The leading Regional Economic Community (REC) in Africa is the East African Community (EAC), comprising of Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda. The first EAC (1967 – 1977) collapsed due to the ideological differences between Kenya, Tanzania and Uganda. It was re-established in 2000 by the same countries, accepting Burundi, Rwanda (2007) and South Sudan (2016) as it’s most recent members.
The main governing structures of the EAC are the Summit, the Council of Ministers, the Co-ordinating Committee, the Sectoral Committees, the East African Court of Justice, the East African Legislative Assembly and the Secretariat. How they operate, and function is symptomatic of its decision-making process and balance of power that vests organisational constraints.
This view was exemplified with the directive of the 35th Meeting of the Council of Ministers in 2017 approving for a terms of reference for work-load analysis and job evaluation – the expected outcome of the exercise being a new organisational structure for the Community.
Indeed, the region has topped the Washington think tanks (2018 Fragile States Index) annual ranking of national stability. Many of the countries in the EAC suffer from weak institutional capacities, poor governance, economic and social disruption, and insecurity. However, despite all this the EAC is making noticeable progress with a focus on integration, institutions and infrastructure as part of the regions growth strategy.
The current EAC funding mechanism is based on an equal contribution arrangement by all Partner States. In the 2017/2018 EAC Budget themed: “Accelerating Implementation of the EAC Integration Agenda” the regional bloc is to be financed by Partner State contributions through the Ministries of EAC Affairs ($50,226,522); Ministries responsible for Education – ($4,848,431) and Ministries responsible for Fisheries ($1,549,254). Development Partners are to support the Community to the tune of $52,868,638 while Member Universities will inject in to the kitty $ 303, 435.
All regional leadership agree that reforms are necessary and that a more sustainable financing mechanism is needed to independently drive the growth agenda.
The Partner States are therefore faced with a conundrum of how to structure the Community ‘Financing Model’. This is a necessity which should be pursued energetically in the interests of the African Continental Free Trade Area (AfCFTA) and away from the cajoleries of donor funding for the Secretariat.
The leaders have to make it clear, that any structured formula they arrive at will efficaciously strengthen the institutional capacity of the Community and fast-track economic integration. The ultimate goal, has to recommit the bloc to a political and economic organisation, able to redress the regions imbalance in the global political economy.
Partner States must agree to consolidate strategies for a single economic and political diplomacy, capable of competing globally. The outlook will be a more reliable economic bloc, equipped to; negotiate; have political clout; inspire business trade; implement policy; and engage a ‘policy driven bank’ for better integration and social cohesion. This calls for one integrated policy for East Africa.
The future economic growth of East Africa will depend largely on a reconstituted EAC. To foster trade, the EAC must enunciate and implement a policy on its ‘Domestic Resource Mobilisations’. It must borrow best practice from other regions with a long successful history of trying to integrate their economies and societies.
To illustrate, the European Union (EU) revenue income breakdown is well thought out and simple. It is based on (1) contributions from, member countries, (2) import duties on products from outside the EU and (3) fines imposed when businesses fail to comply with EU rules.
Three important observations. First, the EU countries agree on the size of the budget and how it is to be financed several years in advance. Second, when the EU Council and the European Parliament approve the annual EU budget, the total revenue must equal total expenditure. Third, the EU budget (98%) is funded from its own resources; through a system of percentage levy – harmonised to each countries VAT base, which is always capped at 50% of gross national income (GNI) for each country. The intention here, is to prevent less prosperous countries having to pay a disproportion amount, thus balancing out revenue and expenditure.
The 35th Summit of Heads of State and Government held in Botswana in August 2015 expressed the need to look for alternative and innovative sources of funding for the Southern Africa Development Corporation (SADC) programmes. On this premise, East Africa has a huge potential for funding her own programmes. The region is renowned as a tourism destination, for holding international events and remittances sent through money transfer agencies from diaspora.
How to reconcile the financing options to absorb the political climate and economic situation of the region will be of great concern. All the Partner States are at different development levels and faced with varying priorities. The region will require sound political direction to give force and purpose for any effective finance mechanism.
Therefore, the funding options for the EAC must focus beyond member countries contributions and import tax levy. It must calibrate and navigate the impact of domestic political audience; the dynamics of international economic law; and the public diplomacy of donor development partners.
The Strategic Direction for the 5th EAC Development Strategy (2016/17 – 2020/21) targets “To Build a Firm Foundation for Transforming the East African Community into a Stable, Competitive and Sustainable Lower – Middle Income Region by 2021”.
To achieve this, the EAC will need to realign her strategic options, priorities and interventions as a prerequisite to achieving a sound and stable finance mechanism. This must feed into the continents broader aspirations under the AfCFTA, the New Self-Finance Mechanism of the African Union, and building trust and social capital with the people of East Africa.
Regional Integration & International Trade 