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Kenya’s EAC Policy affects every facet of its broader national policy, and the nation’s lethargy in instituting reforms and the rehashing of rhetoric with regards to the EAC’s potential does little to meet its challenges. This brief summarises some of the policy concerns regarding Kenya’s EAC position and offers a few recommendations to deal with some of the issues the nation faces going forward into the final stages of formal regional integration.


In the eight years that have passed since 2005 when the East African Community (EAC) Customs Union came to effect,1 and the three years since the establishment of the East African Common Market in 2010,2 efforts and reforms have been made aiming to “liberalise intraregional trade...promote efficiency...enhance investment [and] promote economic development and diversification”,3 in order to provide the “four freedoms – free movement of goods; labour; services; and capital”4 within the region. Some of these efforts include regulatory changes ranging from the introduction of an online tax filing system in Kenya5 to the abolition of agricultural import levies on goods from Tanzania,6 culminating in “a total of 74 institutional and regulatory reforms” 7 in all the EAC Countries since 2005. However, it is difficult to attribute many of these reforms to the framework of the EAC as opposed to independent national policy changes, and the scale, scope, and pace of reform and change across the region is debilitating and slow. Trade in the EAC is far from free, or coherent, and the stagnation on effecting actual change is demonstrative of lethargy and lack of political will, despite the rhetoric of belief that the EAC offers an unprecedented opportunity for the region. Even Paul Collier, a distinguished development economist, noted that “too much attention may have been given to the symbolism of monetary union and common currency, and too little to opportunities for cooperation in creating a shared infrastructure for the 8

community.” In particular, non-tariff barriers (NTBs) plague intra-regional trade, and slow progress is being made to redress these challenges. Thus a rethinking and reform of the current trading system within the EAC is necessary – and Kenya’s role in revitalising the union is of crucial importance to the nation’s and the community’s present and future success. Kenya’s own record in implementing the customs union and the common market has been lacking in most aspects - the sole notable achievement of the past 8 years being the implementation of the one-stop border posts between Kenya and Uganda at the Malaba border.9 A fundamentally demonstrative point to illustrate the inefficacy of the EAC Trading system is this example: “To ship a tonne of fertilizer 9000km from the US to coastal Kenya it


costs $40, but it costs another $120 to get the shipment from coastal Kenya to Kampala, Uganda, a distance of only 1000km”,10 despite the implementation of these border posts. Ranked 121st in the world out of 185 countries on the global rankings of the ease of doing business in 2013,11 Kenya’s trends and statistics have been lacklustre in evaluating the nation’s progress towards regional integration and spurring growth and investment on both a macro- and microeconomic scale. In spite of the introduction of the online tax system, Kenya ranks as the poorest in the region at collecting taxes,12 and although the Northern Corridor (the transport network that stems from Mombasa and ends in Bujumbura) channels 75% of the EAC’s trade volume,13 Kenya lies at 148th in the ease of trading across borders.14 The trading network is beleaguered by age old significant delays and congestion at the ports,15 which fuels road congestion due to the abysmal condition to the rail system – a system that costs 40-80% less per ton-km than the road system16 - as well as the numerous weighbridges, police inspections and roadblocks, instances of deeply entrenched corruption, and a plethora of systematic barriers to trade.17 Furthermore, Kenya’s status on improving the ease of doing business, reform, and embracing the ethos of the East African Community as well as facilitating trade to enhance its own development since 2005 is illustrative of a stagnation, and even decline in a multitude of arenas. What’s more, Rwanda’s meteoric rise through the rankings and in reforming its policies inform the statement that “if a hypothetical EAC economy were to adopt the best practices among partner states...it would stand at 26 in the global ranking on the ease of doing business”,18 compared to the community’s average ranking of 117.19 This indicates that many of the solutions to the challenges the region faces can be found within the region itself, and that the region faces a significant coordination problem. The curious case of having a varying number of different documentation and inspection requirements for import and export across each of the five EAC members20 is a case in point to demonstrate the absence of coordination between each of the nations; each favouring to have its own regulatory framework to inspect


goods an assert its sovereignty; at the cost of efficiency, bureaucracy, repetition, and a vast amount of time and energy wasted. The “lack of coordination among member countries and the implementation of ‘isolated’ national reforms”21 undermines the fabric of the EAC, and this visible amongst ordinary citizens – in a survey to assess the benefits of the EAC on ordinary citizens, “most respondents were only able to name Kenya, Uganda and Tanzania as EAC partner states”22 – a clear indication of the fragile and almost esoteric symbolism of the union. There are also visible cooperation problems, notable in part because a large number of issues brought forward at meetings of the EAC Secretariat are pushed to be resolved in bilateral meetings between the states facing the issue rather than in the forum of the EAC.23 Furthermore, the polarised reforms undertaken by each country “often focus on short term gains and fail to consider the impact on the region...hinder[ing] progress in fully implementing the common market.”24 At the cornerstone of the politics of partial economic reform is understanding that amongst those who most ardently resist full reform are the “net winners in the overall reform process”25 who benefit immensely from the market distortions of partial reform but stand to lose out if such distortions are resolved. This is visible from the failure of Kenya’s railway system26 despite its privatisation in 2006.27 Trucking transportation companies, for example, currently benefit from the increased East African trade as well as the inefficient rail network, such that they have an incentive to overload vehicles and politically undermine the railway’s restructuring. This is despite the fact that millions must then be spent to maintain the roads, and the reformed railway would not only mean increased trade but also mean a decongestion of traffic and therefore a speedier (thus cheaper) transportation of goods via their trucks – making them net beneficiaries of wholesale reform. What is clear though, is that although Kenya occupies a unique position in the composition of the East African Community, there are immediate actions that Kenya’s


policymakers can take that will have a potent impact on the trading system, and will signal renewed political will in a process abounding in rhetoric, and as such attract future intraregional expansion of opportunities and investment – both foreign and domestic – into the region as a whole. Many of the immediate actions simply require an adoption of best practices within the region, though others will require cultivating sufficient political capital to put into effect policy decisions and overcome resistance from the beneficiaries of the broken system. Rwanda’s success in implementing a multitude of reforms since 2005 serves as a pilot test to prove the efficacy of reform, but Kenya’s apathy and ambivalence towards the process is a significant bottleneck to Kenya’s and Rwanda’s own ambitions, as well as those of the wider East African Community. A recognition that Kenya’s present and future policies on all aspects ranging from IT and Education to Health and Resource Management are pegged to how the nation deals with the EAC’s development agenda is critical, whether or not Kenya is committed to the path of true political and economic regional integration, as the interconnectedness of the region is inescapable and unavoidable, and it presents vast opportunities for mutual and overall gains in welfare. Some of the challenges can be addressed as follows: 1. Eliminate Non-Tariff Barriers, beginning with those whose inefficiencies are bureaucratic and promote rent-seeking and/or corrupt behaviour. This includes: a. Harmonising the import/export documentation to be standard across the community, operationalised by having a single authorization required for goods to be traded anywhere within the community such that goods imported into Tanzania do not need to be ‘imported’ into Kenya because they exist in the same market, for example. b. Reducing the number of functional inefficiencies related regional trade; for example, the case of multiple weighbridges and police checks, which, despite having been reduced from 36 to 9 police checks28 between Mombasa and Malaba, is still superfluous and only promotes corruption and slows down trade, as a maximum of 2 checks is justifiable – as goods enter and leave the country/community


c. Streamlining business regulations and practices to allow citizens of the EAC to have freedom of mobility with respect to labour, such that other EAC citizens may operate in the country with as much freedom as Kenyan citizens, basing them off the best practices within the region – and henceforth pursuing a unified reform program especially in the private sector 2. Address informational asymmetries between the public and the government on processes and procedures of trade in the region, and rights of EAC citizens, as well as access to support services a. This could range from enhancing transparency by creating online information portals with information on the status of National Monitoring Committee activities on NTBs, to easing complexity for the ordinary citizens by establishing mobile hotline numbers to report and seek assistance on NTBs or other cross-border trade issues. b. Running educational campaigns about the EAC’s opportunities, privileges, progress, and information services in national/regional media to the general public, as well as awareness campaigns with the East African Business Communities/Councils on the opportunities of cross-border trade c. Conducting regular surveys and providing open forums to gauge the public opinion on the EAC’s trade barriers and key priorities to facilitate an inclusion of the stakeholders into the decision making processes of the EAC and inform preferred policy directions 3. Utilise incentives to promote private sector participation and overcome resistance to broad-spectrum full reforms a. Maximising on the positive externalities of trade, providing incentives for cross border interaction by providing tax benefits to companies that extend their reach beyond the confines of the country as well as to companies from other EAC nations that invest in Kenya’s economy. While this will result in a lost opportunity cost of tax revenue, it comes with the far greater reward of economic linkages, formalisation of supply chains and networks, employment and the potential for future investment, as well as giving the


private sector a stake in the success of the reform process. This is doable to the extent that it would weaken the incentives to work against the reforms and place an opportunity cost for businesses that fail to take advantage of the opportunities. The externalities of increased cooperation will enhance the ‘meaningfulness’ of the EAC to its citizens due to the increased exclusive benefits, and thus increase popular support for further reforms that provide them with further exclusive benefits. 4. Examine and adopt the regions’ best practice from the foundational and infrastructural strengths of the business environments to the regulatory frameworks and innovations such as instituting one-stop shops for business registration, expanding the capacity of border crossing points to reduce illegal crossing and informal trade, and eliminating legal and organizational bottlenecks in order to build an “effective reform pipeline”.29 While this list is far from exhaustive, it is demonstrative that on an immediate to medium term time scale, there is much that can be achieved – be it specific and direct policy changes/directives or more broad scale areas of further exploration. As the leading economy in the region by size, Kenya has long lost its laurels as the most efficient, progressive, or judicious, but this does not undermine the centrality of the country’s role in ascertaining the success of the EAC, and the far more vigorous role the nation must take for the ambitions of the EAC to be realised by any of its members. Kenya can no longer operate in a quasiautarkic setting vis-a-vis its neighbours, and must be politically ready for the challenges ahead on an issue that affects every sphere of Kenya’s national policy agenda.


ENDNOTES

1

EAC Customs. "Market Size, Access & Trade Policies." Market Size, Access & Trade Policies. East African Community. Web. 30 May 2013. <http://www.customs.eac.int/index.php?option=com_content&view=article&id=50:eac-tradeinfo&catid=25:eac-customs-union>. 2 EAC Common Market. "East African Community Common Market." East African Community Common Market. East African Community. Web. 30 May 2013. <http://www.commonmarket.eac.int/>. 3 EAC Customs. "EAC Customs Union - An Overview." EAC Customs Union - An Overview. East African Community. Web. 30 May 2013. <http://www.eac.int/customs/index.php?option=com_content&view=article&id=123&Itemid=78>. 4 EAC Common Market. "East African Community Common Market." East African Community Common Market. East African Community. Web. 30 May 2013. <http://www.commonmarket.eac.int/>. 5 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 50 6 East African Community. Status of Elimination of Non Tariff Barriers in the East African Community. EAC, Vol. 5. Dec. 2012: 48 7 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 8 Darvoodi, Hamid R. The East African Community After Ten Years: Deepening Integration. International Monetary Fund, 2012: 2 9 East African Community. Status of Elimination of Non Tariff Barriers in the East African Community. EAC, Vol. 5. Dec. 2012: 17 10 st Gro Intelligence. “The Cost of Shipping” GroVentures. Gro Ventures, n.d. Web. 1 June 2013 11 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 2 12 Ibid: 4 13 US International Trade Commission. Trade Facilitation in the East African Community: Recent Developments and Potential Benefits. US International Trade Commission, Washington, D.C., 2012: vii 14 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 4 15 US International Trade Commission. Trade Facilitation in the East African Community: Recent Developments and Potential Benefits. US International Trade Commission, Washington, D.C., 2012:xiv 16 Ibid: xv 17 East African Community. Status of Elimination of Non Tariff Barriers in the East African Community. EAC, Vol. 5. Dec. 2012: 20 18 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 3 19 Ibid: 4 20 US International Trade Commission. Trade Facilitation in the East African Community: Recent Developments and Potential Benefits. US International Trade Commission, Washington, D.C., 2012:xviii 21 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 3 -4 22 Karega, Regina “Benefits Experienced by Ordinary Citizens from East African Community Regional Integration” EAC Secretariat, Arusha, 2009: 17 23 East African Community. Status of Elimination of Non Tariff Barriers in the East African Community. EAC, Vol. 5. Dec. 2012 24 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013: 3 -4 25 Hellman, J. “Winner takes all: the politics of partial reform in postcommunist transitions” World Politics Vol 50. No. 2 1998: 205 26 th Mutai, Edwin “Auditor-General says Kenya Railways insolvent” Business Daily 27 May 2013. Web. th Accessed 4 June 2013 < http://www.businessdailyafrica.com/Kenya-Railways-Sh50bn-in-the-red//539546/1864588/-/item/1/-/41prl2z/-/index.html > 27 th Oyuke, John. “RVR finally begins ambitious railway upgrading plan” The Standard 19 July 2012. Web. th Accessed 4 June 2013 < http://bit.ly/14dRpMy > 28 East African Community. Status of Elimination of Non Tariff Barriers in the East African Community. EAC, Vol. 5. Dec. 2012 29 World Bank. Doing Business in the East African Community 2013: Smarter Regulations for Small and Medium Size Enterprises. World Bank Group, Washington, D.C., 2013:22


Reforming the EAC Trading System