Undoing Business in East Africa

Despite all the self-congratulatory back slapping that greeted the release of the Doing Business in the East African Community 2010 report, the document makes for depressing reading. Though not a total solution or yardstick, the DB reports are increasingly used as a leading measure to gauge the attractiveness of a nation as a place to do business and as a measure of competitiveness. For reform-minded governments, how much their indicators improve matters more than their absolute ranking. On this score, for EAC countries and the region as a whole, it is a case of one step forward and two backwards.

Although Kenya, the region’s economic powerhouse, has instituted comprehensive licensing reforms that have led to annual private sector cost savings of $62 million, and the country is ranked 4th out of 183 nations for “ease of getting credit,” the fact that Kenya’s overall rank, measuring the ease of doing business in the country, dropped from 84 in 2009 to 95 is more significant.

Compared to 2008 when Kenya was cited as one of the world’s top ten reformers in that year’s DB Report, the country’s ranking has actually plummeted 23 places. Similarly Uganda’s overall ranking also fell from 106 in 2009 to 112 this year and Tanzania’s from 126 to 131. Burundi only marginally improved from 177 to 176.

The lone exception was Rwanda which leapt to an overall position of 67 in the 2010 rankings, up from 143 in 2009. The top reforming country in the world, the country’s efforts have paid off as it attracted some $1.1 billion in investment, 41% more than in the previous year and this in the midst of the global economic crisis which saw global FDI inflows slide by up to 44% the first quarter of 2009.

Though there is widespread expectation that integration will lower the cost of doing business, in 2009 EAC secretary general Juma Mwapachu described it as "unnecessarily too high" saying it undermined international competitiveness of the region, This is borne out by the report which observes that if each East African country were to adopt the region’s best practice the region would rank 12th rather than 116th. In other words, if the best of existing East African regulations and procedures were implemented across the board, the business environment in the region would be comparable to that in Thailand which in the first quarter of 2009 alone garnered more than $2 billion dollars in investment, according to the United Nations Conference on Trade and Developments World Investment Report 2009.

The fact that needed reforms are in place in some but not all EAC countries inevitably calls into question the effectiveness of the regional integration experiment. In fact, though regional integration has long been touted as necessary for economic development in sub-Saharan Africa, the fact is Africa remains one of the most protectionist areas in the world. With 14 landlocked countries, only 10 percent of African exports are intraregional, according to the World Trade Organization. In contrast, intraregional trade in Western Europe, is 68 percent and in Asia hovers around 40%.

Under the EAC, the five countries have officially formed a free trade area and a customs union. The common market protocol, the next step on the route to full economic integration, is set to go into effect in less than a month’s time. It will supposedly allow the free migration of businesses and people across borders as the bloc prepares to move to a common currency by 2015. However, according to the Director General, EAC customs and Trade Directorate, Mr. Peter Kiguta, despite the successful elimination of internal tariffs among Partner States and consequent growth of intra-regional trade, the ratio to total volume of trade in EAC is still a paltry 13%. “We produce what we don’t consume and we consume what we don’t produce,” as President Jakaya M. Kikwete of Tanzania said recently in Dar es Salaam at the World Economic Forum on Africa.

Mutual suspicion between partner states may be to blame for this state of affairs. According to Nation Media Group CEO, Linus Gitahi, “it is much easier for a Chinese company to get licensed to do business in any of the East Africa countries than it is for any local companies moving across the borders. Many in government have what President Yoweri Museveni calls the ‘pygmy syndrome’-the idea that you are bigger than me and by supporting you, you will get bigger and bully me.”

The EAC states may have made strides in improving literacy, fighting AIDS and improving infrastructure but when it comes to governance, the parochial nature of the region’s politics has limited gains. Little is done to curb rampant corruption. Comparing EAC country rankings in Transparency International’s Corruption Perception Index 2009 to those from the previous year reveals that the problem either worsened or stagnated in all EAC countries except Rwanda, which registered a significant improvement.

Violence, intimidation and disputed results continue to be a feature of elections. In Burundi, whose abysmal ranking in the DB 2010 Report is reflected in a report by the African Development Bank which says the country “investment, production and commerce in the country are hindered by the political and institutional environment,” opposition parties have recently demanded a repeat of communal elections, alleging massive fraud and poll-rigging. Just last week, their candidates announced their withdrawal from this month’s presidential election. Kenya’s decline has been blamed on the post-election violence and creation of a coalition government, which slowed decision-making at a time when over 70% of the countries in the world are actively reforming.

The Global Competitiveness Index identifies 3 stages of economic development, the first driven by primary factors, such as unskilled labor and natural resources, and the others marked by increases in efficiency and innovation. The EAC region is firmly rooted in the baby-stage. To be competitive, EAC states must, in addition to improving infrastructure and creating a healthy and literate workforce, focus on developing well-functioning public institutions and a stable macroeconomic framework.

Seek Ye First The Popular Kingdom

Déjà vu is the experience of feeling sure that one has witnessed or experienced a new situation previously although the exact circumstances of the previous encounter are uncertain. The inauguration of the East Africa Community’s Common Market as a step on the way to an envisaged political federation induced just such a feeling. The thing is, we have been here before.

The five Presidents congregated in Nairobi mirrored another, albeit smaller, gathering in the same city 46 years ago. In June, 1963, the leaders of the newly independent states of Kenya, Uganda and Tanganyika declared, “… we believe a political federation of East Africa is desired by our peoples. There is throughout East Africa a great urge for unity and an appreciation of the significance of federation.”

The three were being more than a little disingenuous. The political federation of East Africa has never been a people-driven affair. From the start it was a colonial project opposed by the very people in whose name it was done. Which is surprising, since we were East Africans long before we became Kenyans and Ugandans and Tanzanians.

The integration of the region began with the building of the Uganda Railway in 1895. This was rapidly followed by the creation of the East African Common market which started in 1900 with a customs arrangement between British East Africa (now Uganda and Tanzania) and German East Africa (now Tanganyika), the establishment of a Court of Appeal for East Africa in 1902, creation of the East African Currency Board in 1905 and a Postal Union in 1911. In 1917, the British colonial administration established a Customs Union and by 1920, when the Kenya Colony was formally established, the EACB was already issuing a single regional currency, the East African Shilling.

By independence, we already had more than 40 different East African institutions covering areas such as research, social services, education/training and defence among others. This lead Tanganyikan President, Julius Nyerere, to observe in March 1963, that, “a federation of at least Kenya, Uganda and Tanganyika should be comparatively easy to achieve. We already have a common market, and run many services through the Common Services Organisation…. This is the nucleus from which a federation is the natural growth.”

Yet 2 years later, the common market would disintegrate following Tanzanian proposals that each country establish separate currencies and banks. Frenzied actions to save the federation project, including the promulgation of a formal Treaty for East African Co-operation and the setting up of the East African Community, would come to naught as the EAC itself collapsed in 1977 and was formally wound up in Arusha on 14th May 1984. On the latter occasion Nyerere declared that he could not “pretend that this is a very proud day for East Africa”.

What went wrong? Quite simply, the leadership failed to carry the people along. The project was a forced marriage that made sense to and benefitted the elite few but was viewed with suspicion by and never properly explained to the common citizenry. As early as 1925, when the British government established an East Africa Commission chaired by Colonial Secretary, W. G. Ormsby-Gore to solicit views from Africans, people of Asian descent and Europeans on federation, the idea found “little, if any, support ... and in some quarters …definite hostility.”

The commission “received a memorandum against federation from the King and the native government of Buganda, and discussions which had taken place in parts of Kenya immediately prior to our arrival revealed that the suggestion was viewed with more than a little suspicion by all sections of European opinion in Kenya. All shades of opinion in Zanzibar are hostile to federation and we also received representations against federation from various Indian Associations throughout the three northern territories”. Africans were particularly suspicious of the motives and intentions of the colonists. In 1927, yet another commission, this time chaired by Sir Hilton Young, received a memorandum from the Kikuyu Central Association rejecting the idea of federation.

Without the bulwark of popular support, at independence the colonial enterprise of federation became hostage to the petty personal rivalries and jealousies of the region’s new class of leaders. By 1977, it resembled more a clash of heads than a union hearts.

Its current reincarnation is proving to be little different. A recent report notes that the majority of East Africa's 126 million people are not aware of the benefit of regional integration, let alone the process with most citizens viewing it as an elite project."The project has a lot of goodwill from ordinary citizens but lack of active involvement has left it standing solely on the political pillar, without the critical social and economic relevance that would make it a reality in people's lives," Prof Regina Karega, one of the scholars who conducted the study said. This lack of an integration of the peoples was in evidence in September 2008, when Kenyans kicked up a fuss over reports that the US President George W. Bush and Tanzanian president, Jakoyo Kikwete had discussed "instability in Kenya. It was further exposed earlier this year when Kenyans ripped up sections of the Uganda railway and openly called war over Ugandan military occupation of Migingo Island (population:250), an insignificant piece of rock in Lake Victoria.

It is acknowledged in the appellations of the organs of integration. In much of the rest of the world the name of the regional grouping tends to reflect the stage of integration which has actually been attained. African regional groupings and the EAC in particular, have used terms such as “Community”, and “Common Market” in their names more as a reflection of elite aspirations. Thus our customs union meant neither the abolition of internal tariffs nor synchronization of external ones, disputes over fishing rights and work permits are a feature of our “common markets”, the East African passport is only valid for travel within what is supposed to be a borderless East Africa and our federating countries still have territorial disputes.

The exclusive focus on reaching political and macro-economic milestones has left the process blind to the needs of the common man. While economic benefits of integration are touted (greater bargaining power in international arena; the larger market makes for a more attractive foreign direct investment (FDI) destination), ask any common East African whether last week’s ceremony means he or she can traverse the region seeking employment and you will probably get a blank stare. An East African Parliament and envisioned Presidency are not matched by moves towards a common East African identity and citizenship. In fact, they are assumed to be the same things. The legality of belonging to the EAC is thus confused for the feeling of true community.

In the 1950s, the then leader of Ghana, Nkwame Nkrumah, declared “seek ye first the political kingdom and the rest will follow” arguing that African countries should right away integrate politically. The East African leadership seems to have taken this literally. The assumption that they can create an East African kingdom to which the people will thereafter be added is dead wrong and needs to change. And there are signs that it is. Last week, The EastAfrican reported reported that the partner states are to establish integration centres at border points to sensitize the citizenry on the benefits of regional assimilation and that Kenya's EAC Ministry would use mobile phones to educate up to 17 million people on the Common Market Protocol. Hopefully this time the reality will prove different.

Shipwreck at Migingo