Lessons the EAC can learn from Brexit


Post Date: 22 July 2016   |   Category: Economic Development   |   Hits: 15251


The East African Community (EAC) as it stands today is a common market consisting of South Sudan, Uganda, Kenya, Tanzania, Burundi and Rwanda. The EAC is guided by a vision of itself as a precursor to an eventual East African Federation of the current EAC members. 

The EAC is in theory a common market meaning that there should be free movement of labor, capital, and services. Additionally there should be a common external tariff on imports from non-member countries. In reality the relations amongst some of the EAC members hinders the attempts by the EAC to function as a true common market. 

Take for example Kenya and Tanzania, the Tanzanian President H.E. Dr. John Magafuli is pursuing a macro-economic policy that at its heart aims to reclaim jobs for Tanzanians currently occupied by non-Tanzanians in an attempt to reduce skilled unemployment. Whilst his intentions are surely noble they act against the very principles of a common market. 

The situation within the EAC is one of contrasts: whereas Kenyans are required to cough up KES 200, 000 to acquire a visa to work in Tanzania; the same permit is free for Tanzanians seeking employment in Kenya.
 
Uganda, Rwanda and Kenya have ratified the common market protocol and waived work permit fees amongst themselves whereas Tanzania and Burundi continue to require fees for all non-nationals. The EAC is putting itself at the risk of fragmentation. The current situation implies that Kenya, Rwanda and Uganda are moving towards economic integration and reaping its benefits leaving Tanzania and Burundi looking like they’re taking a decidedly protectionist attitude contrary to their obligations within the EAC.
 
Britain leaving the European Union (EU) should act as a warning to the EAC on the dangers of forced politico-economic union. When Britain first signed up to the EU it was opening up its economy to the common market of the then European Economic Community (EEC). This very quickly morphed into the EU and the supra-government in Brussels which is at the heart of so much contention within EU members. The ‘Leave Campaign’ that succeeded in steering ‘Brexit’ was able to play on the decreased sovereignty exercised by the British Government whilst it was part of the EU. When combined with the rather lethargic attempts by the Remain campaign to justify ‘over-paid bureaucrats in Brussels dictating UK laws’ as well as the ill-fated project Fear campaign personified by former chancellor George Osborne and his threats to increase taxes a seemingly token referendum that could easily have been won by the ‘Remain campaign’ quickly degenerated into a question of whether divisive domestic politics could triumph the message of globalization pandered by the EU. 
 
Despite the vast number of predictions that Brexit will send the British economy back into the Stone Age such predictions simply do not hold water; that is not to say that it all plain sailing for the British economy. Britain is the fifth largest economy in the world and rather wisely retained its own currency. Which will ease its transition away from the EU.
 
Forty-four per cent of British exports and 53% of British imports come from within the EU. Whilst Britain could succeed in reaching a Canada-like free trade area agreement with the remaining EU members, the prevailing attitude within some EU members is punitive and aimed at discouraging other members from future attempts to remove themselves from the EU project.
 
Whilst the pound suffered the greatest devaluation in thirty-one years and the immediate ramifications of this is a hold on new investments by UK firms until there is greater economic certainty it is not all bad news. The pound devaluation will make UK exports more price competitive, possibly allowing UK exports to reach more customers outside the EU. Furthermore, the EU dictated all trade agreements as a bloc. Following Brexit there is large number of nations some of whom are commonwealth members lining up to sign trade deals with the UK. This could see the evolution of the commonwealth from primarily a members’ network to a facilitator of trade between the UK and its former colonies. 
 
Certainly in the short term the economic uncertainty has taken a toll on the UK; the IMF has slashed its predictions for growth to 1.3% in 2017 down from its original pre-Brexit position of 2.1%. But in the long term it is entirely possible that UK exports could find new customers and that Britain could negotiate a deal with the EU that would limit much of the economic fallout that would result if trade ceased entirely between the UK and the EU.
 
However the EAC must take note of the dangers of a Brexit-like situation and the potential fallout it could generate on the bloc. Politico-economic union of the type created by the EU requires an alignment of macro-economic and to some extent political thinking which as seen so far from the inability of the EAC to move beyond the theory of a common market is not what the members of the EAC are striving towards. Additionally the benefits of such a union can only be reaped if there is stability amongst members and a stable security situation. The story of South Sudan in its five years of existence has been one of total instability. It is has generally always been a question of when the next bout of fighting will break out. Despite a relative lack of news coverage, the situation in Burundi is also critical and it is clear that many of its existing political institutions will need to be reconstituted if peace is to last.
 
The EU acts as a case study of the dangers of uniting nations on inequity. Its more or less total refusal to assist nations on the front-line of the migrant crisis, its upholding of questionable human rights laws which prevent known terrorists and criminals from being deported and its constant interference in domestic politics all acted to galvanize opinion against politico-economic union. 
 
The EAC needs to tread carefully; it is debatable how much more of an advantage is gained by moving from a common market to a political federation. General opinion towards political federation must also be considered, there are huge constitutional ramifications for member nations such as Kenya if a political federation was to exist. To paraphrase IEA-Kenya CEO Kwame Owino there is no need to import the EU ‘clause for clause’. All that is required is the establishment of a proper common market and the maintenance of freely floating currencies between member nations. 
 
Monetary union again brings with it the need to have common macro-economic policies and hinders the ability of national governments to act to rectify domestic economic crises. The inability of governments in both Greece and Spain to switch away from austerity policies and stimulate economic growth are both clear examples of the dangers of monetary union.
 
The plans for political federation both within the EU and the EAC stem from mimicry of the United States of America; both however overlook that it took until 1959 for the last two states Alaska and Hawaii to join the US. Furthermore the situation in the US needs to be seen in context. The people who created the US did come from different backgrounds and cultures however they were united by the fundamental fact that they shared the common experience and common interest of seeking a better quality of life or fleeing persecution in their countries of origin. The member nations that form up the EU or the EAC for example have limited common experience or common interest in seeing a united states of Europe or East African Federation. In the case of the East African Federation it certainly seems likely that such economic union  will only result in amplifying the existing problems of endemic corruption and inter-tribal conflict that govern current politics.