The EAC is a potential precursor to the establishment of the East African Federation, a proposed federation of its members into a single sovereign state. In 2010, the EAC launched its own common market for goods, labour, and capital within the region, with the goal of creating a common currency and eventually a full political federation. In 2013 a protocol was signed outlining their plans for launching a monetary union within 10 years.
The geographical region encompassed by the EAC covers an area of 1.8 million square kilometres, with a combined population of about 150 million.
Kenya, Tanzania, and Uganda have had a history of co-operation dating back to the early 20th century. The customs union between Kenya and Uganda in 1917, which mainland Tanzania, then Tanganyika, joined in 1927, was followed by the East African High Commission (EAHC) from 1948 to 1961, the East African Common Services Organization (EACSO) from 1961 to 1967, and the EAC from 1967 to 1977. Burundi and Rwanda joined the EAC on 6 July 2009.
Inter-territorial co-operation between the Kenya Colony, the Uganda Protectorate, and the Tanganyika Territory was first formalised in 1948 by the EAHC. This provided a customs union, common external tariff, currency, and postage. It alsodealt with common services in transport and communications, research and education. Following independence, these integrated activities were reconstituted and the EAHC was replaced by the EACSO, which many observers thought would lead to a political federation between the three territories. The new organisation ran into difficulties because of the lack of joint planning and fiscal policy, separatepolitical policies and Kenya’s dominant economic position. In 1967, the EACSO was superseded by the EAC. This body aimed to strengthen the ties between the members through a common market, a common customs tariff and a range of public services to achieve balanced economic growth within the region.
In 1977, the EAC collapsed after 10 years. Causes for the collapse included demands by Kenya for more seats than Uganda and Tanzania in decision-making organs; disagreements with Ugandan dictator Idi Amin who demanded that Tanzania as amember state of the EAC should not harbour forces fighting to topple a government of another member state; and the disparate economic systems of socialism in Tanzania and capitalism in Kenya. The three member states lost over 60 years of co-operation and the benefits of economies of scale.
Later, Presidents Moi of Kenya, Mwinyi of Tanzania, and Museveni of Uganda signed the Treaty for East African Co-operation in Arusha, Tanzania, on Nov. 30,1993, and established a Tri-partite Commission for Co-operation. A process of re-integration was embarked on involving tripartite programmes of co-operation in political, economic, social and cultural fields; research and technology; defence; security; and legal and judicial affairs.
The EAC was finally revived on Nov. 30, 1999, when the treaty for its re-establishment was signed. It came into force on July 7, 2000, 23 years after the total collapse of the defunct erstwhile community and its organs. A customs union was signed in March 2004, which commenced on Jan. 1, 2005. Kenya, the region’s largest exporter, continued to pay duties on goods entering the other four countries on a declining scale until 2010. A common system of tariffs will apply to goods imported from third-party countries.
Currently, Mombasa has the East African Community’s busiest port. However, the construction of a new port in Kenya, known as the Lamu Port, is underway. It is expected to cost USD $22 billion. Upon completion, the Bagamoyo Port under construction in Tanzania will be the largest in Africa, with a capacity to handle 20 million cargo containers a year.
Even though Dar es Salaam has a larger population, Nairobi would be considered the business, finance and transport hub in the EAC. The Community’s largest firms are headquartered in the city, including the region’s largest air carrier Kenya Airways, the region’s largest media house the Nation Media Group and the Kenya Commercial Bank Group, the EAC’s largest financial conglomerate. Most multinational firms (including Google, Coca Cola and Toyota) have their regional headquarters in Nairobi including UNEP which is the fourth biggest UN Office in the world, as well as the only UN office located in Africa, or any developing country. Nairobi is also home to the Nairobi Securities Exchange, the largest within the EAC. The exchange isAfrica’s fourth largest in terms of trading volumes, and fifth largest in terms of market capitalization as a percentage of GDP. Nairobi’s Jomo Kenyatta International Airport is the EAC’s busiest aviation hub it handles about 5 to 6 million passengers a year.
The Customs Union
The key aspects of the customs union include:
- A Common External Tariff (CET) on imports from third-party countries;
- Duty-free trade between the member states; and
- Common customs procedures.
Different rates are applied for raw materials (0 percent), intermediate products (10 percent) and finished goods (25 percent), with the latter percentage being fixed as the maximum. This represents a significance decrease from what was previously the maximum in Kenya (35 percent), Tanzania (40 percent) and Uganda (15 percent).However, this customs union is not yet fully implemented, because there is a significant list of exclusions to the Common External Tariff and tariff-free movement of goods and services. Technical work is also needed to harmonise and modernise the customs procedures in the EAC’s major ports of entry.
Business leaders are far more positive than economists about the benefits of EAC integration, its customs union as a step in the process, as well as the wider integration under COMESA. The larger economic players perceive long-term benefits in a progressively expanding regional market. Patterns of regional development are already emerging, including:
- Kenyan firms have successfully aligned to the lower protection afforded by the EAC CET and fears that firms would not adjust to a 25% maximum CET, or would relocate to Tanzania or Uganda, have not been realised.
- An intraregional division of labour is developing that results in basic import-processing relocating to the coast to supply the hinterland. The final stages of import-processing (especially those bulky finished goods that involve high transportation costs) and natural-resource based activities, are moving up-country and up-region, either within value chains of large companies or different segments located by firms in different countries.
- Trade in goods and services has already increased as service provision to Kenyans and Tanzanians is already important for Uganda (in education and in health). Kenya exports financial services, for example, via the Kenya Commercial Bank and purchase and upgrading of local operators in Tanzania, Uganda and Sudan. Uganda hopes integration will help support its tourism potential through integration with established regional circuits.
- There are signs a business culture oriented to making profits through economics of scale and not on protectionism.
The EAC negotiates with trade partners on behalf of all member countries. Negotiations in 2014 for an EU-EAC Economic Partnership Agreement (EPA) ran into difficulties with the January 2014 negotiating session failing to conclude the negotiations, which were scheduled to be completed before Oct. 1, 2014. This caused tensions between Kenya and other countries as Kenya, which is not a least developed country, stood to lose most from the failure to reach agreement. Discussions are also under way between the EAC and the USA on the launch of Trade and Investment Partnership (TIP) negotiations.
On July 1, 2010, Kenyan President Mwai Kibaki officially launched the East African Common Market Protocol, an expansion of the bloc’s existing customs union that entered into effect in 2005.The protocol will lead to the free movement of labour, capital, goods and services within the EAC. Member states will have to change their national laws to allow the full implementation of some aspects of the Common Market, such as immigration and customs.This legislation may take up to five years for each of the countries to enact fully.Kenya, Rwanda and Burundi have already agreed to waive work permit fees for EAC citizens.