Breakup of the East African Community The East African Community (EAC), with its common market, transport, and communications corporations, scientific research institutions, and the East African Development Bank (EADB) was once regarded as a model for African regional integration. However, the Community ran into serious political and economic difficulties and broke up in July 1977. This article examines the main problems of regional integration with specific reference to the factors that led to the breakup of the EAC. 36 Finance & Development I December 1979 ©International Monetary Fund. Not for Redistribution Regional economic groupings are now rangement. Even then there were dis- pertaining to the exchange of currency found in all areas of the developing world agreements among the three countries over notes and the freedom of current transac- and involve about half of all developing the distribution of benefits. These diver- tions at par value among member coun- countries. There are two main reasons un- gences widened after independence, when tries. Furthermore, under the Treaty, derlying this drive toward integration—the each of the countries placed more empha- member countries agreed to pursue eco- first, economic; the second, political. First, sis on national development. nomic policies which would safeguard the economic integration may become an im- Attempts were made to rectify the an- common value of their currencies by en- portant instrument for economic growth of omalies in the existing arrangements. The suring equilibrium in their balance of pay- the region as a whole. Removing barriers Kampala Agreement of 1964 provided for ments. to the free movement of goods, labor, and quotas on intra-East African trade to limit The Treaty established two new "meas- capital between regions sometimes leads to trade imbalances of deficit countries and ures to promote balanced industrial devel- the expansion of trade and, therefore, of for a licensing system to encourage the es- opment." The first was a transfer tax on incomes and employment. Larger eco- tablishment of new major industries in the intra-Community trade to protect indus- nomic units, with their larger markets, less industrially developed partners. The tries of the less industrially developed should permit economies of scale in pro- failure to implement this Agreement led to members of the Community against those duction and justify the establishment of the imposition of quantitative restrictions of the more developed. The second was enterprises previously considered too by Tanzania and Uganda on intra-East the establishment of the East African De- costly. If permitted, resources such as labor African trade. In other important areas velopment Bank (EADB) on December 1, and capital may move freely to the most also cooperation began to falter or collapse. 1967 in Kampala, with equal contributions productive areas of these larger markets There were signs that the common market from each state. and add to the growth of output. Depend- would break up, unless the economic co- Following the Treaty, self-contained ser- ing on geography, cheaper and more effi- operation arrangements were restructured. vices provided by the East African Com- cient transportation systems may result. The three countries therefore decided to mon Services Organization were consoli- Finally, the broader markets resulting from set up a new system of economic coopera- dated under four autonomous corporations: integration should attract more substantial tion. On June 6, 1967 the Treaty for East the East African Railways Corporation foreign investment. The second motive for African Cooperation, establishing the East (EARC), the East African Harbours Cor- establishing regional economic groupings African Community, was signed in Kam- poration (EAHC), the East African Ports is to strengthen collective self-reliance and pala. It came into effect on December 1, and Telecommunications Corporation thereby reinforce the political indepen- 1967. (EAP&TC), and the East African Airways dence of developing countries, enhance The Treaty for East African Cooperation Corporation (EAAC). The Treaty estab- their power vis-a-vis the developed world, was at that time one of the most compre- lished these corporations as commercial in- and enlarge their economic and political hensive and far-reaching efforts at regional stitutions within the Community, each role in international relations. integration. The aim of the Community country sharing equally in ownership and Inevitably there are problems confront- was "to strengthen and regulate the indus- control. On the principle that benefits ing developing countries attempting inte- trial, commercial, and other relations of the should be distributed fairly, the headquar- • gration. Political rivalries, nationalism, dif- Partner States to the end that there shall be ters were dispersed among the member ficulties connected with differences in the accelerated, harmonious, and balanced de- countries. The continuity of the services level of development reached by member velopment and sustained expansion of provided by these corporations constituted countries, and the tendency of benefits to economic activities, the benefits whereof a very important part of the economic co- be concentrated in particular areas, leading shall be equitably shared." With the sign- operation among the member countries. In 'to disparities in the development of mem- ing of the East African Treaty, the East Af- practice, they provided most of the com- bers—all these factors can thwart moves rican Common Market was formally estab- munications services in the member coun- 'toward integration and cooperation. This lished. The partner states undertook to tries. In addition, the Community pro- •article reviews one attempt at regional in- continue to maintain a common customs vided several services in four main tegration—the East African Community tariff on all goods imported from outside categories: revenue collection, economic (EAC). the Community, to abolish all trade restric- and statistical services, research services, .Cooperation tions on intra-Community trade, and to and other miscellaneous services. Their ac- Since the beginning of this century there harmonize monetary and fiscal policies. tivities were financed out of the Commu- 'has been a considerable degree of eco- They also agreed to coordinate their eco- nity budget and from foreign donations. ^nomic cooperation among Kenya, Tanza- nomic planning efforts. The East African Breakup nia, and Uganda. (See accompanying box.) Common Market did not, however, pro- The common colonial administration un- vide for free movement of labor and capi- Although cooperation in the EAC was der Great Britain provided the main impe- tal, nor did the provisions of the Treaty ex- encouraging in the initial years, relations ftus for cooperation in the fiscal fields, the tend to agricultural products. between the member countries started to ^provision of common infrastructural ser- Monetary and exchange control arrange- deteriorate in the early 1970s. The Com- vices, and a sort of common market ar- ments were formalized through provisions munity's highest body, the East African Finance & Development I December 1979 37 ©International Monetary Fund. Not for Redistribution Authority, which consisted of the three into effect. In this statement the ruling ful compromise. In 1971 Idi Amin ousted presidents, did not meet after 1971 because party, the Tanganyika African National Milton Obote in Uganda. President Ny- of Tanzanian President Nyerere's refusal Union, set out its policy on socialism and erere then announced that he would not sit to meet with Uganda's President Amin. In self-reliance. The Tanzanian Government at the same table as President Amin; the 1972, exchange controls and import restric- attempted to bring the economy increas- East African Authority never met again. tions were imposed on intra-Community ingly under state ownership and control; The absence of the East African Authority trade. They diminished the effectiveness of the extensive public sector, for instance, meetings created a vacuum in the decision- the Common Market and led to the disso- was increasingly regulated by central plan- making functions in the EAC, and the lution of the common monetary area. In ning. 1973, the restrictions imposed by member The effects of the different ideological states on interstate transfers of funds led to orientations of the partner states affected financial crises in the four corporations. As trade relations and the general scheme of Regional integration in East a result, the corporations' operations be- investments and industrial policies—the Africa: a timetable of events gan to falter, and this led to delays in meet- situation in Tanzania contrasting with a clear emphasis in Kenya on private, largely ing their external obligations. 1917—Kenya and Uganda formed a foreign, investments. Ideological differ- In 1975, the three member countries customs union. ences influenced the foreign policies of the agreed on a review of the 1967 Treaty. A 1919_The East African Currency Board countries and, in turn, their relations commission was set up in November to was established. among themselves. Tanzania developed make recommendations regarding the fu- 1921—Tanganyika joined the Currency ture of the Community, but adjourned after closer relations with Zambia and Mozam- Board. bique, Uganda with Zaire, and, until the a year without agreement. Forces leading 1922—The common