kenya and Uganda have decided to merge their stock exchanges within a couple of years and Tanzania is considering whether to join them.

A drive to raise financing for infrastructure projects should also sit at the top of the EAC agenda, said Paulson.

The dilapidation of roads, ports and railway lines slow down the shipment of goods and increase the cost of doing business across the region, an East African Business Council survey shows. Erratic electricity supplies can slow or even shut down production, hurting business, it says.

In September, Tanzania was granted $698-million from the Millennium Challenge Corporation (MCC), its largest to date, to rehabilitate electricity networks, upgrade roads and boost clean water supplies. The MCC, an anti-poverty initiative launched by US President George Bush, aims to improve infrastructure and accelerate economic growth in Tanzania with a five-year package.

A proven effort to root out corruption, based on a report-card score, is one of the main prerequisites for poor countries to qualify for MCC funds. “Corruption is the enemy of the investor,” said Paulson.

The International Monetary Fund has said it expects growth in the East African community to accelerate to 7% in 2007 and 2008 thanks to improved economic management and fiscal reforms.

Economic growth in the EAC region is forecast to surpass the average for all of sub-Saharan Africa. The continent, as a whole, is expected to record 6% growth over the next two years, according to the IMF.

The EAC bloc, with a population of 125-million and a combined gross domestic product of $104-billion, has the potential to gain more from deeper harmonisation, said Paulson. The next step for the EAC is to draft the rules of a common market that would allow the free movement of labour, goods and services across national borders.

Negotiators from the five-partner states, civil society representatives, business people and legal experts have already done the groundwork and formal talks should start any time, Juma Mwapachu, secretary general of the EAC, said in an interview this week.

A common market in the next three years “is definitely doable”, said Mwapachu, on the sidelines of an African business forum in Arusha. “I think there will be a great deal of pragmatism to ensure the purpose of the common market is achieved.”

The elimination of non-tariff barriers — such as delays at border points and cumbersome customs procedures — could become potential stumbling blocks, said Mwapachu.

There are also fears that highly skilled workers may seek employment in neighbouring countries and squeeze local people out of the job market, said Mwapachu. “One of the challenges will be the free movement of labour. Countries with lower skill levels feel that with opening up, maybe Kenyans will take most of the jobs in those countries.”

He named the health, education, banking, insurance and tourism sectors as possible sore spots. “We are really trying to say that labour laws will still be determined at the national level,” said Mwapachu. — IPS