• Kenya, Uganda, Rwanda, Burundi, Tanzania and South Sudan have officially acknowledged plans to transition the East African Community (EAC) into a supranational organization, the East African Federation (EAF). This proposed political union of EAC members will alter the significance of this region in its desire to become a global actor.
  • According to The GIIN (Global Impact Investing Network), East Africa has become one of the centers of global impact investing, as it has steadily grown throughout the region over the past five years.
  • EAC integration plans are based on several capital projects that are intended to boost not only regional cooperation, but also to facilitate the system of inter-state cooperation across all of sub-Saharan Africa.
  • However, economic opportunities and planned integration are threatened by several issues, including terrorist groups and possible secession claims in the region.

Union Building

The former East African Federation (EAF) was founded as a means of promoting inter-territorial cooperation between countries in this region, including Kenya, Tanzania, and Uganda.  This first incarnation collapsed during the 1970s.  However, the idea has not died.  The premise for the future of a considerably enlarged version of the EAF is in the same spirit of much larger supranational organizations, such as the European Union (EU) and the Association of Southeast Asian Nations (ASEAN). Over the next few decades, this quasi-federation has the goal of becoming a more important player in world politics and the global economy. It seeks to rid the region of its stigmatic colonial history by creating a regional trading bloc that will be competitive in the global economy.

Taking into account the significant economic potential driven by increasing investments and annual growth higher than anywhere else in Africa, the idea of a political union becomes even more relevant. The existing East African Community (EAC), located in the center of the proposed Tripartite Free Trade Area (TFTA)[1], plans to combine the EAC, the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC). Merchandise trade among the members of this new free trade agreement (FTA) increased from USD 2.3 billion to USD 36 billion between 1994 and 2014—more than a twelve-fold increase over 20 years.  Yet, while the increase in mutual commerce is indicative of the potential extant in intra-African trade, it has not historically been very significant to Western economies.

Although the share of trade between members is much lower when compared to similar trade arrangements existing within the EU and ASEAN, this trend suggests that trade among TFTA members grew faster than their trade with the rest of the world. This regional grouping, if the economic integration follows through, will offer large investment opportunities for capital coming from the West, especially in terms of development projects in underdeveloped sectors, such as telecommunications, banking, and agriculture.  Thus, potential investors should absolutely be looking at this region in the over the next year, following its development and keeping abreast of the opportunities extant therein.

If the West misses out, it stands to become only a marginal player in the economic and business sense, risking becoming important only in regional security matters instead of taking advantage of these same opportunities, as well as others.  Opportunities in banking, telecommunications, and medical industries, for example, could be of significant interest to the West if the Eastern African integration goes in the right direction. It would boost the consumption power of the nations in that region, creating new potential markets for Western goods. 

While the West has been significantly more conservative toward trade with potential members of the EAF, citing the states’ problematic pasts and ongoing conflicts in the region, other global players, especially China, are greatly interested in developments in the region and are not afraid to invest in capital projects.  China aims to fulfill its as-yet-unrealized dream of a Trans-oceanic Silk Road based on the Cape to Cairo Railway (a bygone desire of the British Empire), which will open the whole African continent to them.  Moreover, its resources, such as oil, gas and minerals, will be more accessible to China; in turn, Chinese trade with these countries will increase, as will China’s influence in this region.  In this way, the Chinese are seeking to capitalize by becoming the leading partner in the region. 

 

Source: http://wits.worldbank.org/

Capital Projects: Where the Focus Is

After many years of decline, the railway sector, together with marine services, are potential game changers for the future development of the EAF.  These sectors are key as they present the most developed network of infrastructure that connects states in this region.  As such, these industries are the backbone of the future union, and are subsequently set not only to attract significant FDI (which the Chinese have already begun to engage in, with several large-scale investments) but also to facilitate the system of inter-state cooperation across all of sub-Saharan Africa. The first capital project in the region, connected with the previously mentioned industries, will likely be the East African Railways Master Plan (EARMP), possibly the most important part of the envisioned EAF.  This railway was partly functional during the lifetime of the first federation in the 1970s; however, after it ceased to exist, the three constituent railways went through a difficult period.  They lost their regional significance due to hardships connected to funding and general low trade among neighboring countries.  The new line is envisioned to extend to Uganda, Rwanda, Burundi, the Democratic Republic of Congo, Tanzania and South Sudan.

Another project critical for the advancement of the EAF and deeply connected with the development of EARMP is the Lamu Port and Lamu-Southern Sudan-Ethiopia Transport Corridor (LAPSSET).  This corridor will connect the future members of this union, while at the same time providing landlocked South Sudan and Uganda with reliable access to the sea.  LAPSSET could even link with the Chinese-financed and -constructed Addis Ababa-Djibouti Railway.  Interestingly, both South Sudan and Uganda are exploring options for connecting oil pipelines to the route, making LAPSSET not only about rail infrastructure, but also a project of importance for the transport of energy sources.  Needless to say, LAPSSET would serve as a dynamic promoter of regional socio-economic development that would stretch along the whole transport corridor. 

Party Crashers – Potential Market Risks

In spite of these promising features and projects, the emergence of EAF could be seriously jeopardized by multiple factors.  One major destabilizing factor is represented by the terrorist group Al Shabaab. Primarily operating in Somalia, the group frequently also targets Kenya in its terror operations.  Given the proximity of Al Shabaab’s operations to Lamu Port, it is likely that the number of attacks could increase in the course of LAPSSET infrastructure development.[2]  Though the Eastern Africa Standy Force, existing in the framework of the African Peace and Security Architecture (2002), has been successful in tackling Al Shabaab in Somalia, it is unrealistic to expect this force to extend its operations to include security support for capital projects in the region, since it is instead prepared for peacekeeping purposes.

A second issue of note, Burundi has plunged into the worst political crisis since the end of its civil war in 2005. The unrest was triggered by the reelection of President Pierre Nkurunziza—a vote that the opposition boycotted.  The Rwandan army is allegedly providing training to Burundi rebels[3] in seeking to overthrow Nkurunziza. This internal crisis has majorly strained the relationship between Burundi and Rwanda, further damaging the integration process for the time being.

Lastly, the desire of citizens to control newly discovered oil and gas reserves in the semi-autonomous islands of Zanzibar in Tanzania[4] could be problematic. This has raised secession activities in the region, which escalated quickly during the 2015 Tanzanian elections in Zanzibar.  The elections were annulled after candidate Seif Sharif Hamad of the opposition Civic United Front (CUF) declared himself winner before the results were officially announced.  Moreover, the poor economic situation on the islands has led to the rise of street gangs, potentially leading to uprisings that could force the government to use extreme military force to keep the islands under control.

Conclusion

In spite of hardships, the EAC has made significant progress during the last ten years of integration. The customs union, in particular, triggered remarkable trade expansion, allowing for 40% growth in trade between EAC members in the last four years. Though fragile, the institutional framework and systems for delivery of the Community’s agenda have been entrenched at the national and regional level. Driven by the aforementioned capital projects, the newest regional union has enormous economic potential if it comes to fruition.

The path towards establishing the union will be tough for Kenya, Uganda, Rwanda, Burundi, and Tanzania, as these countries still have to tackle internal problems prior to their entry to the global stage. Nevertheless, assuming that their respective governments have the capacity to overcome political and economic obstacles in setting up this regional integration grouping, these countries will likely become more influential commercial players on a global scale in the next five to ten years, being more competitive vis-à-vis other integration/trading blocs due to the aforementioned opportunities, both in terms of resources and industry.

by Nikola Bradas
Senior Research Analyst

[1] http://www.bbc.com/news/world-africa-33076917

[2] http://www.aljazeera.com/news/2016/01/killed-al-shabab-raid-kenyas-lamu-county-160131145837254.html

[3] http://www.reuters.com/article/us-burundi-rwanda-un-idUSKCN0VD04K

[4] http://www.insideafricalaw.com/blog/zanzibar-and-tanzania-vie-over-oil-reserves