What is the East African Community and what does it mean for business?

With all eyes set on the race for oil production between Uganda and Kenya, a development of a different sort is taking place some 200 miles to the south in Arusha, Tanzania. The East African Community (EAC) is conducting a plenary session to discuss trade policies with representatives from the five member states of Burundi, Rwanda, Kenya, Tanzania and Uganda in attendance. Meetings of the sort are not unusual in Sub-Saharan Africa. The EAC, however, is quite unique.

EAC

The East African Community

As Sub-Saharan Africa’s most integrated trade bloc, the EAC is a large, single market with a combined GDP of $US 99.8 billion and 141 million people. It allows for the free movement of goods and labor, and is home to large infrastructure projects that bound the region together. Unlike other African trade blocs such as SADC, COMESA and ECOWAS, the EAC’s goal is not purely economic: its ultimate vision is to become a political federation with a single currency. Despite some frictions between each country’s head of state, the EAC has prioritized regional integration at a pace unforeseen in Sub-Saharan Africa.

MNCs can therefore enjoy several benefits when selling or establishing a local presence in the region:

  • Infrastructure projects and the breakdown of trade barriers create a larger economy that is more attractive to investors
  • The EAC’s ongoing physical and institutional reforms cut the costs and risks of doing business
  • Political stability and proximity to Central Africa, South Sudan, and Ethiopia offer wider regional access
  • Increased competition because of the EAC’s single market results in cheaper goods, but adds pressure to profit margins

While the EAC is home to a broad consumer base that demands a wide variety of goods from various industries, it also faces several challenges to doing business. Inconsistencies in customs valuations, export taxes and rules of origins abound, while the infrastructure is aging. Transport costs along the EAC’s two major corridors are some of Sub-Saharan Africa’s highest. The timeline for integration has not been kept. However, the EAC is addressing these challenges with new projects, investments and treaties. For example, one-stop border posts in select towns will ease bottlenecks associated with intra-regional trade, and the ongoing construction of the LAPSETT transport corridor will provide alternative routes to distribute goods in the wider region. The EAC’s evolving landscape underscores the importance of looking at the region – and Sub-Saharan Africa as a whole – through a long-term lens.

Regional integration is key to Sub-Saharan Africa’s economic growth and will continue to be pushed at the top of policy-makers’ agendas. Old boundaries will continue to break down in favor of highways, pipelines, railway lines and power grids that will redefine regional dynamics. MNCs planning to expand their Sub-Saharan Africa presence should consider clusters of linked markets, as economic zones will continue to influence dynamics in ways more impactful than individual countries. The EAC might be Sub-Saharan Africa’s most integrated trade bloc, yet it is also symptomatic of a bigger, long-term trend of economic realignment on the continent.

To learn more about the EAC, FSG clients may review the full report on our client portal.

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