The realisation of a large regional
economic bloc with a combined population of more than 141.1 million people,
land area of 1.82 million sq.km and a combined Gross Domestic Product of $99.8
billion, bears great strategic and geopolitical significance and prospects of a
renewed and reinvigorated East African Community (EAC).
East African Community (EAC)
- The
East African Community (EAC) is a regional intergovernmental organisation
of the Republics of Burundi, Kenya, Rwanda, Uganda and the
United Republic of Tanzania, with its headquarters in Arusha, Tanzania.
- The
Treaty for Establishment of the East African Community was signed on
November 30, 1999 and entered into force on July 7, 2000 following its
ratification by the original three Partner States – Kenya, Tanzania and
Uganda.
- The
Republic of Rwanda and the Republic of Burundi acceded to the EAC Treaty
on June 18, 2007 and became full Members of the Community with effect from
July 1, 2007.
Aims
- The
EAC aims at deepening economic, social and political integration and
enhance the region’s competitiveness through enhanced value chain, trade
and investments.
- To
achieve such goals, the EAC countries established a Customs Union in 2005
and a Common Market in 2010 which provides “four Freedoms”
namely, free movement of goods, labour, services and capital, to
significantly boost trade and investments and make the region more
productive and prosperous.
EAC Partner States also qualify for
duty-free access to the US market under the African Growth and Opportunity Act
(AGOA), as well as European Union (EU), and the Common market of Eastern &
Southern Africa (COMESA).
- Reforms
and a growing participation in global trade has helped the EAC region to
grow.
- It
has been the second fastest growing economic bloc in the world in recent
years with an average growth of 5.8% in 2012 (behind ASEAN at 6.1%) which
is the best rate of growth in the Sub-Saharan Africa region.
- Tanzania,
Uganda and Rwanda showed a robust annual growth of over 7% from 2002 to
2012, and the total FDI inflow in the EAC region has almost tripled from
$1.3 billion in 2005 to $3.8 billion in 2012.
All countries in the EAC region have
recognised the private sector as an essential growth engine for economic and
social development and have introduced favourable policies to attract domestic
and foreign investment. Governments are encouraging investment by providing
fiscal incentives, establishing Export Processing Zones (EPZs) and industrial
parks, setting up exports and investment promotion agencies (IPAs), and doing
outreach activities.
- Foreign
investors receive National treatment and generous incentives especially
when their investment and business plans lead to foreign exchange
generation, technology transfer, job creation, and skill enhancement in
national development priority areas such as value‐added
agro‐processing,
manufacturing, tourism and infrastructure.
The EAC region is projected to
continue showing a strong macro‐economic performance in coming years. According to the World
Bank, Rwanda’s economy is projected to grow by 7.5% in 2015, Tanzania 6.8%,
Uganda 6.2%, Kenya 4.9% and Burundi by 4.3%. The population in the region is
forecast to grow to 150 million by 2015 and to 237 million by 2030. The EAC is
expected to expand its membership to South Sudan and possibly the Democratic
Republic of Congo in the near future as well.
Intra-EAC Trade
The intra-regional trade among EAC is
growing rapidly, doubling from $1.6 billion (7.8% of total east Africa’s trade)
in 2006 to $3.8 billion in 2010 (11.4%). The share of intra-EAC exports to
total east Africa’s exports has also increased from 14% in 2006 to over 20% in
2010, while the share of intra-EAC imports in total east Africa’s imports
remains small at around 5%.
- Kenya,
Uganda and Tanzania are the main intra‐regional
exporters.
- Kenya
has played a dominant role in the intra¬‐regional
trade, exporting manufactured goods, chemicals and machinery to the
landlocked countries such as Uganda and Rwanda.
- Major
EAC exports within the region comprise manufactured products (food
products, beverage, tobacco, cement) and oil re‐exports,
while EAC exports to other regions mainly consist of commodities.
The fast‐growing intra‐regional trade in manufactured goods
implies potential growth in manufacturing in the region backed up by the
regional demand. Regional trade in manufactured goods (plastics, chemicals,
paints, and cosmetics, construction materials and pharmaceuticals) and regional
production chains can generate jobs and increase GDP of the region.
EAC’s Trade with the World
- The EAC region borders with eight countries including
Ethiopia, Somalia, Sudan, South Sudan, Mozambique, Democratic Republic of
Congo, Zambia and Malawi, of which five are landlocked. This
central location of the EAC region presents significant market potential
in largely untapped markets, not only in East Africa but also in Central
and Southern Africa.
- EAC’s trade with the world
increased over five-fold from $8.9 billion in 2002 to $49.3 billion in
2012. Exports of the EAC have increased to $13.8 billion in 2012, up from
$2.8 billion in 2002, while imports have also witnessed almost six-fold
increase to $35.4 billion in 2012, compared to $6.1 billion in 2002.
- The region’s major exports are agricultural products such as
tea, coffee, flowers, fish, tobacco, and cashews, which account for 36% of
the region’s total exports.
- Major imports include petroleum and related products,
vehicles and transport equipment, machinery, and pharmaceutical products.
The relatively small share of intra¬‐regional imports to total EAC imports shows that
manufacturing in the region has remained under developed even while the
demand is growing.
- EU is the region’s biggest trading partner, accounting
for nearly a quarter of the region’s total imports followed by India, UAE,
China, South Africa, and Japan. Coffee,
cut flowers, tea, tobacco, fish and vegetables dominate exports to the EU
from EAC.
- Machinery and mechanical appliances, equipment and parts, vehicles and pharmaceutical products dominate imports from the EU into the region.
- COMESA and South African Development Community (SADC) are among the region’s other important export destinations.
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- While, SADC accounts for a major
share of EAC imports, which is mainly due to imports from South Africa,
imports from the rest of world are mainly from the Middle East and Asia,
including India and China.
India and EAC relations
- Helped by a vibrant
business and commercial relationship driven by the presence of a large
Indian community in EAC, India has become a leading trading and investment
partner of EAC. India is an
important source of essential machinery, pharmaceutical products, mineral
fuels, motor vehicles (including auto parts), textiles, iron & steel
and rubber products.
- Exports from EAC to
India mainly consist of hides & skins, leather, metal ores & metal
scrap, cashew nuts, coffee, gem stones and gold. EAC countries have opened their doors to both public
and private sectors of India for investments and expansion of industrial
base. Sectors identified are agri-processing, power, IT, transportation,
telecommunication, food processing, and commercial farming.
- EAC provides good
opportunities to Indian service providers as well. The main areas for
rendering services are in education,
consultancy and healthcare services.
India has been an important destination for higher education for the
students of EAC under the Indian Technical & Economic Cooperation
Program (ITEC).
- There is great demand for
consultancy services in the EAC as all countries in the region are
witnessing economic development initiatives at various levels.
The sectors which show maximum potential for consultancy services are
infrastructure, energy, IT enabled services, agriculture, rural
development and hotel management.
- Bilateral trade
between India and the EAC has risen 13-fold, from $490.8 million in 2002 to $6.6 billion in 2012.
India’s exports to the EAC countries have risen significantly, by 16-fold
from $369.3 million in 2002 to around $5.9 billion in 2012. As a result,
the share of the EAC countries in India’s total exports to Africa has
risen from 12.2% in 2002 to a healthy 21.7% in 2012. India’s imports from
the EAC region have also risen over 5-fold from $121.5 million in 2002 to
$624.1 million in 2012, accounting for 1.5% of India’s total imports from
Africa.
- Potential items for India’s exports to the EAC region
include petroleum products, machinery and instruments, electrical and
electronic equipment, vehicles other than railway, cereals, animal,
vegetable fats and oils, iron & steel, and plastics.
- Potential sectors for India’s investment in the region
include agriculture, horticulture, manufacturing, construction, energy,
banking and other financial services, information and communication
technology (ICT) and tourism.
The Broad Strategy
The broad strategy to enhance India’s
commercial relations with the EAC region could include cooperation in key
sectors such as transport related infrastructure; meeting power and energy
requirements of EAC; financial/ banking sector development; agriculture and food
security; capacity building, technology transfer and human resource
development; ICT and knowledge sharing; environment and natural resources
development and management; industry and micro, small and medium enterprises
(MSME) development; hospitality industry; multilateral funded projects; and in
developing linkages with trade promotion institutions, investment promotion
agencies, chambers of commerce.
- However,
it is essential that India and EAC should undertake supply and demand
surveys, organise buyers and sellers meetings and other multi-country
contact promotion events to identify and exploit the potential of
intra-Common Market trade.
It is high time for India to turn its
attention to EAC as an investment location because of
1.
growing political stability,
2.
commitment to provide liberal
foreign-exchange regime,
3.
availability of cheap labour,
4.
agro-fertile land for agricultural
research & food processing
5.
social development in the region.
In addition, there is a need to assert EAC and India as
building block to realise the Pan Afro-Asia vision through a Common Union.
India should also observe the
strategic areas of great economic importance of EAC member states like trade
liberalisation, custom cooperation, trade related issues, industry and energy,
monetary affairs, agriculture, economic and social development.
