Introduction

Since the beginning of the east African integration, there have been numerous steps so as to
ensure it works but there have also been a myriad of problems associated with the integration.

Types of Trade Blocs

A regional trading bloc is a group of countries within a geographical region that protect
themselves from imports from non-members . Trading blocs are a form of economic integration,
and increasingly shape the pattern of world trade. The several types of trade blocs are what form
the stages of integration.

Stages of integration
There are several stages of integration and according to they include, “Independent economy,
preferential trade area, free trade area, customs union, common market, monetary union, fiscal
union to a political union.

There are several stages in the process of economic integration, from a very loose association of
countries in a preferential trade area, to complete economic integration, where the economies of
member countries are completely integrated.

A regional trading bloc is a group of countries within a geographical region that protect
themselves from imports from non-members in other geographical regions, and who look to
trade more with each other. Regional trading blocs increasingly shape the pattern of world trade -
a phenomenon often referred to as regionalism.

Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to
reduce or eliminate tariff barriers on selected goods imported from other members of the area.
This is often the first small step towards the creation of a trading bloc. Agreements may be made
between two countries (bi-lateral), or several countries (multi-lateral).

Free Trade Areas (FTAs) are created when two or more countries in a region agree to reduce or
eliminate barriers to trade on all goods coming from other members. The North Atlantic Free
Trade Agreement (NAFTA) is an example of such a free trade area, and includes the USA,
Canada, and Mexico.

A customs union involves the removal of tariff barriers between members, plus the acceptance of
a common (unified) external tariff against non-members. This means that members may
negotiate as a single bloc with 3rd parties, such as with other trading blocs, or with the WTO.

A common market is the first significant step towards full economic integration, and occurs
when member countries trade freely in all economic resources – not just tangible goods. This
means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as
well as removing tariffs, non-tariff barriers are also reduced and eliminated. For a common

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market to be successful there must also be a significant level of harmonisation of micro-
economic policies, and common rules regarding monopoly power and other anti-competitive
practices. There may also be common policies affecting key industries, such as the Common
Agricultural Policy (CAP) and Common Fisheries Policy (CFP) of the European Single Market
(ESM).

Economic Union is a term applied to a trading bloc that has both a common market between
members, and a common trade policy towards non-members, but where members are free to
pursue independent macro-economic policies.

Monetary union is the first major step towards macro-economic integration, and enables
economies to converge even more closely. Monetary union involves scrapping individual
currencies, and adopting a single, shared currency, such as the Euro for the Euro-16 countries,
and the East Caribbean Dollar for 11 islands in the East Caribbean. This means that there is a
common exchange rate, a common monetary policy, including interest rates and the regulation of
the quantity of money, and a single central bank, such as the European Central Bank or the East
Caribbean Central Bank.

Economic and monetary unions

An economic and monetary union is a type of trade bloc which is composed of an economic
union (common market and customs union) with monetary union. This is the fifth stage of
economic integration. EMU is established through a currency related trade pact. An immediate
step between pure EMU and a complete fiscal union. Proposed is the east African shilling.

History of East African Community

Currently the members of the East Africa community include Kenya, Rwanda, Tanzania, Uganda
and Burundi. The leader currently is Jakaya Kikwette.

However, in the past the east Africa community included only Kenya, Tanzania and Ugnada and
was first established in 1967, which enjoyed a long history of co-operation under successive
regionl integration arrangements.

These have included the first stage of economic integration, Customs Union between Kenya and
Uganda in 1917, which the then Tanganyika later joined in 1927; the East African High
Commission (1948-1961); the East African Common Services Organisation (1961-1967); the
East African Community (1967-1977) and the East African Co-operation (1993-2000).

Following the dissolution of the former East African Community in 1977, the Member States
negotiated a Mediation Agreement for the Division of Assets and Liabilities, which they signed
in 1984. Causes of the collapse included demands by Kenya for more seats than Uganda and
Tanzania in decision making organs.
However, as one of the provisions of the Mediation Agreement, the three States agreed to
explore areas of future co-operation and to make concrete arrangements for such co-operation.

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Subsequent meetings of the three Heads of State led to the signing of the Agreement for the
Establishment of the Permanent Tripartite Commission for East African Co-operation on
November 30, 1993.
Full East African Co-operation operations started on March 14, 1996 when the Secretariat of the
Permanent Tripartite Commission was launched at the Headquarters of the EAC in Arusha,
Tanzania.
Considering the need to consolidate regional co-operation, the East African Heads of State, at
their 2nd Summit in Arusha on 29 April 1997, directed the Permanent Tripartite Commission to
start the process of upgrading the Agreement establishing the Permanent Tripartite Commission
for East African Co-operation into a Treaty.
The Treaty-making process, which involved negotiations among the Member States as well as
wide participation of the public, was successfully concluded within 3 years.
The Treaty for the Establishment of the East African Community was signed in Arusha on 30
November 1999.
The Treaty entered into force on 7 July 2000 following the conclusion of the process of its
ratification and deposit of the Instruments of Ratification with the Secretary General by all the
three Partner States.
Upon the entry into force of the Treaty, the East African Community came into being.

Objectives of East Africa Community

The overall objective of the EAC community is to widen and deepen cooperation among the
partner states in the economic and social fields for the benefit of the partner states and their
citizens.

The specific objectives are:

Accelerate economic growth and development of the partner states through the attainment of
free movement of goods, persons and labour, and the rights of establishment and residence and
free movement of services and capital

Strangthen and coordinate and regualate the economic trade relations among the partner states in
order to promote accelerated, harmonious and balanced development within the community.

Sustain expansion and integration of economic activities within the community, thebenefit of
which shall be equitably distributed among the partner states

Promote common understanding and cooperation among the nationals of the partner states for
the economic and social development

Enhance research and technological advancement to accelerate economic and social development

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East African Treaty
The East African Community treaty was signed on November 30, 1999 in Arusha Tanzania
between five countries, including Burundi, Kenya, Rwanda, Uganda and Tanzania. The accord
established the east African community whereby all the participating nations agreed to establish
more cooperative commercial and political relations . The treaty took effect on July 7th 2000.

Problems of EAC integration

Expanded Market
The process of offering a product or service to a wider selection of an existing market or into a
new demographic, psychographic or geographic market.

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Labor mobility
It is argued that economic integration causes problems for the labor market due to cross border
mobility and the accompanying increase in labor supply. Existing empirical impact of
immigration on the employment opportunities of native workers shows only quite modest
effects. If immigrants select themselves into specific labor markets with favorable conditions,
empirical results with respect to adverse suuply effects on resident workers are likely to be
biased and some additional information is needed for identification.

A border removal will lead to an employment expansion accompanied with a decline in wages
and a rise in unemployment in the high-wage region. Which confirm that in comparision with the
labor market developmet in other East African countries, the other countries have seen an
increase in employment, a reduction in wages, and an increase in unemployment.

Cultural barriers
All economic activities involve communication and communication is heavily influed by culture.
Within the international and global business environment, activities such as exchanging
information and ideas, decision making, negotiating, motivating and leading are all based on the
ability of managers from one culture to communicate successfully.

The impact of cultural barriers can be felt in communication. Communication includes sending
both verbal messages (words) and none verbal messages (tone of voice, facial expression,
behavior and physical setting). It includes consciously sent messages that therefore involves a
complex, multilayered, dynamic processes through which we exchange meaning.

For example, the prestigious members of EAC’s parliament refrained from using numbers
endingin 4 to identify their newly installed lockers. Some Chinese consider numbers ending with
the digit 4 to be jinxed .

Translating meanings into words and behaviors – that is, into symbols – and back again into
meanings is based on a person’s cultural background and is not the same for each person. The
greater the difference in background between senders and receivers, the greater the difference in
meanings attached to particular words and behaviors.

Cross cultural communication occurs when a person from one culture sends a message to a
person from another culture. Cross cultural miscommunication occurs when the person from the
second culture does not receive the sender’s intended message. The greater the differences
between the sender’s and the receivers’s culture

Capital costs

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Limited Power Purchase
Purchasing power measures the value of goods that can be bought with a specifi amount of
currency. Purchasing power is a relative measure that is most relevant when analyzed for
changes over time. For example, if a dollar is valuable enough to buy five apples for one dollar
can only buy four apples a year later, then the dolar’s purchasing power will have decreased over
the year.

Inflation is the number-one enemy of economy-wide purchasing power. Inflation is the processes
whereby prices slowly rise throughout all sectors in an economy, effectively reducing the
purchasing power of fixed assets and current income levels.

Tech capability
Economic integration and strng interdependence amongst nations across the worls have led to
immense pressure on emerging and and underdeveloped economies alike to intensify their efforts
for rapidly building their technological and innovation capabilities. Technological capabilities
refers to the ability to make effective use of technological knowledge in efforts to imitate and
assimilate existing technologies, creating new ones and develop new products and processes in
response to changing economic environment (Kim, 1997) These capabilities are far from being
uniformly distributed across countries, regions and firms.

Access to advanced technology is necessary condition, but it need to be accompanied by

substantial and purposeful investments for it to be absorbed, adapted and learned (Pietrobelli,
1994. Countries vary in their capacity to ascertain, create and use technology for the purpoe of
development and to enhance efficiency and productivity. Both theory and experience corroborate
the fate that adoption and diffusion of technology spurs economic and productivity growth
(Hoekman, Maskus & Saggi, 2004). The poorly growing economies are otherwise replete with
natural resources and human sklls remain largely untrapped. While few countries constantly
upgradetheir knowledge base a majority of them face many difficulties absorbing capabilities
that are already in some parts of the world (Archibugi & Coco, 2004).

The major challenge for these economies range from contriving suitable policy measures to
develop conductive market environment for accelerating the development of new technology,
absorption of existing technologies for economic development and to graduation on to the next
level of technology and growth trajectories. This calls for a greater need to critically assess the
economy on technology and innovation related parameters to evaluate its extent of development
and integration with other markets.

Adaption to single currency

A single currency should end currency instability in the participating coutries (by irrevocably
*fixing exchange rates) and reduce it outside them. Because the EAC shilling would have the
enhance credibility of being used in a large currency zone, it would be more stable against
speculation than individual currencies are now. An end to internal currency instability and a

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reduction of external currency instability would enable exporters to project future markets with
greater certainty a greater certainty. This will unleash a greater potential growth.

Likewise, businesses would no longer have to pay hedging cost which they do today in order to
insure themselves against the threat of currency influctations. Businesses, involved in
commercial transactions in different member states, would no longer have to face administrative
costs of accounting for the changes of currencies, plus the time involved. It is estimated that the
currencycost of exports to small companies is 10 times the cost to the multinationals, who offset
sales against purchases and can command the best rate.

With the different EAC countries with widely differing economic performances and different
languages have never before attempted to form a monetary union. It works in the United States
because the labour market is mobile, helped by the common language and portability of pensions
etc across a large geographical area. Language in EAC is a huge barrier to labour force mobility.
This may lead to pockets of deeply depressed areas in which people cannot find work and areas
where the economy flourished and wages increase. While the cohesion funds attempt to address
this, there are still great differences across the EAC in economic performance.

All the EAC countries have different cycles or are at different stages in their cycle. Rwanda is
growing reasonably well, Kenya is having problems. This was the reserves situation in 1994.
Interest rates are set in each country at the appropriate level for it. One central bank cannot set
inflation at the appropriate level for each member.

Loss of national sovereignity is the most often mentioned problem of monetary union. The
transfer of money and fiscal competencies from nation to community level, would mean
economically strong and stable countries would have to co-operate in the field of economic
policy ith other , weaker, countries, which are more tolerant to higher inflation.

The one off cost of introducing the single currency will be significant. Such charges include
educating customers, changing labels, training staff, changing computer software and adjusting
tills.

Infrastructure
Infrastrure is a widely recognized as a key ingredient in a country’s economic success; many
issues surrounding infrastrure spending are not well understood. In different countries in the
EAC there are varying differences in the returns to infrastructure, the role it plays in its private
sector, , the evaluation and delivery of infrastructure in practice, the nature of network industries,
pricing and regulation, political economy considerations of infrastructure provision, and
infrastructure in developing countries.

The massive fiscal stimulus in the wake of the global financial crisis has refocused the
international community onto the nature and role of infrastructure spending. Although this type
of spending can provide a short-term demand stimulus to an economy, in the medium to longer

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term it can form a critical part of a successful economic growth strategy. Well designed
infrastructure facilitates economies of scale, reduces costs of trade, and is thus central to
specialization and the efficient production and consumption of goods and services. It is a vital
ingredient to economic growth and development, which is the key to raising living standards.

In particular the conference concentrated on a series of questions:

What is the nature of infrastructure? What are its salient features that distinguish it from other
factors of production?

What are the returns to infrastructure investment? How is infrastructure investment evaluated
and delivered? How does infrastructure affect an economy’s growth rate?

How should infrastructure be provided? Should it be provided by the government? By the private
sector under strict government regulation? By the private sector with little, if any, government
regulation?

Should infrastructure provision be affected by the stage of a country’s economic development?

The first issue is pivotal to understanding the subsequent three issues. What are the main
characteristics of infrastructure that make it special to a country’s economy? Is it scope, scale or
longevity? What is its role as a collective, if not pure, public good? What is the significance of
network externalities? Different types of infrastructure—internet, telephone (fixed line and
mobile), rail, air, sea and road transport, energy and water—each pose their own challenges.

The second issue is central to boosting overall productivity and to raising living standards. Just
how important is infrastructure to the economy? Can this be reliably measured? How are new
technologies adopted and how can infrastructure services be made more efficient? How do
countries, in practice, evaluate and deliver existing and new infrastructure?

The third issue is central to the policy debate about infrastructure investment, with a long and
growing list of open questions: What is the most efficient way to finance infrastructure
spending? What are optimal infrastructure pricing, maintenance and investment policies? What
have proven to be the respective strengths and weaknesses of the public and private sectors in
infrastructure provision and management, and what shapes those strengths and weaknesses?
What are the distributional consequences of infrastructure policies? How do political forces
impact the efficiency of public sector provision? What framework deals best with monopoly
providers of infrastructure?

The final issue relates to developing countries, whose infrastructure is typically less sophisticated
and extensive than industrialized countries’ infrastructure and additionally often more poorly
managed and less efficiently used. Developing country legal systems are weaker, making
regulation and enforcement more difficult. They are fiscally weaker and their borrowing costs
higher. Given these challenges, it is natural to envisage a greater private sector role in

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infrastructure in developing countries, but that too poses complex challenges. What have proven
to be the major gains from, and difficulties caused by, the expansion of private sector
infrastructure provision in developing countries? What lessons can be drawn for the future,
especially for policy and regulatory frameworks?

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