Ideas & Debate

How to make EAC economic integration dream a reality

eac

EAC and member states flags on June 24, 2010. FILE PHOTO | NMG

A recent Ugandan High Court ruling in a case involving a Kenyan bank is a manifestation of confusion that continues to cloud the process of integrating East African Community (EAC).

The ruling, which has since been appealed, may entrench scepticism about the adopted EAC Protocols on the Establishment of Customs Union, Common Market, Monetary Union, and Political Confederation.

In the ruling, the court found that DTB Kenya committed illegalities in lending money to Ugandan firms Ham Enterprises and Kiggs International Ltd without prior authorisation of the Bank of Uganda (BoU).

Even though the BoU has since circulated press statements clarifying that its regulatory powers are limited to financial institution business conducted by BoU-licensed entities in or outside Uganda and that these powers do not extend to activities of foreign banks outside Uganda licensed by foreign regulators, two things have been made apparent.

First, the contradictions between the Ugandan court and the regulator is a pointer to the ambiguity in the country’s laws insofar as the position of foreign firms operating in Uganda is concerned. Second, and more importantly, the court ruling laid bare the fact that EAC Treaty and its subsequent protocols detailing EAC economic integration procedures are either still nonbinding or binding but still widely unknown to institutions of EAC partner states.

No wonder neither the Ugandan court in its ruling nor the central bank in its clarification made a mention of any of the laws establishing the EAC. While the court largely referred to Uganda’s Financial Institutions Act 2004 and the Kenyan Banking Act, which it ruled had been breached, the BoU was categorical on its relationship with ‘foreign banks’ and ‘foreign regulators’. The stake of firms registered in other EAC partner states but operating in Uganda was ignored outright.

Paragraph 2 (a) of Article 4 of the EAC Protocol on the Establishment Common Markets stipulates that the specific objective of the Common Markets is to accelerate economic growth and development of the partner states through the attainment of the free movement of goods, persons and labour, the rights of establishment and residence and the free movement of services and capital.

Paragraph 3 of the same Article provides the blueprint of how to realise the object. It instructs that in order to attain the objective and others not stated here, the partner states shall co-operate in, integrate and harmonise their policies in areas provided for in the Protocol and other areas as the Council may determine.

Now, as to whether the partner states are cooperating is debatable, but the promise to have integrated and harmonised their policies as provided for in the Protocol remains unfulfilled. If not checked, these discrepancies may cost the region trade amounting to billions of dollars. Already the Kenya Bankers Association has warned its members operating in Uganda to take ‘cautionary measures’.

Paragraph 7 of the Article 13 of the EAC Protocol on Common Markets assures that for the purposes of taking any (economic) activity…the partner states shall mutually recognise the relevant experiences obtained, requirements met, licences and certificates granted to a company or firm in the other partner state.

The Ugandan court ruling appeared to have contradicted this provision and many other provisions of the said Protocol. If nothing is done to align policies of Partner States to the Protocols on the Establishment of Customs Union, Common Market and Monetary Union, court rulings of similar fashions affecting other industries are likely to be replicated in other partner states.

This may translate to economic shocks in the region especially now that the EAC is in the implementation process of the Protocol on the Establishment of the East African Community Monetary Union (EAMU) signed in November 2013, leading to the use of a common currency by 2024.

It is this unsatisfactory implementation of the customs union and common market protocols that provoked Kenya-based Institute of Economic Affairs to counsel that there are no compelling economic reasons for Kenya to enter a monetary union at this stage.

This position is in agreement with the prescription of the United Nations Economic Affairs for Africa that it may be advisable for the region, to fast track the full implementation of common market and customs union protocol, harmonise policies and increase inter-regional trade before adopting a common currency, and that adopting a common currency before reaching a good level of convergence may be more damaging to EAC countries.

The two expert opinions are a pointer to the general feeling that the implementation of the regional economic integration is so far underwhelming. This shall remain so until the visionary conventions on the establishment of an integrated EAC are converted into tangible actions.

The EAC economic integration may be elusive if bequeathed upon the underfunded, understaffed EAC secretariat. To complement the secretariat, departments or commissions on the implementation of the four pillars of EAC economic integration should be instituted so that there exists a body such as ‘Commission on the Implementation of EAC Common Market’ specifically charged with the duty of evaluating, monitoring, enforcing and assessing the impact of the regional economic integration.

It is difficult to rely on promises of cooperation made in circumstances where enforcement is impossible.

Arwa is a postgraduate student of International Studies at the University of Nairobi