EAST AFRICAN COMMUNITY AND INETERGRATION

INTRODUCTION

 Integration is derived from the Latin word inter, (meaning whole entire) generally means combining parts so that they work together or form a whole.

 It’s about bringing people of different racial or ethnic groups, into unrestricted and equal association, as in society or an organization, it is desegregation.

Economic Integration is an arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies

The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement.

Regional Integration is not a new phenomenon, communication and trade existed way back in the ancient times, during the famous travels of Marco Polo several centuries ago, when economic integration was first experienced. Since then through trade, factor movements and communication of economically useful knowledge and technology has been generally on a rising trend, making global economic integration inevitable. There is sufficient evidence that indicates a general trend for degrees of integration between sovereign bodies to make more efficient, the exchange of capital, labor, goods and services across borders. Institutions like European Union, the United Nations are composed of states whose membership is defined territorially. Integration has often been borne out of resource and territorial conflicts, eventually leading to political stalemate.  However, States engage in economic agreements, where each body engages in trade meaning they will give up some of their tenets of their authority and supremacy, which will hopefully bring increase of wealth to participating sovereign bodies.

In East Africa, Integration was first experienced in the 70s and 80s, although it went through severe tests and challenges and later its failure, the recent developments by the EAC to integrate the regional economy could not have come at the right time. As technology accelerates, we now exist in highly integrated global, inter-regional economies.

 There are economic as well as political reasons why nations pursue economic and political integration. The IMF report on the Capital Markets in East Africa explains; whereas foreign investors’ transactions occupy fair amounts of total turnovers, available statistics, though the coverage is restricted, indicate that non-resident holdings of securities stand at substantially low levels in the EAC compared to the aggregate of sub-Saharan Africa.

 Rationale

The general rationale is that when countries integrate themselves, there are higher chances that all will benefit from the opportunities that will have been created by the integration. The increased trade between members states of economic unions is meant to lead to higher productivity .The benefit therefore is that governments are not able to play with or influence financial markets. The other benefit is also that firms shall be able to borrow on better terms, access better investment opportunities, and these should eventually indicate faster growth.

 The integration of economic politics is therefore between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributions and consumers with the goal of increasing the combined economic productivity of the states.

The trade stimulation effects by means of economic integration are part of the contemporary economic theory of second best-the free trade with free competition and no trade is an ideal option for East African Community because it gives an opportunity to developing countries to exercise trade to its fullest especially because there are no economic barriers involved.

Why nations pursue economic integration.

Comparative Advantage refers to the ability of a person or country to produce a particular good or service at a lower margin and opportunity cost over another. The idea here is that each country is able to gain by specializing in the good where it has comparative advantage and trading that is good for the other.

Economies of scale, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased.

It’s a long-term process and concept that refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. Since some economies of scale may require a larger market than is possible within a particular country.

The primary reason for integration is primarily economic with a motive for political integration. Economic integration can be categorized in stages such as;

•  Preferential Trading area

•  Free Trade Area

•  Customs Union

•  Economic Union

•  Economic and Monetary Union

•  Complete Economic Integration.

In order to make East Africa a Free Trade Area, the member states should at least partially or fully abolish Custom tariffs on their inner border. To exclude regional exploitation of zero Tariffs within the Community.

A custom Union introduces Unified tariffs on the exterior borders of the union, for instance Common external tariffs.

A monetary union introduces a shared currency.

Economic Union combines customs Union with common market.

The most successful integration process is to ensure an advanced integral system where unified economic policies such as tax, social welfare benefits exist as well as reductions in the rest of the trade barriers. 

Factors driving the regional integration

Generally there are three fundamental factors that have influenced economic integration in its entire dimension in the region; through human migration, trade in goods and services and finally through movements of capital and integration of financial markets. The fast growing economy in the region also experiences some dynamics;

The dynamics of the GDP in different countries in the region, the price output dynamics and the dynamics of the outputs of the economy in the region.

The regional and inter-regional migration of labor, income and value added has also made it necessary for the integration. 

Declining communication cost and technology are really helping to transform the arena for regional trade in services.  Improved technology of transportation and communication have reduced the costs of transporting goods, services and factors of production and of communicating economically useful knowledge and technology. The tastes of individuals and societies have generally,  regionally and universally favored taking advantage of the opportunities provided by declining costs of transportation and communication through increasing economic integration.

Public policies have also influenced significantly the character and pace of economic integration although not always in the direction of economic integration

Obstacles that may affect the integration

Despite the diversified degrees of development, the EAC countries face the same challenges as

Other low-income countries in developing domestic capital markets:

Preservation of the control tax revenues and licensing by local powers, sometimes requiring decades to pass under the control and other barriers is diminished.

The more integrated the economies become, the less power the governments of the member nations have to make adjustment that would benefit them.

Economists tend to think that focusing on trade in goods to a lesser extent services as key mechanism for integrating economic activities across countries but it is not an important one for transmitting disturbances between national economies.

Hecksher –Ohlin theory explains that, trade in goods is seen as substitute for mobility of factors of production. Under certain conditions, don’t apply practically

 " If the conditions for factor price equalization did apply, there would be no economic benefit from the regional    mobility of factors of production. This is also because of barriers to trade inputs that effectively prevent equalization of relative output prices at different locations. These barriers take two forms; natural barriers to trade in the form of transportation costs and also costs of information about products prices and availabilities at different location. Therefore broader conditions for factor price equalization like identical technologies with constant returns to scale and consequently trade in goods alone without the  mobility is not sufficient to achieve economic integration, its therefore important to take into consideration artificial barriers to trade such as import tariffs and other public policy".(Wodley and Lavoi)

 Advantages of integration 

The people of East Africa stand to benefit from the integration through employment opportunities. Economic integration enhances trade liberation leading to a big market because as more investments come into the country there will be a greater diffusion of technology  as people shall be moving from one country to the other freely, there will be more employment opportunities for the people in the region.  For instance industries that shall require mostly unskilled labor, will be able to shift production to low wage countries within the regional cooperation.

Trade creation for the region-Member states will have a wider selection of goods and services not previously available.

After lowering trade barriers and tariffs or removal of tariffs completely will make it easy for people of East Africa to acquire goods and services at lower costs.

Economic integration will encourage more trade member countries, and the balances of moneys spent from cheaper goods and services can be used to buy more products and services.

There is a possibility of greater consensus like for instance with the case of East. African countries, it’s easier to gain consensus amongst small memberships and regional integration unlike larger corporation with high members for instance WTO, where 147countries are involved.

Through economic integration the East African nations can have a significantly greater political influence than each nation would have individually. This integration is an essential strategy to address the effects of conflicts and political instability that may affect the region. It is also an opportunity and useful tool to handle the social and economic challenges associated with globalization.

Disadvantages

Creation of trading blocks can increase trade barriers against non-member countries.

The issue of trade diversion because of trade barriers, trade can be diverted from non-member country despite the inefficiency in the cost. For instance, a country can trade with a manufacturer in a member country which has a higher cost.

How to make the integration process a success

All member states should agree on a formula for sharing joint revenues (custom duties, licensing) as this strengthens economic trust and in the long run political unity.

The ability to make joint decisions based on economic and political interests of all member states as stakeholders.

There must be a willingness to develop a coherent policy system that supports permanent development of economic unions in the interest of all stakeholder states.

Ensure implementation of these policies- in order to speed up the process of economic and political unification.

How to engage citizens in Integrating E.A

The EAC, already has a forum under the East African Society through which various members of society are given an opportunity to participate in the process. The youth for instance participate through social media on blogs such as   Jamii Forum, Vijana Forum and many young people here are actively participating. Civic engagement right from the grassroots should be encouraged through local leaders of community and churches as well as higher institutions of learning.

Conclusion

The more integrated the economies become, the fewer trade barriers exist and the more economic and political coordination there is between the member countries. By integrating economies in East Africa, the short term benefits of these tariffs and other barriers are diminished.

At the same time, the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves.