• Unit6:Economic Integration

    Key unit competence: Learners will be able to explain the importance
    of an economic integration on the development
    of his economy.

    My goals

    By the end of this unit, I will be able to:

    ⦿ Explain the reasons why countries integrate and the likely disadvantages.

    ⦿ Identify the steps taken in economic integration.

    ⦿ Examine the obstacles to economic integration in LDCs.

    ⦿ Identify different economic groupings in which Rwanda belongs.

    ⦿ Analyse the conditions for successful economic integration.

    ⦿ Discuss the advantages, disadvantages and the problems of an economic integration.

    ⦿ Analyse the contribution of economic groupings on Rwandan economy.

    ⦿ Acknowledge the importance of economic integration in economic development and participate willingly in the integration process.

    Activity 1

    Of recent it’s a common talk in Rwanda’s economy that Rwanda has
    integrated with many different economic groupings; according to you,

    (i) What do you understand by economic integration?

    (ii) Which economic groupings does Rwanda belong to?

    (iii) What do you think is the aim of Rwandan economy by joining different other economic groupings?

    (iv) In your analysis, what do you think are the necessary conditions for successful integrations?

    Facts

    6.1 Meaning of Economic Integration

    Economic integration is a commercial policy where countries come together
    for the sake of economic benefit by eliminating trade barriers among
    themselves.

    OR


    Economic integration is the coming together of countries in a given region so as to promote trade and enjoy economic benefits by working collectively. It is aimed at increasing the share of member countries in international trade as a means of achieving political harmony amongst themselves and also to
    consolidate their influence in international or global politics.

    Figures a) and b) above show different economic integrations and their respective member countries.

    Examples of economic integration

    • East African Community-EAC,

    • Common Market of East and Southern Africa-COMESA,

    • Oil and Petroleum Exporting Countries- OPEC,

    • Southern Africa Development Community (SADC),

    • Economic Community for West African States-ECOWAS,
    • European Union-EU,
    • African Union- AU,
    • African Caribbean Pacific Countries (ACPC)
    • Economic Community of the Great Lakes Countries (CPGL) etc.

    6.1.1 Objectives of economic integration

    Economic integration refers to the coordination of national economic policies as a means of boosting international trade, market activity and general cooperation among economies. Formal international economic unions are a recent phenomenon, but former International Monetary Fund economic counselor Michael Mussa traces the roots of global economic integration to the medieval era. Despite the fact that the general aim of making trade flourish remains the same, particular objectives of economic
    integration agreements have changed to correspond to modern political and economic circumstances.

    1. To enlarge and diversify market for local produced commodities in the region.

    2. To reduce or eliminate trade barriers among themselves e.g. use of one currency or allowing local currencies between member states or encouraging barter trade.

    3. To avoid duplication of commodities by encouraging specialisation in each country.

    4. To increase the utilisation of domestic resources which cannot be exploited by a single country.

    5. To enhance free flow of ideas, skills and technology in the region.

    6. To reduce the cost of production by adopting large scale enterprises which makes them enjoy economies of scale.

    7. To increase the bargaining power of member states in the international market.

    8. To improve the terms of trade of member states.

    9. To boost industrialisation and production of commodities to out compete manufactured imports and reduce dependence among member states.

    10. To promote political harmony and security in the region.

    11. To expand employment opportunities for member states.

    12. To decrease the exploitative powers of developed countries by reducing or stopping imports from developed countries that are always expensive.

    6.1.2 Conditions necessary for successful economic integration

    The following are conditions neccessary for sucessful economic integration

    • Geographical proximity i.e. countries coming together into an integration should be geographically close to one another or should share common boarders in order to effect preferential treatment to each other.

    • Common and same ideology i.e. they should have common historical background and ideology so as to harmonise their social economic policies e.g. socialism, capitalism and mixed economies.

    • They should be at the same level of development so as to ensure fair flow of resources otherwise resources would flow from less developed countries to developed countries.

    • There should be strong political will or similar political organisation among cooperative countries i.e. commitment by leaders and their population.

    • Countries should be preferably of equal size because there is a likelihood of them having unequal  quantities of resources.

    • The economies of the countries should be competitive in nature i.e.
    potential of producing different products so that exchange is promoted.

    • There should be production of diversity of commodities thus specialisation and exchange.

    • Citizens in the cooperative countries should have enough income so as to promote adequate market for commodities.

    • There should be political stability among cooperative countries so as to ensure smooth operation of the regional activities.
    • There should be a well-developed infrastructure in all cooperative countries.

    • Countries should be complementary to one another so as to exchange their commodities.

    • There should be a common language in the region.

    6.1.3 Process/ stages/ levels of economic integration

    Activity 2

    Do you think economic integration is a quick or gradual process? Support
    your view with facts and share with the rest of the class.

    Facts


    Economic integration is not a single day process, it’s a long time journey from the day it was thought of, up to the point it takes the highest level (though it doesn’t mean its end), we would call it the last stage of integration.
    Therefore, it’s a gradual process that takes different stages which don’t have a
    clear demarcation, but depends on how committed and willing the integrated
    economies are to achieve their expected goals. Stages of integration include
    among others the following:

    1. Preferential Trade Area (PTA) This is the initial level in the development of economic integration where countries start their cooperation. In here, member countries give preferential treatment
    to each other. There are low tariffs charged on selected commodities from member states while high tariffs are charged on commodities from non-member states. This is often the first small step towards the
    creation of a trading bloc. Agreements may be made between two countries (bi-lateral), or several countries (multi-lateral).

    2. Free Trade Area (FTA): Here member countries abolish or eliminate tariffs or trade barriers among themselves but each country retains a separate tariff structure on commodities from non-member states.

    3. Custom union (CU): This is where member countries eliminate all tariffs or trade barriers amongst themselves and in addition countries adopt a common tariff structure on commodities that are from nonmember countries but there is no free flow of factors of production among member countries.

    4. Common market (CM): In here, member countries eliminate tradebarriers amongst themselves; charge a common tariff on commodities from non-member countries and allow free mobility of factors of
    production within the region e.g. capital and labour. This is done to boost production, increase employment and increase reward for factors of production and improve economic welfare in the region.

    5. Economic Community/Union (EC/EU): This is where there is eliminating of all tariffs among member states, adoption of a uniform tariff structure on commodities from non-member countries; free
    mobility of factors of production within the region; adoption of harmonious economic policy where countries in the same region have the same economic strategy, use the same policies and policy tools.
    At this level, member countries have joint ownership of enterprises and they use the same currency thus have the monetary unions, harmonised social services like education, health etc. Their level of political identity is increased and thus formation of political federation.

    6.1.4 Advantages of economic integration

        Activity 3

    Having researched and known the many different economic groupings in which Rwanda belongs as seen in Activity 1 of this unit, share your views as a class; how Rwanda has registered numerous vital benefits
    than dangers from such different economic integrations. Give vivid examples from with in the country.

    Facts

    As a country joins different economic groupings, it is very much expectant
    to achieve its goals and benefit from them. These benefits include among
    others the following:

    1. Trade creation effect: This is where the creation/formation of the economic cooperation results into a shift from consumption of expensive products from non-member countries to consumption of
    cheap products in member countries.

    2. Expansion and extension of large markets: Most economic integration provides sufficient wide export markets since member countries have to import within the region which therefore boosts production and
    promote rapid economic growth.

    3. Skill development and technological transfer i.e. due to free mobility of factors of production, it facilitates skill development and technological transfer within cooperative countries.

    4. It increases the bargaining power of member countries in the international market, therefore this increases their benefits from the international trade.

    5. It increases the competition which leads to high productivity in terms of quantity and quality.

    6. It facilitates specialisation based on comparative cost advantage i.e. countries avoid competition in the production but instead specialise on the basis of comparative advantage which boosts production hence
    more volume of exports.

    7. Sharing of common services like research, education health transport and communication etc. which are usually efficient since they are jointly operated thus reduction of duplication of services.

    8. It promotes industrialisation among member states by establishing manufacturing industries.

    9. Common currency is used and each state adopts a common currency and it is strong and always stable which stabilises prices in the region.

    10. There is creation and expansion of employment opportunities and reduction of unemployment among member states due to the flow of factors of production freely amongst themselves.

    11. It enhances political harmony and stability in the region i.e. common political problems can be solved through consultation and sharing of ideas.

    12. It helps in redistribution of income in the region i.e. economic integration fosters a more equitable distribution of resources when factors of production are allowed to flow freely between or among
    countries thus equalising returns to each factor.

    13. It reduces balance of payment deficit because economic integration leads to reduction of foreign exchange expenditure and increased export earnings.

    14. It increases consumers’ choice i.e. since a variety of goods are produced with in the region, countries get commodities at low prices and low costs thus maximising profits.

    15. It reduces administrative costs involved in import-export restrictions.

    16. It promotes self-reliance among the cooperative countries i.e. it reduces economic dependence of LDCs on MDCs.

    17. It is a vent for surplus; the resources formerly un utilised can be exploited because of a wider market.

    6.1.5 Disadvantages of economic integration

    Much as a country expects benefits from joining different economic
    groupings, it should as well expect the adverse effects out of it which may
    include the following:

    1. Trade diversion i.e. this is where trade is diverted from low cost producers outside the integrated region to high cost producers with in the region. In addition, countries might continue using low quality
    products from within the region when they could have secured high quality goods from outside region.

    2. Loss of revenue which could have been got from tariffs due to free flow of goods and services and factors of production within the region and common tariff structure on non-member states.

    3. It may lead to loss and movement of resources and goods from less developed countries to more developed countries.

    4. Most LDCs produce similar products and find it hard to trade among themselves leading to surplus.

    5. When many industries are constituted in one country due to pull factors, it causes uneven distribution  of industrial benefits.

    6. Cooperative countries are forced to forego some of their national interests which reduce self-reliance and sovereignty.

    7. It may lead to production of low quality products because of restriction of similar commodities from non-member countries.

    8. It may lead to over exploitation and quick exhaustion of resources in order to supply a large market.

    9. Large scale ventures may experience diseconomies of scale. It leads to loss of political sovereignty in case of a political integrated federation.

    10. When there is political instability in one country, it may affect the whole integrated region because all countries depend on each other.

    11. Other countries may retaliate and also impose restrictions on imports and thus may lead to formation of rival trade.

    12. It may lead to unemployment i.e. firms will be relocated to more cost effective location within the bloc thus it may lead to unemployment to other countries from where the firms move.

    6.1.6 Obstacles to economic integration in Africa

    Below are the obstacles to economic integration in Africa

    • Dependence on a few primary exports: A major rigidity of most African economies is that their colonial masters encouraged the development and export of a few primary raw material products meant to service
    factories in Europe, a situation that has changed very little in the 1990s. Overdependence on commodity exports is at the heart of Africa’s trade crisis.
    More than any other developing region, Africa depends on primary commodities for instance coffee, cocoa, cotton and copper to generate the foreign exchange needed to buy imports.

    • Underdeveloped human resources: People have been neglected, badly educated and in poor health, with their capacities frequently under-utilised. The consequence is low labour productivity and lack
    of competitiveness.

    • Capital versus labour intensity: Another structural bottleneck of African economies is their reliance more on capital rather than labour-intensive techniques of production, a situation many critics attribute to the nature of the import-substitution industrialisation strategy embarked upon after independence for most of these countries. Import-substitution policies tend to favour production of relatively capital-intensive
    products; the application of capital intensive technologies — because of relatively low barriers to imports of capital goods; and an inefficient use of capital — owing to the lack of competition in domestic markets.
    All this happens at the expense of labour-intensity, of which Africa has a relatively large endowment.

    • Parochialism: Problems in Africa stem from failure, on the part of member-state governments, to internalise agreements in their national administrations and development plans. In many states, cooperation does not go far beyond the signing of treaties and protocols. Moreover,
    some governments do not send to meetings those officials who have the appropriate expertise on the issues to be discussed.

    • Excessive dependency of African states on the developed west: Many African nations generally still depend on the West for imports of raw material-supplies and manufactured products, even in cases where products of comparable quality may be available in member states.
    This runs counter to the rationale for creating bigger markets to facilitate the growth of viable production ventures. High dependence on imported raw materials from the ‘West’ makes African economies
    particularly vulnerable to foreign exchange availability—which in Africa is typically in short supply.

    • Political obstacles to integration: A sustained political and ideological will to succeed, on the part of individual member governments, is critical to the success of any regional economic grouping. There is lack of a viable and stable commitment by member country governments. Ideological pluralism has a fragmentary influence on regional groupings because different governments have different conceptions
    as to how the goals of integration are to be fulfilled.

    • Proliferation of regional groupings: There are many regional groupings which have been formed within Africa. A particular country may belong to more than two regional groupings. Countries in Eastern
    and Southern Africa belong to COMESA, SADC, and the Southern African Customs Union (SACU, whose members are: Botswana, Lesotho, Namibia, South Africa and Swaziland). With the exception
    of Botswana, all nine other members of SADC (Angola, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zambia and Zimbabwe) are also members of COMESA. Three of the five SACU
    members are also members of both SADC and COMESA. Almost half of COMESA members are also members of SADC, whose membership is smaller than COMESA’s. This weakens the integration
    process. It leads to costly competition; conflict; inconsistencies in policy formulation and implementation; unnecessary duplication of functions and efforts; fragmentation of markets and restriction in the
    growth potential of the sub-region.

    • Transport problems: The transport infrastructure for intra-Africa trade (including roads, rail systems, air and some shipping) is not only inadequate, but in many cases non-existent. Burundi, Comoros,
    Lesotho, Mauritius, Rwanda and Somalia, for instance, have no railway systems. In some cases, parts of the network (especially in war-torn states such as Mozambique, Angola, Democratic Republic of Congo
    and Burundi) need urgent rehabilitation and upgrading. The existing network has been characterised by high operating costs due to poor road conditions and cumbersome transit operations. This limitation
    does not help the integration process.

    • Different stages of development: Some countries in Africa are economically more advanced than others. Economic integration works on the promise that the benefits of integration will be distributed among
    member states in an equitable manner. However, the elimination of trade barriers and the adoption of common investment policies do not necessarily lead to an equitable distribution, but rather support or
    stimulate the tendency of investments to concentrate on the relatively more advanced economies. As a consequence, some countries have not benefitted from the integration.

    • Lack of information: Lack of information has hindered the development of intra-Africa trade. Most African nations are traditionally linked to their former colonial masters. As a consequence, there is an acute lack of awareness of what other African countries can offer to substitute
    for the products currently being sourced from the developed countries. Lack of information is also a direct result of inadequate economic infrastructure in Africa, especially in telecommunications and
    transportation facilities, directly hindering interaction among African countries.

    • Unfavourable world economic conditions: African economies have suffered as a result of negative developments in the wider world economy. The most adverse effects have come from changes in the
    terms of trade. Unfavourable terms of trade reduce output by increasing the cost of imported intermediate and capital goods, on which all African countries are heavily dependent. Consequently, this hinders
    integration.

    6.2 Case Studies of Economic Integrations

    6.2.1 Common Market for Eastern and Southern Africa (COMESA)

    Activity 4

    Visit the library, the internet or any other economics source and research on COMESA and share with the class about the following:

    (i) The countries that make up COMESA.

    (ii) The objectives behind COMESA formation.

    (iii) The achievements and challenges of COMESA.

    (iv) What Rwanda has benefited from COMESA.

    Facts

    COMESA is the largest regional grouping in Africa, in terms of the number of member states — it claims 21 members, almost half of the total number of countries in Africa. It has about half of Africa’s total population. COMESA member states resolved to promote the integration of the Eastern
    and Southern African region through trade development. They also agreed to develop their natural and human resources for the mutual benefit of the COMESA region.

    Member countries of COMESA

    Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

    COMESA was established in 1994 replacing the Preferential Trade Area for Eastern and Southern Africa (PTA). The PTA was created in 1981 within the framework for the Organisation of African Unity’s (OAU) Lagos Plan of Action and the Final Act of Lagos.

    COMESA is one of the most successful economic co-operation and integration groups in Africa. It has a proven track record of achievements

    being supported by its financial specialised institutions, namely the Trade and Development Bank for Eastern and Southern Africa (PTA Bank), the Clearing House and the Re-Insurance Company. The stages of integration followed by COMESA are indicated below.

    Stages of regional integration followed by COMESA

    • Preferential Trade Area: Trade among countries is conducted on a preferential basis, in conformity with agreed rules of origin, with each country maintaining its own tariffs on goods imported from third
    countries.

    • Free Trade Area (FTA): In conformity with agreed rules of origin, with each country maintaining its own tariffs on goods imported from third countries.

    • Customs Union: Member countries operate a common external tariff and there is free movement of goods once they enter the customs union. Tariff revenues are either shared among member countries or
    allocated according to the destination of the goods.

    • Common Market: There is free movement of goods, services, labour and capital, and the right of establishment and residency, between members of the common market.

    • Economic Community: In addition to the conditions of the common market, the economic community has a single currency issued by one monetary authority and common monetary and fiscal policies.

    Objectives of COMESA

    The COMESA Treaty, which sets the agenda for COMESA, covers a large number of sectors and activities. The role of the COMESA Secretariat is to take the lead in assisting its member states to make the adjustments necessary for them to become part of the global economy within the framework of the
    World Trade Organisation regulations and other international agreements. This is done by promoting “outward oriented” regional integration. The aim and objective of COMESA as defined in the treaty and its protocols is therefore to facilitate the removal of the structural and institutional weaknesses of member states by stages so that they are able to attain collective and sustained development. Among other things, COMESA member states agreed on a number of things.

    1. A full free trade area guaranteeing the free movement of goods and services produced within COMESA and the removal of all tariff and non-tariff barriers.

    2. A customs union under which goods and services imported from non- COMESA countries will attract an agreed single tariff in all COMESA states.

    3. Free movement of capital and investment supported by the adoption of a common investment area so as to create a more favourable investment climate for the COMESA region.

    4. A gradual establishment of a payment union based on the COMESA Clearing House and the eventual establishment of a common monetary union with a common currency.

    5. The adoption of common visa arrangements, including the right of establishment leading eventually to the free movement of persons.

    Achievements of COMESA

    The following are the achievements of COMESA

    • It has increased regional trade among member states i.e. trade creation.

    • It has led to establishment of joint ventures/ services like PTA Bank
     in Kenya and there is use of PTA cheques which have facilitated easy trade and transfer of cash.

    • It has established a clearing house in Harare Zimbabwe for settling barter trade transactions. This has increased the volume of trade and has helped countries to exchange goods without foreign currencies.
    Only differences in values are settled in hard currencies.

    • It has a chamber of commerce and industry group which organises trade fares or shows to increase market for member state products.

    • There has been increase in coordination of business activities in the region by setting up a trade information network.

    • There has been improvement in infrastructure such as transport and telecommunication services.

    • Good diplomatic relationship has been maintained among member states.

    • The PTA has increased market for commodities because of production for large market.

    • In terms of communication, due to the global advances in telecommunications technology and private sector involvement, there is measurable improvement in inter-country connectivity. For example, the action by major mobile telephone service provider AirtelCompany Limited (formerly Celtel), to merge its Kenyan, Ugandan and Tanzanian networks, thereby offering the first regional ‘borderless’ network (the tariffs for this service are substantially lower than roaming charges) in the world. This is seen as a major boost to inter regional communication. Some RECs demonstrate better connectivity (SADC,
    ECOWAS, COMESA, and UMA).

    • Africa remains a hotbed of conflicts, some of them extremely violent. A number of RECs established to pursue economic development are largely preoccupied with peacekeeping operations.

    Challenges of COMESA

    Below are the challenges of COMESA

    • Countries produce similar agricultural and industrial products thus exchange is difficult.

    • Poor infrastructure in the PTA countries as they cannot afford to finance heavy infrastructure like the railways, roads, air transport.

    • Due to differences in foreign policies, it is difficult to form a free trade area by harmonising tariffs charged on foreign countries.

    • Costs of production in PTA countries is very high, thus some countries find it cheaper to import commodities from ‘third countries’ especially developed countries which are traditional trade partners and can sell at a cheaper price and even extend credit facilities.

    • No common currency to use for the exchange of commodities.

    • Most of the PTA countries are land locked, therefore if there is free movement of resources, most industries would go to countries with easy access to the harbor which would cause development imbalances.

    • Political instabilities in some of the member states have interfered with the trade flows in the area.

    • There are small countries like Rwanda and Burundi and large countries like Tanzania and Sudan, therefore benefits are likely to flow to large countries where there is a diversity of opportunities and a high population to absorb those opportunities.

    • The difference in administration, customs, posts and telecommunication, railways, harbors, research etc. lead to difficulty in movement of people, commodities and information among countries.

    • Significant progress in integration is limited by the inability or unwillingness to prevent and decisively resolve numerous conflicts across the member states.

    6.2.2 East African Community (EAC)

    Activity 5

    Visit the library, the internet or any economics source and research on
    East African Community (EAC) and share with the whole class about the following:

    (i) The countries that make up EAC.

    (ii) The objectives behind EAC formation.

    (iii) The achievements and challenges of EAC.

    (iv) Reasons Rwanda joined the EAC.

    (v) What Rwanda has benefited from EAC.

    Facts

    The East African Community (EAC) is an intergovernmental organisation composed of six countries in the African Great Lakes region in eastern Africa: Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda, with its headquarters in Arusha, Tanzania. John Magufuli, the president of Tanzania (2016), is the EAC’s chairman. The organisation was founded originally in 1967, collapsed in 1977, and revived on 7th July 2000 following its ratification by the Original 3 Partner States – Kenya, Uganda and Tanzania.

    In 2008, after negotiations with the Southern Africa Development Community (SADC) and the Common Market for Eastern and Southern

    Africa (COMESA), the EAC agreed to an expanded free trade area including the member states of all three organisations. The EAC is an integral part of the African Economic Community.

    The EAC is a potential precursor to the establishment of the East African Federation, a proposed federation of its members into a single sovereign state. In 2010, the EAC launched its own common market for goods, labour, and capital within the region, with the goal of creating a common currency
    and eventually a full political federation. In 2013 a protocol was signed outlining their plans for launching a monetary union within 10 years.

    The EAC aims at widening and deepening co-operation among the partner states and other regional economic communities in, among others, political, economic and social fields for their mutual benefit.

    Aims and objectives

    The EAC aims at widening and deepening co-operation among the Partner States in, among others, political, economic and social fields for their mutual benefit. To this extent, the EAC countries established a Customs Union in 2005 and are working towards the establishment of a Common Market by
    2010, subsequently a Monetary Union by 2012 and ultimately a Political
    Federation of the East African States.

    Enlargement of the communit;y The realisation of a large regional economic
    bloc encompassing Burundi, Kenya, Rwanda, Tanzania and Uganda with a combined population of 120 million people, land area of 1.85 million sq. kilometers and a combined gross domestic product of 41 billion USD, bears great strategic and geopolitical significance and prospects of a renewed
    and reinvigorated East African Community.

    The specific objectives of the EAC Integration are

    • To attain sustainable growth and development of the partner states by the promotion of a more balanced and harmonious development of the partner states.

    • To strengthen and consolidate co-operation in agreed fields that would lead to equitable economic development within the partner states and which would in turn, raise the standard of living and improve the quality of life of their populations.

    To promote sustainable utilisation of natural resources of partner states taking measures to effectively protect their natural environment.

    • To strengthen and consolidate long standing political, economic, social, cultural and traditional ties and associations between the peoples of the partner states so as to promote a people-centreed mutual development of these ties and associations.

    • To mainstream gender in all its endeavors and the enhancement of the role of women in cultural, social, political, economic and technological development.

    • To promote peace, security, stability within, and good neighborliness among, the partner states.

    • To enhance and strengthen partnerships with the private sector and civil society in order to achieve sustainable socioeconomic and political development.

    • To undertake activities calculated to further the objectives of the Community, as the partner states may from time to time decide to undertake in common.

    Current status

    The regional integration process is at a high pitch at the moment. The encouraging progress of the East African Customs Union, the enlargement of the Community with admission of Rwanda and Burundi, the ongoing negotiations of the East African Common Market as well as the consultations
    on fast tracking the process towards East African Federation all underscore the serious determination of the East African leadership and citizens to construct a powerful and a sustainable East African economic and political bloc.

    On 16th October 2014, the Eastern African Community (Burundi, Kenya, Rwanda, Tanzania, and Uganda) finalised the negotiations for a region-toregion Economic Partnership Agreement (EPA) with the EU.

    Trade picture

    • East Africa is a geographically and economically homogeneous region committed to regional integration. The East African Community (EAC) consists of Burundi, Rwanda, Tanzania, Uganda (all of which are least developed countries or “LDCs”) and Kenya which is more developed than the rest.

    • The EAC established a Customs Union in 2005 which was fullyfledged with zero internal tariffs as from 2010. The EAC, in fast tracking its economic integration process, ratified a more far-reaching
    common market protocol in July 2010. In November 2013, EAC members signed a protocol on a monetary union.

    • The integration agenda of the EAC is strongly political in nature as its ultimate goal is to become a federation.

    • All the countries in the East African Community are members of the WTO.

    • Exports to the EU from East African Community are dominated by coffee, cut flowers, tea, tobacco, fish and vegetables.

    • Imports from the EU into the region are dominated by machinery and mechanical appliances, equipment and parts, vehicles and pharmaceutical products.

    Total Intra-EAC Trade


    The value of intra-EAC trade declined by 3.0 percent from 5,805.6 million USD in 2013 to 5,632.9 million USD in 2014 as shown in Table 3.1. The decline was driven by the decrease in the value of exports that went down by 12.7 percent. Kenya, Tanzania and Uganda recorded an increase in their
    shares to total intra-EAC trade while that of Rwanda and Burundi declined. During the review period, Kenya continued to dominate intra-EAC trade, accounting for about 32.8 percent of total intra-EAC trade while Tanzania and Uganda accounted for 26.4 percent and 23.6 percent of the total intra- EAC trade, respectively.

    Achievements of the East African Community

    Here indicated below are the achievements of the East African Community

    • The most important achievement was the establishment of the EAC Custom Union. The Custom Union Protocol was signed in March 2004 and came into effect on January 1, 2005.

    Under Customs Union arrangements, goods produced within the EAC move across the border of partner states without taxation provided they qualify under rules of origin.

    • It has increased both inter and intra-regional trade, increased competition that has increased consumer’s choice, reduction of costs, and attraction of foreign direct investments.

    • It has witnessed an increase in intra-EAC foreign direct investments as well as foreign direct investments from outside.

    • There is mutual recognition of standards marks across the region where the bureaus of standards have developed an EAC catalogue of standards

    • It has led to establishment of One Stop Boarder Posts that have already been articulated within the auspices of the community law. This has facilitated trade within the community

    • It has implemented internal tariff elimination. This has facilitated smooth trade among the states.

    • As part of the joint effort to promote East Africa as a single tourist destination, partner states have participated in major international travel markets forums including the World Travel Market in London November 2005 and the International Tourism Bourse in Berlin in March 2006 which has helped in promoting East Africa as a single tourist destination and has resulted in attracting more tourists and
    increasing the contribution of the tourism industry to the East African economy.

    • Promotion of foreign policy co-ordination through collaboration in diplomatic and consular activities; collaboration in economic and social activities; liaison and exchange of information; and collaboration in
    administration and capacity building.

    • Launched Lake Victoria Commission i.e. East African partner states have taken a number of steps to preserve the lake through the implementation of the Lake Victoria Environmental Management
    Programme. This has ensured sustainable use of Lake Victoria.

    • The partner states have adopted an action programme that has focused on increased employment and poverty reduction in the EAC. The EAC projects and programmes are assessed as to how they contribute
    towards poverty eradication in the region.

    Furthermore, the East African Community established an annual
    Ministerial Forum to focus on employment creation and poverty
    reduction.

    • Improvement of East African Infrastructure through the East African road network project where a tripartite agreement on road transport has been ratified by partner states. The main objectives of the agreement are to facilitate interstate road transport through reduced documentation for crews and vehicles at border crossing, harmonised requirements for operation licensing and customs and immigration regulations, among others. In order to fast-track decisions on transport
    and communications, the EAC established the sectoral council on transport, communications and meteorology.

    • Harmonisation of monetary and fiscal policies i.e. steps toward the harmonisation of monetary and fiscal policies have included convertibility of the partner states’ currencies, harmonisation of
    banking rules and regulations, harmonisation of finance ministries’ pre- and post-budget consultations, regular sharing of information on budgets, and reading of budget statements on the same day. In capital
    markets, there have been changes in the policies and trading practices and regulations in the three stock exchanges. The committee for the establishment of Capital Markets Development that oversees the
    development of the capital markets in the East African Community aims to develop East African community capital markets including managing cross-listing of stocks.

    • Strengthened an East African identity i.e. there have been developments designed to foster the feeling of integration among the people of the EAC and to facilitate an East African identity. These have included
    the introduction of the East African Community flag, the launching of an East African anthem and the East African passport.

    Challenges of the East African Community

    The following are the challenges of the East African Community Despite the progress made throughout the years, some challenges remain noteworthy and this has hampered the progress of the community;

    • Some citizens of some member states lack awareness of the regional integration process and cannot articulate the benefits that can be drawn from the EAC integration process. e.g. in Tanzania.

    • Differences in social political ideologies amongst member states e.g. in Tanzania the social political system that was in place for over 3 decades after independence, makes people both in public and private
    sectors not very entrepreneurial as they tend to rely on the government

    • One of the reasons for the collapse of the previous East African Community in 1977 was the perception of disproportionate sharing of economic benefits accruing from regional markets and lack of a
    formula for dealing with the problem. It is still a challenge to the community to address problems arising from the implementation of the treaty.

    • Improving the performance of major ports such as Mombasa and Dares Salaam, and the East Africa road network and East Africa railway network are key challenges facing the East African Community.
    Improving supply conditions will enhance EAC capacity to withstand the forces of globalisation

    • The EAC report on fast tracking (2004:81) reports that the fear of loss of sovereignty is an issue in the minds of some members of the political elite of East Africa. The fear is that as a Federation, the nation
    states would cease to have any meaningful powers; that they would be relegated to mere provinces within the Federation.

    • Participation by citizens is at the core of the new East African Community. The treaty advocates for people-driven and peoplecentreed development. East African people should play an active role
    in determining the progress of the new community. The community has to live up to the expectations of the peoples of East Africa by implementing the treaty’s provisions for the creation of an enabling
    environment for the private sector and civil society participation, the strengthening of the private sector; and enhancement of co-operation among business organisations and professional bodies.

    6.2.3 Economic community of the great lakes countries (CEPGL)

    Activity 6

    Visit the library, the internet or any other economics source and research on CEPGL and share with the class about the following:

    (i) The countries that make up CEPGL.

    (ii) The objectives behind CEPGL formation.

    (iii) The achievements and challenges of CEPGL.

    (iv) What Rwanda has benefited from CEPGL.

    Facts

    The Economic Community of the Great Lakes Countries (ECGLC) (in French CEPGL - Communauté Économique des Pays des Grand Lacs) is a sub-regional organisation with multiple vocation created by the signing of the Agreement in Gisenyi, Rwanda on September 20, 1976 under the initiative of the former president of Congo (Zaire), Mobutu. The ECGLC aimed at insuring the safety of member states, favouring the creation and the development of activities of public interest, promoting the trade and
    the traffic of the persons and the possessions. It aimed at establishing the cooperation in a narrow way in all the domains of the political, economic and social life.

    It has three members: Burundi, Democratic Republic of Congo (formerly known as Zaire), and Rwanda. It has its headquarters in Rwanda. Its purpose is to promote regional economic cooperation and integration. The CEPGL is an Economic Community of East Africa.

    The community of the Great Lakes Countries collapsed in the mid 1990’s, precisely in 1994 due to conflicts within and between member states. After more than 13 years of lethargy and under the pressure of international community, the ministries council held in Bujumbura on the 17th April 2007
    decided to relaunch the CEPGL activities. During the ministries council, three priorities were retained on the CPEGL agenda for the next five years (2011- 2016):

    1. Peace, security and good governance

    2. Energy and infrastructures

    3. Agriculture and food security.

    The CEPGL controls the following institutions

    • Bank of Development of the States of the Great Lakes (BDEGL).

    • Comité Permanent Inter-Compagnies (COPIC).

    • Institute of the Agronomic Researches and Zootechniques (IRAZ).

    • Economic Community of the Great Lakes Countries Organisation for Energy (EGL).

    • International Society for Electricity in the Great Lakes Region (SINELAC).

    Research Centre for the Development of the Mining Resources in Central Africa (CRDRMAC).

    Objectives of CEPGL

    The main objectives of the Economic Community of the Great Lakes are:

    1. For economic and social development among the member countries (free movement of persons, foster international trade).

    2. To promote of peace initiatives in the region (Burundi, the Democratic Republic of Congo, and Rwanda).

    3. For strategic development in the region: Energy, Infrastructure, Agriculture, and Food Security.
      

    Achievements of CEPGL

    The CEPGL has some concrete achievements, they include:

    1. Created the International Great Lakes Energy Company (SINELAC) on 17th Feb 1984 which exploits a hydro dam in the Congolese territory, Mumoshu in the southern Kivu province. The aim of the
    company is to produce and furnish electricity to members of CEPGL for example, between 1991 and 2001, this dam furnished on average 45%, 17% and 21% of the national production of electricity of
    Rwanda, Burundi and Congo respectively. However, SINELAC is facing the incapacity of member states to pay electricity bills.

    2. Created the Development Bank of the Great Lakes Countries (BDGL) on 9th sept 1977 with its headquarters in Goma (DRC). It aimed at financing community projects, but was only operational from 1984 to 1994. It had financed 31 projects in the DRC, 7 in Rwanda, 7 in Burundi and 1 community project- SINELAC.

    3. Put up the institute of agriculture and livestock research (IRAZ) which aimed at doing research in the domains of agronomy and zootechnics.

    4. Provided the CEPGL identity card which enables free movement of people within the community leading to the development of small cross border business from which thousands of people earn a living.

    5. Set up the Energy Organisation of the Great Lakes Countries (EGL) aiming at improving cooperation amongst members in the energy sector.

    6. Increased commercial exchange between Burundi, Rwanda and Eastern DRC. For example, products like foodstuffs, livestock, bracelet etc. are traded from Goma to markets in Rwanda and Burundi.

    7. This informal trade has great impact on everyday life of the population and its practitioners. The revenue generated by this business is significant compared to what civil servants can earn monthly in the
    region.

    8. Successfully Implemented common infrastructures and projects such as BDGL, IRAZ, SINELAC.

    Challenges of CEPGL

    1. Violent conflicts in the great lakes region have hindered the effectiveness of this regional Economic community. This has destroyed the spirit of good neighbourliness and the social economic
    relationship between the three countries. For example, the border posts between Goma and Gisenyi which used to be open 24 hours until May 2012 to facilitate small cross border economic activities
    between the two cities, is now open only from 6 am to 6 pm. This has caused severe consequences on the movement of goods and persons.

    2. Failure to bring peace and stability in the region as one of their objectives. This is due to lack of political will from regional leaders. Members of the CEPGL, in particular the DRC, had no interest to
    revitalise the CEPGL. For Congolese officials, the DRC was not ready to re-launch the CEPGL.

    3. Mistrust among members of the CEPGL could not enable Regional Economic Community (REC) to promote economic activities, peace and stability in the region. That’s why Rwanda and Burundi have got
    closer to the East African region than to the DRC. This is justified by their recent entrance in the East African Community.

    4. Multiple and overlapping memberships in several Regional Economic Communities e.g. the DRC is a member of multiple RECs which reduces its effectiveness in the CEPGL. This is due to the country’s
    big size and lack of integration among different economic blocs of the country.

    5. Weak financial, human and institutional capacity of the member states of the CEPGL hinders them to fulfil their regional commitments. Regional leaders fear to abandon a share of their power to a regional

    institution. Because most African countries still have fresh memories of the colonisation. They fear to put the control of their power to external or internal forces.

    6. Furthermore, the staff of the secretariats of the CEPGL is appointed by politicians to whom they are subjugated. This reduces their independence vis a vis the political sphere of the respective countries.
    It limits their capacity to compel them to respect their regional commitments.

    7. Failure to promote formal exchanges among its members though it has increased informal exchange. There is negligible intra- CEPGL trade as indicated by lack of official statistics capturing the flourishing
    unofficial cross border trade of agricultural products and re-export of manufactured products on African borders.

    8. Lack of appropriate infrastructure which should connect the three countries in the community and the different parts within the country e.g. in the DRC, lack of connection between the big cities of Kivu to
    the rest of the country explains why these cities are more integrated to the economy of neighboring countries than to that of the DRC.

    9. Inappropriate trade policies which are too restrictive and the high level of corruption of customs agents have hindered the prosperity of informal cross border trade in the CEPGL community.

    Unit assessment

    1. (a) What are the features of an economic union?

       (b) Analyse the objectives behind economic integration by nations.

       (c) Examine the factors that may encourage formation of an economic union in eastern Africa.

    2. (a) Why did the East African Community fail in 1977?

       (b) What good things can the current EAC learn from the former EAC?

    3. In what ways may economic integration solve problems of underdevelopment?

    Glossary

    ཀྵཀྵ Economic integration: The coming together of countries in a given region so as to promote trade and enjoy economic benefits by working collectively.

    ཀྵཀྵ Trade creation: A situation where formation of economic cooperation results into a shift from consumption of expensive products from nonmember countries to consumption of cheap products in the member countries.

    ཀྵཀྵ Trade diversion: A the shift in trade from cheap products of nonmember states to expensive products of member states within the integration.

    Unit summary

    • Economic integration

    • Meaning

    • Reasons/ rationale for economic integration

    • Conditions for economic integration

    • Steps/ levels of economic integration

    • Advantages and disadvantages

    • Obstacles of economic integration

    • Case studies

    • East African community (EAC)

    • Common Market for Eastern and Southern African (COMESA)

    • Economic Community of the Great Lakes Countries (CEPGL)




    Unit5:Exchange RatesUnit7:Globalisation