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.
