Regional Integration No Magic Bullet

Published on 3rd November 2008

The tripartite meeting in Kampala, in which officials from 26 African countries agreed to form one trade bloc, will go down as one of Africa’s most significant political deals in recent history. But on an economic front, the arguments for the integration hardly offered any major therapy for propping up Uganda’s export industry, and could further confine the country at the foot of Africa’s emerging economies.

 

The argument that a huge market will spur Uganda’s economic growth neglects the critical notion that unless infrastructural problems like the rickety transport network and a flimsy electricity grid are dealt with, the country has little to gain from integration. If anything, integration only exposes Uganda’s small economy to heavy competition – a factor that could wipe out some local firms.

 

According to plans discussed during the meeting in Kampala, the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC) and the East African Community (EAC) are to come together to establish the African Economic Community, in what would become Africa’s biggest economic bloc. The call to come together comes almost 16 months after Uganda, Kenya, and Tanzania broke away from the Eastern and Southern Africa bloc during negotiations with the European Union, citing irreconcilable differences in demands to the latter over the Economic Partnership Agreement.

 

The plans also come almost three years after Uganda signed the Common External Tariff agreement under the East African Customs Union, which is yet to bear any significant fruit for the country. The failure for Uganda to exploit the Common External Tariffs - where the country’s raw materials were not to be taxed in Kenya or Tanzania, while the semi finished and finished goods were to attract lower taxes – puts in doubt the country’s ability to explore fully regional trade agreements.

 

Promising to correct history’s wrongs, the representatives of the 26 countries that met in Kampala last week have set a roadmap of streamlining trading arrangements for the establishment of a Free Trade Area, allowing free movement of business persons, and working on inter-regional infrastructure, just to mention a few. The roadmap for the Free Trade Area, the officials agreed, should be in place six months from now.

 

President Yoweri Museveni, the host of last week’s meeting, said that “Integration is a strategic tool for a cluster of linked peoples, using a big market, in order to ensure their safety and prosperity. Economically speaking, integration unites markets. Bigger markets are a strategic instrument of liberating people from poverty. The bigger the market the easier it is for businesses to grow and make a profit.”

 

But top officials within Uganda’s business community, however, have offered a pessimistic opinion over the merger, describing the plans, if passed, as a raw deal. “Just look at our infrastructure,” said Gideon Badagawa, the executive director of the Uganda Manufacturers Association. “The whole country is producing just 250 MW of electricity, a quarter of which is lost, compared to more than 1000MW produced in Kenya. The railway system is in bad shape and less than 20% of our cargo comes in from Mombasa by rail. The roads are bad and some traders find to transport their goods from Mbarara to Kampala. Now, if all these are happening in our country, then how do you say we are going to sell to South Africa and so on competitively?”

 

He explained that the 26 countries are at different stages of economic development, and therefore should be left to grow at their own pace. “It is not about the numbers (of countries Uganda is exporting to). What are we taking to these markets? As a landlocked country, we are already disadvantaged.”

 

Badagawa said that Uganda has access to tariff free markets in the United States of America under the African Growth and Opportunities Act, and in Europe under the Everything But Arms. The results, he said, have been dismal, with Uganda at times failing to make a single shipment of apparels in a year under AGOA.

 

Issa Sekitto, the spokesman for Kampala City Traders, also argues that any business person hoping that the integration of the 26 countries comes with fortune is living in fantasy. Calling the plans to come together a raw deal, Sekitto said that government has no political will to assist the private sector – the country’s engine of growth – to benefit from economic integration. “I don’t think government would want us to join the Free Trade Area because they depend a lot on (import) taxes,” he said. Import taxes account for about 51% of Uganda’s tax revenue.

 

Florence Kata, the executive director of Uganda Export Promotion Board, the body promoting the country’s exports, however, defended the integration, saying that the recent budget increment for roads, totaling about Shs1.1 trillion, should solve some of the infrastructure bottlenecks haunting the business community. She said that if the integration is supported with trade facilitation, Uganda’s export volumes could shoot through the roof. Figures from UEPB indicate that the COMESA region took up the lion’s share of Uganda’s exports in 2007, accounting for 39% of goods and services worth $506.5 million up from $283 million the previous year. But the growth is a result of re-exports, which are raw materials imported and then exported as finished products, and whole sale trade with the region. Maize and beans are some of the locally produced exports that performed fairly well in the COMESA region as Uganda positioned itself as a food basket for the region amid the ongoing shortage.

 

Kata said that “We are seeing a trend where it is becoming difficult to trade with developed countries. The rules of trade within the developed markets (like the European Union) are becoming so stringent in regards to hygiene. But when an exporter wants to take goods to, say, Southern Sudan or Congo, he is not asked whether the goods have been washed with Omo (detergent).” She said that sustaining supply to the developed markets is not easy due to the long period of transporting the goods and the high costs attached to it.

 

But Gideon Badagawa points out that there is little commitment by government ministries to push for commercial laws needed to ease trade for the private sector to compete favourably. He cited the sluggish pace at enacting Bills like the Competition Bill, the Employment policy, the Pension Bill, the Mortgage Bill, among others, into law – some of which have been on the shelves for more than 10 years now – as a huge disservice to the private sector.

 

For the private sector, the failure to receive the kind of confidence needed from government dampens the mood to trade regionally. Already, there is a fear that the 26 countries planning to integrate could change goalposts when it comes to taxing imports and protecting home industries from competition. They point to the recent standoff between Kenya and Uganda over the trade in day old chicks.

 

In the face-off, Kenya directed Ugandan firms to only export chicks through agents – something Uganda said violated the spirit of trade.Uganda reacted by ordering for a risk assessment report before an 11 year ban on Kenya’s beef could be lifted, rubbing Kenyans the wrong way. “If we are not playing a fair game in East Africa, how can we play fair in COMESA and SADC?” asked Badagawa. But Florence Kata called such differences as “small issues” that can easily be resolved, adding that it is a totally different scenario when cracks appear in trade relations in far off Europe.

 

There are also arguments that the opening up of our borders to 25 other countries could see a huge labour force raiding Uganda’s thin job market. On the other hand, it becomes difficult for Ugandans to access the other job markets because as a nation it lacks national identity cards, a crucial requirement when applying for formal jobs in other countries.

 

Besides, South Africa, perhaps Africa’s largest economy with a big market for employment, tainted the spirit of integration early this year when foreign workers were harassed, and in many instances killed, because they had taken many jobs from the locals there.

 

Jeff Mbanga jeff@observer.ug writes for The Weekly Observer

 


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