East African Community Common Market

United They Stand

In November, the leaders of Burundi, Kenya, Rwanda, Tanzania, and Uganda took an important step towards regional integration by signing into effect the East Africa Community (EAC) Common Market Protocol. The protocol provides, in part, for the free movement of labor, goods, services, and capital among partner nations. The signing of the protocol marks the first in a series of measures to promote regional integration and will likely be followed by both a monetary union and political federation. With a combined population of more than 120 million and a combined GDP of nearly $80 billion, the EAC will offer increasingly attractive opportunities for foreign investors.

Ergo asked regional experts to comment on the potential of the EAC Common Market to attract investment to the region and to highlight the countries and sectors that are likely to benefit most from regional integration.

Insights from the Ergo Network

• Expert 1: Leading Kenyan business journalist

  Ugandan oil prospects drive growth
  
  

  “According to projections by the Uganda Investment Authority (UIA), investment into Uganda is expected to nearly double in 2010 to $3 billion from 2009 thanks to growing foreign interest in its oil sector. This expected phenomenal growth is definitely going to be beneficial to other EAC partners on the simple fact that the protocol allows for free movement of labor and capital for investment on various fronts, and business groups from neighboring countries could tap into the oil bounty.
  
  By sector, infrastructure stands to be the biggest beneficiary of the common market arrangement because with all the tariff and non-tariff barriers knocked off, the competitiveness of producers in the individual countries would squarely lie on efficiency.”

• Expert 2: Country manager for a leading provider of security services in Tanzania

  National sector beneficiaries to be diverse
  
  

  “I can see Kenya investing in industrial, financial, tourism and commercial sectors. Tanzania will win in terms of its agriculture, forestry and tourism sectors plus mining because it has the resources, and has ways of keeping the benefits athome. In addition, coastal oil and gas can rival Uganda and possibly exceed any potential Kenyan reserves.”

• Expert 3: Founder of technology-focused African news agency

  Manufacturing expands while agriculture struggles
  
  

  “Among the sectors, I think definitely the manufacturing sector will benefit. Integration means that big corporations can set up a factory in one country and provide goods for the whole region. You will be able to cross borders and reduce the cost of doing business.”
  
  Agriculture is going to struggle because some of the countries actually depend on agriculture and produce the same crops. So you find that there is competition amongst us rather than sharing.
  
  I think it will encourage more investment in the region, especially if integration is followed by economic harmonization. The EAC will need to provide the market for investors. This includes a skilled labor force so that if a company comes to set up a business, a labor force will be provided. If the EAC does what they say they will in the protocol by opening labor forces, companies will come.”

• Expert 4:Kenyan business and investment analyst

  Kenya and Rwanda stand to benefit greatly
  
  

  “My point of view as a business and investor analyst is that Kenya will benefit from integration along with Rwanda. Kenya has always been a leader of markets and has always had free trade more than other countries. Also, Kenya will benefit because its GDP is more than other countries. Rwanda will benefit because it is growing more rapidly than other countries in the East African region.
  
  The people who are embracing the EAC are the business people, not the regular people living in all of the East African countries. There is a wait-and-see attitude in the minds of the people who are supposed to be gaining from the EAC.”

Looking Ahead

While the signing of the EAC Common Market Protocol marks a new phase in the on-going process of regional integration which dates back to the 1970s, whether and when the common market will be established remains to be seen. A telling milestone on the horizon is whether the protocol becomes effective by the target date of July 2010. Our experts believe this timeline is optimistic – July 2011 might be a more realistic date for implementation.

Another lingering concern is whether cooperation can emerge among countries that have a long history of competition. Operationalizing the free flow of goods and services, as well as labor, will also be an important challenge to overcome.

Despite these potential obstacles, there is a real sense that the EAC could follow in the footsteps of the European Union. If integration is coupled with economic harmonization, as it was in the EU, the opportunities for investment will materialize. The common market should strive to provide an open labor market, and lay the foundation for a common currency and strategic tax breaks in the future. On balance, if the partner countries can deliver on the protocol, the EAC Common Market brings with it great promise for the East African region.

Ergo has conducted numerous studies on economic and infrastructure development across Africa and has a well-established regional network of experts to provide insights into the opportunities and risks associated with investing in East Africa.