Why five East African countries are trying to follow in the European Union's footsteps -- minus the common currency.
- By Blair Glencorse and Charles Landow <p> Blair Glencorse is Founder and Executive Director of the Accountability Lab. Charles Landow is Associate Director of the Civil Society, Markets, and Democracy Initiative at the Council on Foreign Relations. </p>
Even as the European Union’s sovereign debt crisis comes "back from vacation," as a New York Times Magazine headline recently put it, a far less-known group of countries is following in the EU’s very footsteps. This is the East African Community (EAC), a five-country bloc that is moving headlong toward the same kind of economic and political union now in peril in Europe.
The EU’s experience — including, not least, the ongoing Eurozone crisis — offers plenty of lessons that could help the EAC replicate the EU’s successes while avoiding its troubles. Economically, the evidence suggests that East African countries should vigorously integrate their markets but move cautiously regarding a common currency. Politically, they should focus intensely on accountability for democratic practices, though progress on this front will be more difficult than in the economic sphere.
The EAC’s five countries — Burundi, Kenya, Rwanda, Tanzania, and Uganda — have made astoundingly rapid progress since the bloc was re-launched in 2000. (An earlier union of Kenya, Tanzania, and Uganda dissolved in 1977, ten years after its founding.)
On paper, at least, the EAC has harmonized rules and tariffs and guaranteed the free movement of labor, capital, goods, and services among member states. In the EU, this occurred through the acceptance of the Acquis Communautaire, the body of EU law. In the EAC it has, so far, meant adoption of a common market and customs union, joint judicial and legislative bodies, and measures such as the mutual accreditation of higher education institutions.
The EAC’s progress offers a welcome, if little-noticed, argument that the Euro’s troubles need not discredit the EU’s model for integration. There is no need to throw out the baby with the bathwater. Indeed, economically, the EAC has an enormous amount to gain from integration. According to the latest data in the World Bank’s global poverty statistics, 81 percent of Burundians, 43 percent of Kenyans, 63 percent of Rwandans, 68 percent of Tanzanians, and 38 percent of Ugandans live on less than $1.25 per day. IMF data show that GDP per capita is only $850 in the wealthiest EAC country, Kenya. In Burundi, the poorest, it is just $279.
Each EAC member economy is also small in the aggregate. Kenya, the largest of the five, has a 2011 GDP of only $35 billion, according to the IMF — about the same as South Dakota. This suggests that integration could unlock tremendous growth and economies of scale.
Geography, too, points to substantial advantages if East African states can successfully merge their markets. Kenya and Tanzania enjoy long coastlines; Burundi, Rwanda, and Uganda are landlocked. With under-developed infrastructure throughout the region, the gains from the construction of roads and railways, carefully streamlined border crossings, and improved connections from the interior to Kenyan and Tanzanian ports could be huge. A modern transport network would allow investment to increase and spread throughout the region.
The EAC has traveled quickly along the continuum of economic integration through the development of a customs union and common market, which have begun to support intra-regional development and specialization. Kenya is supplying financial services and Uganda is increasingly providing education and health services to other members, for example. This is all to the good.
The next major step, a common currency, is more problematic, however. East African leaders have announced their intention to form a currency between 2012 and 2015. The group’s leaders recently urged negotiators to "move with greater speed" to conclude a protocol that would lay out steps toward implementation. Officials hope to reach agreement by the end of the year. But the EU’s experience suggests this is premature.
With diverse levels of wealth and widely varying approaches to regulation and competitiveness, and with some members (notably Germany) running current-account surpluses while others (such as Greece) run deficits, the Eurozone has been unable to promote stability and growth in all its members at the same time. The EAC faces a similar range of economic disparities.
As recent headlines show, the EU also sorely lacks sufficient fiscal integration and institutional consensus. A decade after the Euro entered circulation, the role of its governing organization, the European Central Bank (ECB), remains a subject of acrimony, and there is no cross-national budget surveillance or credible penalty for violating agreements. ECB president Mario Draghi on Thursday announced a plan to buy the bonds of indebted national governments, but it comes over vehement opposition from Germany, the Eurozone’s dominant economy. The EAC lacks consensus on these questions as well.
Europe’s experience and the EAC’s situation on the ground argue for eschewing a monetary union until East Africa’s integration advances considerably. Harmonizing regulations; facilitating travel, investment, and trade; maintaining consistent control over inflation; investing in infrastructure; balancing levels of wealth and competitiveness; sharing greater sovereign authority over policies and decisions; building institutions with secure and agreed-upon powers — all these should come before a common currency.
Fortunately, some officials and experts appear to recognize that haste is dangerous. The EAC’s secretary general, Richard Sezibera, said this spring that "we are not rushing to single currency before putting our house in order." Delegations from the region are visiting Brussels to analyze Europe’s experience (they are also visiting West Africa to learn about that region’s monetary union).
At a conference in Tanzania earlier this year, Oxford economist Paul Collier said: "Considering what happened in the Eurozone, the monetary union is not the way to go." Rwanda’s New Times has featured a series of articles expressing skepticism about the region’s readiness for a common currency. Even the chief economist of the National Bank of Rwanda, Thomas Kigabo, has written a paper arguing that "the economic convergence and institutional development needed to support monetary union is likely to take an extended period of time." A former governor of the Bank of Uganda, Leo Kibirango, recently sounded a similar cautionary note.
Politically, too, the EU offers valuable lessons for East Africa. But here it is not clear that the EAC can make use of them. Perhaps the EU’s greatest achievement is cementing a zone of democracy and peace where armed conflict, once common, is unthinkable. Although governance across the EU is far from perfect, the bloc has created a large and growing space where basic rights and institutions are protected and peace is inviolate. Even with its current problems, the EU has become a global paragon of accountability and stability. This is a remarkable historical achievement.
The problem is that these political accomplishments were driven by a group of previously prosperous and institutionally robust Western European states. The attractiveness of their example, and the inducement of structural assistance, market access, and prestige, encouraged Eastern and Southern European countries to strengthen their democratic institutions and norms in order to join the EU.
In the EAC, there is no such core of rich and established democracies. No member is in a strong position to hold others to high standards of governance. The bloc already includes states whose democratic credentials are dubious at best. Neither is any member willing or able to offer significant funds to others as an inducement for reform. Indeed, perceptions of imbalanced benefits (with Kenya seen as reaping disproportionate gains) are part of what doomed the first attempt at East African integration in the 1970s.
In the near future, then, the EAC’s major gains are likelier to come in the economic realm than the political one. That is no reason to abandon hopes for democratic progress, though. EAC states should still articulate a strong commitment to rights and freedoms and build institutions to hold each other firmly accountable for democratic practices (or lack thereof). They could learn from the Economic Community of West African States (ECOWAS), which has had some (but only some) success in condemning coups d’états and working to restore democracy — as in Côte d’Ivoire in 2010-11 and in Mali more recently.
As the EU struggles to emerge from crisis, East Africans are demonstrating that the case for integration remains alive and well and the European model retains its aspirational sheen. If the EAC can learn from the EU’s history, the people of East Africa could enjoy improved economic opportunities and political stability, in turn becoming a more important business and security partner for the United States and the European Union itself.