Regional organisations fail to reach targets

2011-09-25 15:40

Nairobi - Few of the objectives set by economic regional organisations in Africa with regard to the free movement of goods, people and capital are being realised.

This is despite many of the organisations – like the East African Community (EAC), the CFA or franc zone (the currency for 14 French-speaking countries whose economies are linked to the French monetary unit) and the West African Economic and Monetary Union (Umeoa) – having been established decades ago.

The EAC is regarded as the fastest-growing region in the world.

Yet, said Richard Sindinga, director for economic affairs in the Kenyan ministry for the EAC, trade in this African community still limited as a consequence of, inter alia, the lack of harmonisation.

The EAC was established in the 1970s and made a comeback in the 1990s.

At PwC’s 14th African Tax Symposium in Kenya Sindinga explained the challenges that prevent the different regional organisations from reaching their objectives.

At the same time Gabriel Kitenga, head of public policy at East African Breweries, gave an overview of the progress indeed made by the communities.

His analysis shows that the Southern African Development Community (SADC) probably takes the lead.

According to Sindinga, everyone is striving for a common market where goods, people and capital can move freely. But in reality a strong nationalist sentiment still prevails.

“We think like Kenyans, Ugandans and Tanzanians. Harmonisation has taken place only to a small degree. Intra-Africa trade is probably the lowest of all regions.”

Average trade between countries in Africa is around 12%, compared to 45% within die Association of Southeast Asian Nations (Asean), 54% within the Nafta (North American Free Trade Agreement) region and 60% within the European Union.

The reasons for the performance of economic communities outside Africa are advanced integration and greater business activity between members of the community – and they have more to offer each other (than Africa has).

According to Kitenga, most regional groupings are striving towards the same ideals, yet some of the countries belong to more than one institution, even though their needs could be satisfied by belonging to only one.

This costs time and money which is unnecessarily squandered.

Kitenga reckons there are various reasons why African communities are less successful than those in other regions. (See the box alongside.)

He said harmonisation of Africa's economic communities should take place in line with trade and taxation policies across the regional groupings.

The legal framework should be harmonised as should fiscal incentives, tax structures and procedures and standards.

In terms of trade, political integration, institutional framework, monetary integration and a common external tariff, SADC leads the way, followed by the Economic Community of West African States (Ecowas) and the EAC.

According to Sindinga, bigger markets and greater incentives for intra-trade in Africa are necessary for these communities, in order to realise real benefits for the members.

One issue with serious implications for these regional communities is the interpretation of the Rules of Origin.

These rules represent the criteria required to determine the national source of a product.

According to the World Trade Organisation (WTO) the rules are important because levies and restrictions on trade depend on the source of importation.

The different interpretations and applications of the rules lead to serious conflict, which certainly does not promote cooperation at regional level.

According to the WTO, a measure of harmonisation is necessary in a globalising world. It appears that Africa needs more than a mere measure of harmonisation.