About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Friday, February 14, 2014

Divided we stand, united we fall

Wrong regional integration and why small should be the new big thing for East Africa 

Africa is obsessed with regional, political, and economic integration. Over the last 30 years, our governments have created many regional trade blocks; some of which overlap. For example, Uganda is a member of the EAC, PTA, COMESA and KBO while Tanzania belongs to all these and SADC.

These trade blocks are intended to lead to a political and economic union – a super-state on a regional and later continental scale. Although fashionable, this trend will in the long term do more harm than good.
Consider the proposal for an East African political federation. It has many obvious advantages: it could bolster the economic and military position of the region and provide a large geographical area and population for trade.

But these advantages carry long-term liabilities: gigantic political systems and their bureaucracies are inherently resistant to change. This makes policy and institutional innovation – the stuff our poor countries need desperately to grow fast, difficult.

Fragmentation, with all its day-to-day disadvantages carries a strategic benefit; it allows a large number of political laboratories where innovation can be tested.

There is a reason why big entities resist innovation. By its very nature, innovation is risky. Only one out of every ten new ideas suggested is superior to the one it seeks to replace.

Yet building a politically weighted majority in a large and diverse political entity and turning the wheels of a huge bureaucracy towards reform is a slow and agonizing process. Bigness also makes it difficult to reap the full potential of reform.

Yet, after having taken time and hard work to gather support for an innovation, and even longer to secure its implementation, a large political entity may discover that the change is worse than the status quo. The effect of such a bad innovation on a politically and demographically large society can be devastating.

Therefore large political units are structurally wired to resist reform. If one has to take risk, it is better to do it with a politically and geographically smaller entity. One only has to look at the politics of passing and now implementation of Obamacare in the U.S.

All political systems are capable of making self-defeating policies. If such policies are designed and implemented by a large political federation, it would be extremely difficult to reverse them in the event of failure.

This is especially so in our countries, which are ethnically and religiously diverse and, therefore, political consensus is difficult.  It is different in fragmented polities. You only need one of them to attempt an innovation. If it succeeds, it will spread to others through emulation.

So the hurdle of experimentation and the costs of mistakes are limited to one small entity while the benefits of success can easily be realised by all through imitation.

Look at Africa in 1986: it was stuck with rigid foreign exchange rate and trade policies, numerous public enterprises and elaborate regulatory procedures. The World Bank and IMF were pushing reform but there was resistance everywhere.

Then presidents Jerry Rawlings in Ghana and Yoweri Museveni in Uganda accepted the reforms and even defended them. All of a sudden, Uganda and Ghana began growing fast and being praised as innovators. It did not take long for other governments in Africa to see the costs of staying the course and the benefits of reform.

Today, Rwanda is leading in many reforms – clean cities, national medical insurance, etc. Many mayors of African cities are flocking Kigali to observe and learn.

Just imagine if Rwanda had politically integrated with Uganda in 1994; it would have been mired in our institutionalised corruption and incompetence, and an important laboratory for policy and institutional innovation would have been closed.

This brings me to the second aspect of integration – a customs union with common external tariff. University of Oxford economist, Tony Venables, has argued that integration tends to benefit those countries whose economies are closest to the global average.

In a customs union of rich countries, those are that are poorer – in the case of the European Union, Ireland, Greece and Portugal. In a poor countries customs union, the richer countries are instead closest to the global average – Kenya in the EAC.

According to Venables, integration among rich countries tends towards income convergence; in the EU, Ireland, Greece and Portugal for example, would tend to catch up with France and Germany. Among the poor countries integration leads to income divergence, in the EAC, Kenya would reap the benefits and thus leave Rwanda and Tanzania behind. Why?

A common external tariff in rich countries keeps labour-intensive goods from poor countries out of the free trade area. So the beneficiaries are countries with the lowest labour costs – the poorer members.  The reverse is the case in poor countries. The common external tariff keeps cheap goods from outside the trade block, thus protecting the factories of the countries with the highest skills – in the case of the EAC, Kenya. This also means that Rwandan consumers begin subsidising Kenyan manufacturers. It will not take Rwandans long to realise that the customs union forces them to buy poor quality goods from Kenyan at a price higher than what free international trade would offer.

More critically, trade requires that countries produce different products, which they can exchange. All too often, poor countries tend to produce the same products – Uganda, Kenya, Rwanda all produce and export coffee, tea and maize and these days packed passion, apple, orange and mango juice.

The best opportunities for trade for these countries do not exist among themselves but are external to their trade block – to the EU, China and America. Therefore integration does not enhance regional trade but rather discourages international trade.

Integration in East Africa has, therefore, to be built on an entirely different platform – one that recognises these factors. Poor countries don’t need institutionalised integration with secretariats and central bureaucracies.

They need things like the `Coalition of the Willing’ in EAC where they come together to realise clearly defined time-bound goals like joint infrastructure projects, removal of visa requirements and work permits.
A common external tariff should be built at industry level on a quid pro quo basis. For example, if Kenya’s textile industry is to be given protection in the EAC market, Rwanda should enjoy the same with its computer industry, Uganda with steel, Burundi with perfumes and Tanzania with electronics.

This way, other countries will not feel Kenya is ripping them off. Short of such a creative application of regional integration, it will be difficult to remove the frustrations and bickering that have made many of these measures fail to work in the past.


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