By Stephanie Hanson
There is widespread agreement among businesspeople in East Africa that regional integration would lower the cost of doing business. But until recently, there was limited political momentum behind implementation. Though it has largely been ignored outside the continent, East Africa is making serious strides toward unification.
Under the East African Community, the five countries of East Africa - Kenya, Uganda, Rwanda, Tanzania and Burundi - have officially formed a free trade area and a customs union. A common market, the next step on the route to full economic integration, is set for establishment this year; it will allow the migration of businesses and people across borders. The bloc plans to move to a common currency, the East African shilling, by 2015.
East Africans are already benefiting from the move toward integration. The clearing of goods for regional traders at ports in Kenya and Tanzania has been expedited through online processing. Tanzania has removed restrictions on the flow of capital outside its borders, so that Tanzanians can invest outside the country.
Some improvements have been led not by governments, but by the private sector. Seacom International launched its undersea fiberoptic cable, which connected East Africa to high-speed internet, in July 2009. Kenyan universities are opening branches in Rwanda, and public relations firms are expanding to cater to regional companies. Nakumatt, the Kenyan supermarket chain, is opening eight additional branches in Rwanda. Public- and private-sector efforts toward integration are monitored by business newspaper The East African in its weekly "Integration Tracker."
There will be challenges along the way to unification, of course. Rwanda plans to move from being a French-speaking country to an English-speaking one, but this transition will take years as English is only being taught in school starting this year. Tanzanians worry that Kenya's stronger economy will dominate the bloc. Infrastructure in all five countries is lacking, and will take years, if not decades, to improve.
The biggest immediate challenge, however, is the lack of support for regional integration from international donors. What is strange about this is how much rhetoric these same donors have devoted to praising regional integration in the West.
In fact, regional integration has long been touted as necessary for economic development in sub-Saharan Africa. Trade experts have pointed out that Africa is one of the most protectionist areas in the world; simply reducing tariffs between countries has the potential to increase trade significantly. Though the region has 14 landlocked countries, only 10 percent of African exports are intraregional, according to the World Trade Organization. In contrast, intraregional trade in Western Europe, is 68 percent.
Beyond tariffs, infrastructure is a major barrier to increased regional economic activity. According to a 2009 World Bank study of Africa's infrastructure, the continent needs a shocking $93 billion annually for the next 10 years to finance its infrastructure. Most individual countries are too small to develop infrastructure on their own in a cost-effective manner.
Despite the research and speeches - U.S. Secretary of State Hillary Clinton touted regional integration during her August trip to Africa - most U.S. aid to Africa remains bilateral. The Millennium Challenge Compact, one of the cornerstones of U.S. foreign aid to Africa, only makes country-specific grant agreements. Similarly, the bulk of funds disbursed through USAID are bilateral.
This strategy is out of sync with Africa's needs. International donors need to reprioritize aid to focus on regional projects.
The World Bank has made some efforts toward regional aid projects. It launched a regional integration strategy for Africa in June 2008, and it has a regional integration department. Funding does not reflect integration as a priority, however. Only 10 percent of the bank's money allocated to Africa was for regional projects.
Analysts say that the African Development Bank is focused on regional infrastructure projects, but its resources are limited in comparison to European and U.S. donors and the World Bank. International donors should partner with the African Development Bank to implement aggressive regional infrastructure projects across the continent.
The changes happening across East Africa show that businesspeople and politicians in the region are serious about integration. They deserve greater financial and technical support from international donors.
