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Why EAC has a long way to go

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Thirteen years after the EAC Common Market Protocol agreement was signed by the heads of state, the East Africa Business Council is raising alarm about increasing non-tariff barriers that have led to an intra-EAC trade declining from 21 percent in 2015 to 14 percent today.

The East Africa Business Council is more concerned that this regressing of intra-EAC trade is starting to derail the chances of the regional bloc moving to the next stage of a monetary union.

The East Africa Legislative Assembly passed the East Africa Monetary Institute and East Africa Bureau of Statistics to facilitate the East Africa Monetary Union. But one of the prerequisites for the implementation of the monetary union is that the region achieves at least 25 percent of intra-EAC trade.

The fact that intra-EAC trade is declining is bad news whilst the declining prospects of EAC moving into a monetary union is good news.

Let us start with the bad news. The fact that intra-EAC trade is declining should be a matter of concern.

The East Africa Common Market Protocol was meant to boost export competitiveness, enhance productivity, promote specialisation, increase diversification of economies to accelerate economic development as well as foster social ties in the region.

So, a rise in non-tariffs instead of eliminations raises concerns about sustainable growth and development.

There has been an escalation of trade wars in the region in the past four years, starting with Rwanda closing its borders with Uganda for three years. Rwanda accused Uganda of sponsoring dissidents who harbour intentions of overthrowing the government in Kigali. The good news is that the border was partially opened a few days ago.

Rwanda had also closed its borders with Burundi after the latter accused the Paul Kagame government of sponsoring the 2015 failed coup against then Pierre Nkurunziza.

Kenya also blocked the access of some of Ugandan products like maize, sugar and milk. Kenya has also picked a trade hostility with Tanzania a number of times. So, the EAC has just been a turmoil of trade hostilities which are to the detriment of the growth of intra-EAC trade and the citizen accessing cheaper goods across borders.

Coming to the issue of the East Africa Monetary Union, I still maintain that it’s a hurried and ill-conceived idea, the region is far from having a monetary union. These issues that are already derailing the Common Market Protocol are serious systemic risks under a monetary union.

Now, the fact that there are no effective institutions to resolve these trade issues mainly arising from political mistrust should be a cause of worry about establishing a monetary union.

If mistrust between two governments leads to closure of the border affecting the movement of goods and people when the currency needs increased trade among countries, what is the systemic impact of such expensive decisions in a monetary union?

That is one concerning question we should ask ourselves. Establishing a monetary union by 2024 as planned will expose our soft underbelly of weak governance structures that form the foundation of a stable monetary union, making the plan an expensive experiment.

How the EU has managed to hold a monetary union for thirty years now is that it established a deep framework of common values and principles that guide member states. First is consolidating political values which include democratic governance and respect of rule of law by political elites.

Second is economic values where companies are required to adhere to ascertained European standards, sustainable development like member countries adhering to fiscal targets to attain and maintain. Third is legal value which is largely the glue to the European Union Agreement known as the Lisbon Treaty.

The European court has the final say on commercial and trade disputes whilst the European Parliament is responsible for the conclusion of trade, investment and regulatory agreements.

Therefore, the EAC has a long way to go despite being the most advanced regional bloc on the continent.