The East African community: its collapse and possibilities for its revival

UNITED NATIONS

AFRICAN INSTITÜTE FOR EC.ONOHIC ECONOMIC COHHISSION FOn AFUICA

2 6 OCT.1984

THE EAST AFRICAN CmlHUNITY:

ITS COLLAPSE AND POSSIBILITIES FOn ITS UEVIVAL

The Thesis by

Basil Fo HTEI

submitted in partial fulfillment of the requirements for the Degree of Master: of Arts in Economie Development and Planning in the African Institute for Economie Development and Planning, bas be en read and approved by the Commi ttee'o

Committee

t : .. ·, 20 August 1984

Da e •••••• • •• • •• • ••• • • ••••

Chairman~.

^{• .•}

⁰ ~~-..l {

H b ' .

P/bP -

1·!em er_ ^{o o o} ooooooooooo Member ^oeooo

M b er _e/;-~

: U --- ,~<----c:::-<A-J

o o q.-• o o • • ·_ ^o ~-o-~~

é ././ .

ABSTRACT

It is widely believed that the integration of markets of different countries 'vill lead to an accelerated economie develop- ment of the countries concerned· in-view of .the. ;r_~_sul ting, b.etter

--··~·--- .

resource utilization and the economies of scale. Bela Balassa, a proponent of this idea, difines economie integration as the con- tinuous process of removing discriminations amongst economies.

Kenya, Uganda and Tanzania for many-·year.s atiempted·to remove discrimina-ti~n~· am-ongs:t ·-the ir economies.- 'l'he efforts culniinated in

the East African Community. The Community, however, thrived only very briefly,

1967-1977.

The objective of this thesis is to analyse the causes of the collapse of the East African Community and the possibilities for its revival. In the course of the study it was found out that in- equitable distribution of gains, benefi ts and costs between I~enya

on the one hand and Uganda and Tanzania on the other was one of the major reasons for the collapse of the EAC~ It is contended in this study that economie integration in spite of the experience of the East African Community can be of great benefit to small countries of Africa and especially East Africao

The EAC cannot be revived as it used to be that is, 'vi th the same composition. It 'vill have to be integrated in the Preferential Trade Area where its experiences could be most useful in drawing up a fair compensation scheme, common industrial planning and a common agricul- tural policy.

ACKNO\vLEDG EMENT S

I ackno\vledge \vith thanks the permission of the Government of Tanzania to attend the two":"yea~ M!isters __ ~~g~-~~ course in Economie Development and Planning at.the United Nations African -

Institute for Economie Development and Planning (I.D.E.P.) in Dakar, Senegal. I am also most grateful to the United Nations Development Programme (u.t-r~n.P.) for its sponsorship.

I am ·dëeply -±ndebted to my Supervi-sor, Dr • .Akinola Ao Ovosekun whose close supervision made the successful completion of this study possible.

I also acknowledge vith thanks the assistance of the post- graduate Co-ordinator, Dr. Philip Quarcoo, and the assistance of Dr • Maktar· Diouf at the very beginning of this study especially

in defining the scope of the study. Mention should also be made of Dr. E.ssam Montasser, the Director of IDEP, for his \tords of

encour;:~;gement and Yaya Diakite for the fatherly advice which he freely gave to me during my stay in Dakar.

Lastly, but not the least, I am grateful to all persons, especially the staff at the IDEP whose co-operation contributed to the completion of this thèsis. Needless to say that I am responsible for all mistakes, omissions and other shortcomings contained herein.

Dakar, July 19~1.

(ii)

CONTENTS

Page ..

INTRODUCTION eeoooe·••••oeoeeoeeeooeeeo••••••••••••••••••••• 1

·-- CHAPTER I THE CONCEPT OF ECONOMIC INTEGRATION AND

THE EAST. AFRICAN SETTING, •.•• • •• • • ••• ,. • • • •. 3 1.1. The Concept of Economie Integrationo •••••••••••• 3 1.2. Integration Sçhe~~s·•••••••••••••••••••••••••••• 4:

1.~. The East African Setting, • , • , • •-•,,, •·•, o,,,,,,.,. 7 CHAPTER II THE EVOLUTION OF CO-OPERATION AND

INTEGRATION IN EAST AFRICA, , •• , , •••• o,.,. o.. 16 The Role of Britain, • • • • • • • • • • • • • • • • • • • 0 0 • • • • • • • 16 2.2. Common Currency, •o•••••••••••••••••••••o•••••••• 17 The Common Services,, •••••••••••••••o••••••••••• 18 Revenues, Finances and Expenditure of the

Common Services,

... ²³

Hanagement of the Common Services,,,,, •••••••••• 25 2. 2 ,t!. The !dea of Federation•••••••••••~•••o•••••••••• 27 Intra-Community Trade in East Africa,,,,,,,,,,,, 27 2.3.1. Imported Goods,, ~••••••••••••••••••••••••••••••• 27 Locally produced Goods••••••••••••••••••o••••••• 30 ClUWTER III: THE EAST AFRICAN COMMUNITY.,,.o•••••o•••••••••• 37 3.1. Background • • • • • • • • • 0 • • • • • • • • • • • • 0 • • • • • • • • • • • • • 37 3.2. Objectives and Structure of the EAC.•••••••••••• 38 The Common Market••••••••••••••••••••••••••••••• 43 Corrective Measures, • • • • 0 • • • • • • • • • • • • • • • • • • • • • •

CHAPTER IV:

4:. 3.

THE COLLAPSE OF THE EAST AFRICAN COHMUNITY AND THE POSSIBILITIES

FOR ITS REVIV AL. • ••.• •-• •· • • • .... •, • • • • • • • • • • ·-···-····---·-· . . 5.8

Collapse

•••••••••••••••.••••••••o•••••••oo$

58 Remote Causes of Collapse ••••••

o•••••••••••

₅₉

The Collapse and the Theory of

Integration ••• ~.~ ••• ~···~··~···•··~~~•••••• 62

4:.~ •. ·Possibili-ties of Reviving the East

African Community. •••••••••••••••••••••••••• 63 The Size of an Economie Integration

Scheme•••••••••••••••••••••••••••••••••••••• 65

4:.6. New Attempts towards Integration. ••••••••••• 65 4:.7. Potential Areas of Co-operation••••••••••••• 72

5. Recommendations • •• • •• •. •• •. • ••••• • •• • • • • • • • • ^711::

C 0 N C LU S I 0 N. •••••••••••••••••••••••••o••••••••••• 75

(iv)

- 1. East Africa 2. East Africa 3. East Africa

4:. East Africa

5.

East .Africa

6. East Africa

LIST OF TABLES

Basic Statistics, 1979••••••••••• 8 Net Transfers, -1956-63_~~~-!~!·•••• 28 Net Transfera âs percentage of

Net Importa ••••••••••••••••••••••

Direction of Domestically pro- duced exporta in value for

29

1955,-1"959 ·a·nd 1963 •.• • • • .... • • • • • • • 31

1-Direction of Domestically pro~

duced exporta, in percentage,

for 1955, 1959 and 1963 •••••••••~ 32 Intra-State Trade Balance •••••••• 36 7. Intra-Communi ty Trade Balance in Mantl';factured

Goods, 1967-1976 •••••••••••••••• 4:6

s.

Intra-Community. Trade, Selected Years ••••••••••••••• 4:7 9. Uganda and Tanzania: Transfer Tax Collection,

1970/71 - 1972/73 ••••••••••••••• 50 10. East African Development Bank: Disbursement of Funds,

1970, 1971, and 1973. • • • • • • • • • • • •. 52 11. EAC Corporations: Operating Accounts, 1973 and 1974: •. 55 12. Chronology of events leading to the Collapse of

13. East Africa

the EAC •••••••••••••••••••••••••• 58 Distribution of Intra-Community

Trade, Selected Years ••• o.,•~••oooo- 61

14:. Selected Countries of the PTA: Level of Industriali- sation and Direction of Merchan-

dise Exports, 1979-o ••••• • • •. • •• • • •. 67 15. Member Countries of SADCC: Population Densities and

Income per capita, 1979••••••••o•• 70 16. ~fember Countries of SADCC, Sectoral Distrüution

of Gross Domestic Product, 1978 ••• 70

'

LIST OF CHARTS

·-- ... ··-~·-···-~- .

1. East Africa Communi ty Trade Fl,ow, 1955-1963 ••• •• ••• 35

2. East African Community: Institutional Structure•••••• 40

(vi)

INTRODUCTION

The East African Community (EAC) made up of Kenya, Uganda - and Tanzania came into being in December 1967. Under the arrange-

ment the East African Common Market became. an.:_:i,.J:!t~gral part of the

·~···~·-·--- .

Community. The aims of the Community included the strengthening and the regulation of the industrial, commercial and other rela- tions of member States, the establishment of common cust'oms and excise tariffs and the abo"liti.on of __ :!;rade restric:t_~on among others.

However -the EAC soo~_ :ré!n i._nto problems and collapsed ultimately in 1977. While it lasted the EAC provided tremendous benefits to member countries0

But the EAC need not have disintegrated. The purpose of this thesis is to analyse, inter alia, the problems which the EAC en-'

countered, the relevance of EAC and the possibilities of reviving it for the mutual benefit of all concerned.

Analysis will focus on co-operation efforts.of member States in the period before 1961, that is 1917-1960 and in the period 1961- 1977o The attempts made at fostering co-operation since 1977 will also be discussed.

The methodology of the study will include a time series analysis of the broad economie and social conditions of member States in an evolutionary settingo Also a cross-section analysis of member States for the year 1979 will be given an in-depth analysis. This will be followed by an "exhaustive" discussion of the structure of the EAC, its collapse and other attempts made at fostering co-operation since 1977o

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The thesis is divided into four chapters. Chapters one reviews the concept of integration and the social, economie and political aspects of member States d~r.~ng the colonial

-- -~-- .. -~---- ..

period and after independance. Chapter two outlines the evo- lution of integration scheme in East Africa. In chapter three a discussion of the structure of the Community, the problems it was supposed to solve and the corrective measures under the

---

Treaty of-East A:fr.i_c_~D: Co-operation. Chapter four outlines the collapse and i ts causative factors as 1·rell as the attempts made since the collapse at fostering co-operation. The chapter con- eludes the study with sorne policy recommendations.

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CHAPTER 1

1 - ~ .• - '

THE CONCEPT OF ECONOMie INTEGRATION AND THE EAST AFRICAN SETTING.

1•1• Tffi-;; CONCEPT OF ECONmnc INTEGRATION

Economie integration has been o:f consid~rable_ interest to many countric_s all ovex: the ,.,rorld irrespective- o.:t .VÀ.~.-.t-.!J._e: th:<:_Y are

developed or developing. The inclination of countries towards

integration derives from the belief that large groupings are capable of solvinG their problems more easily than if such problems were to be solved. ind.ivid.ually. Givlng ·hi~ treatise on_~~is issue, Bela

- 1}

Balassn-, defin-es int egration in two ways_ - as a proces_s and as a state of affairs. As a process integration is defined as corn- prising ncasurcs that entail the suppression of sorne form of dis-

criminatiou, for instance, the removal of trade barriers. As a statc of af~airs integration is defined as the absence of various forms or discriminations between national economies. Balassa_ identifies fivc successive stages of economie integration. These are: free trad.e area, customs union, common market, economie union and complete or total integration. Each of these stages is dis- cussed Lrie!ly bclow:

(1) Frcc Trade area - tariffs and othcr quantitative measures in trade between member countries are abolishcd but these countries do not

(.2) C<.u:;toms Union

maintain a cornmon external tariff.

- in addition to maintaining all the condi- tions which pertainto a free trade area the rnember countries maintain a common external tariff.

1.)

^Sec Dalns<l, B. The Theory of Economie Integration, Illinois, 1961, p.1-2.

- 1..1: -

(3) Common Market - is a higher form of a Customs Union in that in addition-to the· requirements of a Customs Union the Common Market allows free movement of the factors of production especially capital and labour.

(1..1:) Economie Union - refers to all the above -arid.~·-Tn addition,

to i t 'invol ves the harmonization of econo- mie poli ci es'.

(5) Total Economie Integration - in this last stage thore is a

-unificati~n 9f soctal, _~onetary and fiscal policies of member -sta-tes. Supra-national authorities are a common phenomenon and their decisions are binding.

A common aspiration of participating countries in integration schemes is that increased trade él;mongs·t them ,.,ould accelerate the realisation of their overall objective of social and economie develop- ment. In view of this there have been many attempts of countries to integrate their markets and economies. A few examples along this line would suffice for our present purpose.-1/

1.2. Integration Scheme

In Europe there is the European Economie Community (EEC)~

Socialist Europe and Soviet Russia constitute· countries of Nutual Economie Assistance (CMEA or CO}illCON). In Latin America there is the Latin American Free Trade Area (LAFTA). Africa has witnessed many attempts at economie integration. In West Africa, for instance, there is the Economie Community for Hest African States (ECOHAS); in Central Africa there exists the Central African Customs and Economie

1./

The list of integration schemes is quite lung hence I have mentioned just a fe,.,...

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Union {UDEAC). In Southern Africa there is the Southern African Customs Union (SACU) and in Eastern and Southern African two at- tempts at integration are currently being made namely the

Preferrcntinl Trade Area (PTA) and the Southern African Development Co-ordinat ion Conference (SÀDCC) ^o How.evcr the schemes referrE!d to above arc quite varied in terms of their degree of integration.

Conn-trics enter into integration schemes in the belief that the l)encfits l!Oulù he greater __ than the costs for each member of the union. In the event of any member country co~iidering that the costs of :::-cmnining in the scheme, be it a Customs Union or a Common Market, ure grcntcr than the benefits accruable to her that particu-

lar membcr country could decide to withdraw her membership. However there is no ~rcdctermined special and balanced kit of costs a~d

benefi t s <.'llich is made available to countries wishing to solve their problems tllroue:;h integration. Kallncrt1/ contends that:

"the balance of benefits and costs of regional integration in a particular case will depend oa the circumstances of the situation, geo-

~rnphical location, access to devcloped courrtry markets as well as on policies .:1pplied011

In general many small African countries are interested in inte- grat:ion in o:n1e::.· that the disadvantage of having small markets may be surmounted. Thus economie growth and development in those countries mny be nc~icvcd through integration - induceù economies of scale in-

oludinG reducec1 costs of production in each count,ry. Moreover

1f

Sce ICnlmcrt, F. Economie Intcn;ration nmong Developing Countries, OECD series, 1969, p.16.

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emplojment potentiàlities in those countri~s under integration are boosted in view of the enhanced economie activities of the group as a whole, Having regard to this great expectations and the fact that there -has been no standard set of benefits and costa accruable from integration it may be necessary i~--~h-~·:c-:follows ^to highlight a few integration schemes in Africa.

UDEAC has been in existence since the year 1910.1/ Its

member countries - Gabon,-Cha-d; Cent.ral Afri.can :a~:p11blic (CAR) and Congo ·under th.e _so ~~l_l~d_ French Equatori~l Afx~fca - operated common services such as posts and telegraph, railway and river transport and customs. ln UDEAC,. Chad and Central African Republic were accused by the other members in the group of having a dis- proportionately larger share of customs revenue. In the wake of

these disagreements the Union collapsed in the year.1966, the year Cameroon be came a member. UDEAC however resusci·tated in 1969 under a new set of regulations. hven so industrial : co-ordination ,.,as difficult to ac4ieve and·in addition the issue of revenue sharing continued to pose intractable problem~.

In West Africa ECO\VAS seems to have made little progress. The .French speaking member countries of ECO\YAS do not seem to be happy wi th the membership of Nigeria largely be cause of her over,vhelming size (market) and industrial capacity. But these French speaking member countries of ECOWA::> seem to be ·more comfortable ,vith them-

selves within their own sub-grouping (CEAO).

1/

See Kahnert, Fo Ibid, p.59.

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Countries in East, Central and Southern _~rica have made a number of attempts at integration. The Central African Federation encompassing Zimbabwe, Zambia and Malawi did not survive because of the wide disparities in the levels of development of the member countries; for the same reason the East African Community collapsed despite co-operation efforts spanning sorne six decades. However . the Customs Union of Botswana, Lesotho and Swaziland (B1S) and South Africa continues to thriv:e.

1.3. THE EAST .Alt'RICAN SETTING

The three countries which are normally viewed as constituting East Africa - Kenya, Uganda and Tanzania - are in many respects different from one another. In terms of size Tanzania is the

2' 2

largest (Y~5,000 km ) followed by Kenya (583,000 km ) and Uganda (2~1,000

kiD

²) in that order. In what follows an analysis of these three countries is pursued beginning w·i th Kenya.

Kenya - As at 1979 Kenya had a population of 15.3 million; non- Africans cons ti tuted only 19'o of the total population.

· y

The Growth Rate of Gross Domestic Product (GDP) of Kenya averaged 6.25% in the period 1960-1979. In the last decade of this period the indus- trial sector recorded the highest rate of growth averaging 10.2~b

compared with 5.~ and 5.8 per cent for agriculture and services, respectively (see tabl~ 1).

1J

See '!'he World Bank, Accelerated Development in Sub-Saharan Africa, Washington DC., 1981 p.1~3.

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Table 1 EAST AFRICA Basic Statistics

KÊNYA

Are a '000 km2 583 241 94:5

Population (millions) 15.3 12.8 18.0

Density (persons km 2) 26.2 ^6lJ: 19.0

(us $) ^'

GNP per capita _{_[_} 380 290 250

Per Capita Annual Growth

(%)

¹ 2.7·

- - - o.

2 ^·- 2.3

Adul t Li terac-y 4:5 ^n.a. 66

Food Production Index 1977-79 92 90 94:

1967-69

=

100 GDP: Growth Rate

(%)

1960-1970 6.0 ^5~·9 6.0

'70-'79 6.5 ^{- Ool.l:} 4:o9

Agriculture '70-79 5.4: ^n.a. 4: ... 9

Industry '71-79 10.2 7.9 1.9

Services '71-79 5.8 0.1 5'.-9

GDP: Sectoral Distribution

(%)

Agriculture '60 38 52 57

'79 34: 55 54:

Industry '60 18 13 11

'79 21 7 13

Services '60 4:0 35 32

'79 4:5 38 33

GDP: Average Annual Growth Rates

in Consumption and Investment

(%)

Public '60-¹70 10.0 5.9

'70-'79 9.0 1.3

Priva te '60-'70 4:.6 5.6 5.2

6.9

*

'70-'79 1.1 6.0

*

Includes public consumption as

%

of GDP or as an average annual growth rmte where applicable.

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(Table 1 continued)

GDP:

KENYA

"

^{UGANDA TANZANIA}

Investment ¹60-¹70 7.0 9o8 9.8

170-¹79 1.2 - 13o1 ^)oO

·~- -···-~ - Demand Analysis

(%)

Public ¹60

179

Priva te ¹60

179

-Investment ¹60

'79

Gross Domestic

Savings '60 '79

Exports (Goods and Services as a ojo of GDP)¹60

'79

Re source·

Balance ¹60

179

11 9 9

20 16

72 75 72

* 76

65

- 9 . 6

20 11 ^14:

22 - ^q 21

17 16 19

15 ^q 8

31 26 31

26 ^4: 14:

3 5 5

7 - 13

*Includes public consumption as ojo of GDP or as an average annual growth rate

where applicable.

Source: World Bank, Accelerated ~Development in Sub-Saharan Africa, 1'/ashington

p.c.

1981.

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In terms of sectoral breakdo'vn of the GDP agriculture accounted for an average of 38 per cent of GDP in the 1960-70 period. The

correspondin~ figures for industry and services were 18 and 40

per cent, respective1y. In the period 1970-79 the share of agri-

·~- ----··

cul ture in GDP 1~as 31.~; per ·cent as compared Hi th 21 and -i1Y per·-- - cent for industry and services respectively.

At 10 per cent in the period 1960-70 the average annual gro,.,rth rate of public consump:tion fell to 9 per cent in the sub- sequent decade (1970-1979). Ho\vever the average-annual growth rate of privute consumption rose from 4.6 per cent in 1960-70 to

6.9 per cent in the period 1970-79. Investment recorded an

average annual growth rate of 7 per cent in 1960-70 compared \VÏ th an average annual growth rate of 1.2 per cent recorded for the period 1970-'79.

As u proportion of GDP public consumption accounted for 11 per cent in the year 1960. The share, however, rose to 20 per cent in the year J979. Private consumption absorbed 72 per cent of GDP in

1960 and 65 per cent in 1979. At 20 per cent in 1960 the share of gross cloneGtic investment in GDP rose to 22 per cent in 1979. Gross domestic s<-:.vings amountecl to 17 per cent of GDP in 1960 as against

15 per cent in 1979. Experts including services contributed 26 per cent of GDP in 1979 compared with 31 per cent in 1960. Capital in- flow a.ccoc:.nteü for 7 per cent of GDP in 1979 as against 3 per cent in 1960.

Most of the working population is engaged in agriculture. In

1960 agriculture provided employment for 86 per cent of the total labour force. The corresponding figure for 1979 was 78 per cent.

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In 1979 industry and services -accounted_for:10 and 12 per cent of labour ·.:oree, rcspectively. The growth rate of employment in the decade of the ?Os was 2.8 per cent compared with 2.7 per cent in t~c decade of the 60s~ .

The ratio o~ doctors to the population and the distribution of social amenities may be indicative of improvements in social conditions. In 1960 Kenya had one doctor per ten thousand people.

As at 1975 sevcnteen per c~nt of-the populatio~ ~ad access to safe drinldng uate1~. -The distribution of social amenities ₁ however, s eems ·to have be en

ske,~ed

^heavily in favour of the urban are as

)J

UGanda - Uganda had a population of 12.8 million by the 197~

estimatcs. Slle is a lo,.,r-income developing country wi th a GNP per capitu cstimated in 1979 at US $290. In the 1960 decade the Gross Domestic P~oduct of Uganda g~èw ~y an ~verage of 5.9 per cent.

Howevcr in the subsequent decade of the 70s Uganda recorded a negative n.nnual growth rate ·or -O.l.~: per cent. Regarding sectoral growth rates thore was no information for agriculture but industry and services gre,,, on the average, in the decade of the '70s by -7.9 and 0.1 pcr cent, respectively. Vith respect to the composi- tion of G'!lP, agriculture, inclustry and services accounted for an

1.) Lar.::.;c::;-~ concentration of thcse services are in the two

bic ci~ias - Nairobi and Mombasa. Five other towns inclllc:o ~-:üa-:mu, Nakuru, Eldoret, Nanyuki. and Kitale.

- 12 -

average of 52, 15 and 35 per cent, respectively in the decade of the 6os. The corresponding figures for those sectors in the 70s were 55, 7 and 38 percent (see Table 1).

Publl.ic conswnption recorded an average annual gro1vth rates of

5.9

per cent of GDP in the 60s. But this ratio dèClined to 1.3 per cent in the 70s. The corresponding figures for private consumption in those decades were 5.6 and 1.1 per cent. The investment component of the Gross Domestic Product recorded , average annual growth rates of 9. 8 and -1:3-.1 _per cent in the decades of the 60s and 70s respectively. In 1960 pulJlic conswnp- tion accounted for 96 per cent of GDP

)J

Investment and Gross Domestic Savings as shares of GDP accounted for 11 and 16 per

cent in 1960. The corresponding figures for 1979 were ~ and ~

per cent. Exports of goods and services as a proportion of GDP were 26 and ~ per cent in 1960 and 1979 respectively. There was no growth recorded in capital inflow for 1979 although in 1960 such growth was estimated at 5 per cent.

Of the total labour force in 1960 agriculture, industry and services respectively absorbed ~, ~ and 7 per cent. The

1.f

The source of this data did not provide a breakdo\m of public and private consumption for this particular year.

- 13 -

corresponding figures for 1979 were 83, 6 and 11 per cent. Hith respect to social services~ available statistics indicate'that there was one doctor for every 14,000 inhabitants in 1960. This ratio however worsened to one doctor per 27,600 in 1977..!{· In this latter year only 35 per cent of the popuiati-oii .. lia-d·· a-c cess :t.o . safe drinking water. As in the case of Kenya the distribution of social amenities remained skewed in favour of the urb&n areas'.

Tanzani~- With a population of -18 millio~_by "the:1979 -esti­

mates Tanzania is the -most populated of the·three countries consti- tuting East Africa. However witll a per capi ta GNP of US r~250 esti- mated in 1979 it was the poorest.Y Tanzania achieved a growtll rate averaging 6 per cent in the 1960 decade. This rate decelerated to 4.9 per cent in the 70s. Sectoral growth rates for the decade of tlle 70s were hardly impressive. \'/hile agriculture and industry

achieved an average growth rate of l.t "9 and 1. 9 per cent in that decade, services recorded an:· :average growth rate of 5o9 per cent,. 1/ith

respect to the sectoral composition of GDP the position compared favourably with that of Uganda. In the 1960 decade agriculture,

industry and services absorhed, on the average, 57, 11 and )2 per cent of GDP. The corresponding figures for the decade of the 70s for those sectors were 54, 13, 33 per cent.

1} The source could not provide a statistic for the year 1979. The sharp drop in the number of doctors in relation to population may be attributed to doctors leaving Uganda especially after the Idi Amin's Coup of '71.

y

Tanzania is one of the least developed countries in the \1/orld.

Statistics on Public Consumption for the __ 6Qs and the 70s were unavuilablo. Ho\/ever Private Consumption as a component of GDP recordeQ nverage:annual growth·rates of 5~2 and 6.0 per cent res- pectively. Public consumption, private ~onsumption, Investment and Gross Domestic Savings accounted for 9, 72, 1~, aùd 19 per cent of GDP of Tnnznnia in 1960. The corresponding figures for 1979 were 16, 7G, 21 und 8 per ceni. As u proportion of GDP exports of goods anù services absorbed 31 and 1q per cent in 1960 and 1979, respectively. A positive-_growth rai~ (5~) -~as .recorded for capital inflow in Tanzunin in 1960. The position however for 1979 was nega- tive at -13 per cent.

Between 1960 and 1979, agriculture us the largest source of em- ployment has yiolded grounds to industry and services. In 1960 agriculture, industry and services accounted for 89, ~ and 7 per cent of tot~l employment. The corresponùing figures for those

sectors in 1979 were 83, 6 ~nd 11 per cent. Regarding social services the ratio of ùoctor to thousand · population improved from 1:18 in 1960 to 1:17 in 1977. However in 1977 only 39 per cent of the popula- tion hnd nccess to safe drinking \·tater. Although the skewness in the distribution of social amenities in favour of urban areas was marked in the p~c-i~dependence era this has now changed and distribution is now more or lens even as between urban and rural oreas.

Political Iùcologies

Renyn, Uc;nnda and Tanzania were under British colonial rule up to the time of independ~nce :i.n the 1960's. Kenya after .attaining i,ndcpcnclcncc status in 1963 opt ed :for a cap:i.talist approach to

- 15 -

devclopment ~ 1) Ug;anda f ollowed ·the same optîon· of. development

as dicl ICen~r.:-t, nfter independence in 1962. In 1971, however, Ugancla nttemptcd to pursue a socialist approach to development but this e:.Zfort soon fizzled away in the. wake._o:f ___ (!. _Ç~.':l~ d'Etat which 1:ns sŒccessfully carried out under the leadership of Idi

(") 1

Am. .!:J'

1n. Iùi /imin re-introduced the capi talist approach wi th a

nation é'. li s·~ic

l)lend.J./ Howevcr, post inclepenclence Tanzania clropped the capiti!!J.ist appro-ach to __ dcve;Lopm.~nt ~n 1967 by em- bracinc; the soc.~alist alternative as dctailcd .fn the Arusha Declaration of 1967.'1../

1.) ^{The :::.:-tncu:::; Scss}ional Paper N° 10 of 1965 officiated this

polie~-. Sce Gerzcl, Cherry .The Politics of Independant Kcny.:-t ~.96~1-GS. East African P~ll)lishing House, Nairobi,

1970 l)c.JÜo

2:)

The off icinl document on this is 'The Common Man Charter'.

J.l

P1·operty bclonging to Asians were confiscated and passed to indi;;;cncous people.

if

All -~~le r:wj or mcans of production Herc nationalised.

- 16 -

CHAPTER II

THE EVOLUTION OF ECONOMIC CO-OPERATION AND INTEGRATION IN EAST AFRICA. ·

·-·-·-·----·----

2.1. the fiole of Britain.

Britain considered it more convenient to co-ordinat·e common service for her t,vo dependencies, Kenya and Uganda, than to maintain

separate services for thelll. ·-.ln ;fu:r:!;b.,era,nce .of t_4_is policy, the railway_ from ~o~bas_~ .~8:.~ _extended in 1902 to Kisumu which was then part of Uganda.11 In 1905 an East Africân Currency Board was set up for the purpose

of

issuing currency for use in the two countries.

Postal and Customs Unions were created in 1911 and 1917 respec- tively, to cater for the needs of Kenya and Uganda.

Soon after \Vorld \var 1 Tanganyika be came a mandated terri tory under the British Government~ By that Mandate Agreement Britain was empowered to:

11incorporate the territory into a customs fiscal and administrative union or a federation with adjacent territories under Britain's administration, pro- vided mensures adopted to this end did not infringe upon the provisions of the mandate."Y

The porder bet,veen Kenya and Uganda '"as. moved westwards to provide fertile land {'Jiasin Gishu) for European Settlement. See Ingridi Doimi di Delupis, The East AJrican Community and Common Market, London, 1970, p.19.

1 '

g} Ibid'•

q ,

- 17 -

Consequently the Common Services were extended and made avail- able and applicable to Tanganyika.

2.2. Common Currency (1919·1966)

An East African Currency Board wae established in·i905 for·the sole purpose of issuing currency for use in the three countries.

Situated in London the Board issued an East African Currency - the shilling - from 1919 to 1966. The shilling was freely convertible to the British pound sterling (t) at ·a fixe_d~.ex'?hange rate (one S:.

sterling to .se·v~~teen ~Ëast Airican shillings) and was backed by hundred per cent reserves maintained by the Exchequer in London.

The implications of this currency alignment for the management of the economies of the colonies are listed as follow:

(a) Trade and other financial transactions among the three countries were carried on smoothly without foreign exchange problem;1/

(b) Trade betl'l'een the three countries and Bri tain continued unhindered;

(c) Maintaining a fixed exchange rate of the shilling vis-a-vis the ~ sterling reduced the risks of financial institutions especially British banks against exchange rate fluctuations; and

(d) Development efforts of these colonies were even

further hindered by their inability to finance budget deficits through currency issue.

1/ The Eas't .African Shilling was also in use in Somalia, Aden and Zanzibar.

- 18 -

In 1966, soon after the independance of Tanganyika (1961) Uganda (1962) and Kenya (196:;), it became ¹¹necessary" for each

country to maintain her own currency. Thus 1966 marked the end of the Honetary Union which had existed between t.he .:!:-ll!"~e

countries and Britain. The adoption of separate currencies in 1966 did not bring to an end the close monetary relations existing among the three countries. In the year 1966 all the three cur- rencies were exchanging at par -against each other. Moreover, there lvere no ex change __ commissions or limi ts of amounts transf erable from one country to another. Until 1970 the value of the three currencies lvas pegged to the United States dollar but thereafter the shilling became pegged to a basket of currencies. After 1977 each country pursued an independant monetary policy. Consequently exchange rates between the three countries differed·substantially and any trade which continued to flow betlveen the three countries was either done on barter basis or paid for in a convertible currency.

2.2.1. The Common Services

The services which Britain found expedient to co-ordinate in the three countries are enumerated broadly as follow:-

(a) Communications and Transport;

(b) Customs and Excise; · (c) Social Services;

.·

¹⁹

'( d) Research and Scientific Services;.

(e) Economie Services; and (f) Defence and other services.

(a) Communications and Transport (Seli finanëing·--servi-ces).

Posts and Telecommunications - Kenya and Uganda formed a postal union in 1911 with Tanganyika joining in 19~0.

Like the Railways and.Har:t>ours the East African Posta and Telecommunications· financed i ts --own· expendi ture

• -- ·-··- - -1 -

''li th· revenue derived from operations beginning January 1, 1949. Earlier on development expenditure for auch

services were financed by contributions from the three governments in addition to grants from Britain. Posts and Telecommunications had its headquarters in Nairobi;

there were three branch offices in Nairobi, Kampala and Dar-es-Salaam.

Raihrays and Harbours - The railways in Kenya and Uganda were built by the British0

1/

In Tanganyika, however, such rail way !ines were buil t by -the Germans • After World

\var I these two systems of railw·ay were · managed by two

1f The Mombasa-Nairobi railway line was started in 1896 and ended in Nairobi in 1901. In 1902 the railway was ex- -tended to Kisumu.

- 20 -

different administrations until 19~~ ~hen they were amalgamated under one management -·The East Atrican Raih1ays and Harbours • In order to ·opera te smoothly

a joint common tariff'for all the three countries was adopted in 1950. The Railways and Harbours financëd their costs with rèvenue from their-own operations. The headquarters of the Railways was in Nairobi and the headquarter~ of the Harbours in Mombasa - both in Kenya.

Civil Aviation - The Directorate of Civil Aviation came into existence in. 19~9 under the auspices of the Commissioner for Transport in the East African High èommission.l/

The department was supplied with technical services, such as air radio, by Posts and Telecommunications on contractual basis. The department continued ~o offer services to the threè countries until the mid-1970¹s

\vhen separate departments were created for each country under the Ministries of Transport. However, the East African Airways which stàrted operation in 19~6 continued to offer intra-country as well as internationàl flights up to 1977 when it collapsed. The headquarters of the East Afrl.can Airways was in Nairobi with terminais in Entebbe and Dar-es-Salaam.

1J

The East Africari High Commission \vas the Authority which co-ordinated the administration of the Common Services àfter the Governors' Conference.

- 21 -

(b) Customs Union - Kenya and Uganda became members of the Customs Union in 1917 while Tanganyika joined in 1923. Similarly

income tax wàs introduced in Kenya in 1937. Three years later the încome tax was extended to Uganda and Tanganyika.

Customs and Excise were managed by one department tnrough---

out Kenya, Uganda and Tanzania.

Income Tax administration was managed by another de- partment in all -of tb,_e three countries. Tariffs and tax

stru~tures

were however, set by one

cen~~al

Authority.1f IIowever, each country was allowed to determine its own rates this was especially so with persona! allowances.

Tax rates on persona! income, company profits, customs and excise duties were the same throughout Kenya, Uganda and

Tanzani~. Whenever the necessity to re~ise ta~ arose the three governments consulted one another and agreed on the

changes'.Y

(c) Social Services- Refugee administratio~a Publishers Bureau to fight illiteracy, and an Inter-Territorial Language Commit- tee 'vere some of the social services which were administered on a subregional basis.JI

1/

The East .African Legislative Assembly (LEGCO) which existed be-

~ween 1949-1961.

Such changes were normally announced simultaneously during the Budget presentations in June of that particular year.

East Africa bas more than 170 indigenous languages and Tanzania with more than 120 alone. Swahili and English later became official langua~es.

~ 1_ '

- 22 -

( d) Resear.ch and Scientific Services - CQ:-ordination in research and scientific services on a subregional basis existed since the 1920¹s. However, research was limited .in these years (1920-39).-t;o_meteorology and agricult~ral

. - . .. . . ... --^-.~ ·-··

services^1• In 1939 a Central Organization on vererinary research was established. After World War II numerous research organisations came into existence in areas auch as agriculture a~4. !orestry, the control of tse-tse fly and sleeping sickness (trypanosonifasis), the provision of fresh water and in marine fisheries, industrial re- search, statistics, desert locust survey, medicine and hygiene, filariasis, medical survey, relapsing fever, malaria, viruses, leprosy, geological and topographical survey.

(e) Economie Services - During the Colonial period a Production and Supply Council; later the Department of Economie Co-

ordination, was charged with the responsibility of co- ordinating among the three countries priees of 'grains of strategie importance as well as priees for importa.

Other economie services were the Industrial Council res- ponsiple for industrial licensing; an East African Office in London which linked East Africa with Britain and a tourist association.

(f) Def en'ce - In the ar.ea of def en ce an East African Naval Force existed between 19~9-1962.

23

2.2.2. Reyenues, Finance and Expend~ture of the Çommon Services.

Customs and Excise Duties, Income Tax and Levies contributed the bulk of the revenue accruing · to the· 'Governments of Kenya,

Uganda and Tanzania. Revenue arising fro~ ~ustoms and excise Harbours

~-. -- --- ^. ··-------

duties was paid to the country of final destination that is the consuming state·. As with goods imported but transferred to another country such custom duty was transferred to the country of final destination0 Similarly excise.duties charged on goods produced _-

----~ ..

and supposed t_o be consumed in one country, .. b.ut ·which '"ere trans- duties collected

ferred to another country; exciseLwere paid to the consuming state.

In terms of income tax all income earned was treated as a single sum and was taken to have been earned in one country.1l Tax collected from Corporations wi th branches in more than one country· 'ms alloca- ted in reference to where the income was

earned.~

Finances of the Common Services during the pre-indèpendence era arose 'from hvo sources • The·· self financing common services that is, the Railways and Harbours •. 'post and Telecommunications and the Air- ways paid for their expensës from rèvenue derived from operations.

All the other services which operated on a subregional basis were

An exception were the employees of the East African Services Organization (EACSO). The rate applicable prevailing in the country of res~dence.

Common ,.,as that

~ There was no incentive for companies to submit different re- turns. Declarations were taken as authentic.

- 21:1: -

funded through contributions from the three governments, grants from the United Kingdom and g~ants from other countries or from some organizations.ll

Following recommendations of .the Raisman Commission of ~961-

. ·- ..... -· ^-~--

62, a pool. of funds - the Distributable Pool - operated as follmv:-

(1) Beginning 1961 Kenya, Uganda and Tanzania each

\vere allocated nine.ty-fou:r: per cent of customs and excise revenue originating from· -ea~h country;

(2) Sixty per cent of the revenue derived from income tnx on manufacturing companies profits and

financial institutions in each

country.~

The proceeds from the withheld revenue that is six per cent of customs and excise revenue and forty per cent of income tax on manufacturing and finance companies composed the Distributable Pool of Funds. Net of collecting charges, fifty per cent of the funds in this pool \vas used to finance the non-self containing services. The balance of the revenue was shared amongst the three countries equally.

lJ

Ethiopia, Aden and Somalia participated in financing desert locust survey.

~ Studied the various ways of financing the Common Services and the new form of the East African High Commission.

- 25 -

2.2.3. Hanagement of the Common Services.

The Authori ty \'lhich mimaged the Common Services from 1900¹ s to 1970¹s \vas not the same for all of-the ¹¹përiods". In this · section the evolutiQn o:f Authority and its configuratiônin the management of Common Services is discussed.

The Gove'rnors ¹ Conference - was a congregation of the Governors of British colonies in Eastern Africa.

Such a Confer-ence waa. an annual event and the first of i ts kind w-as convened in 1926. .Present were the Governors of Kenya, Uganda, Tanganyika, Malawi, Northern Rhodesia (Zambia) and a representative from Zanzibar. A Joint Economie Council whose purpose vas mainly to.become a channel through which the Governors could liase with the governments, was established as a resul t of this conference. A per- manent secretariat was similarly created to cater for research services. In th~se Annual Conferences, the Governors of the èountries in Eas~·ern Africa dis- cussed matters relating to the co-ordination of ad- ministration and developmentf/

The Governors of Uganda and Tanganyika had. obj ected to Uganda¹s and Tanganyika¹s participation in a Customs Union \'lith Ke~ya in 1905 and' 1923 respectively.

- 26 -

The East hfrican High Commission (EAHC) - For the-purpose of

legalisin~ the Governors'.:. Conference· and fôr smooth co-ordina- tion of the services the Gôvernors Conference in 19~5 came up with three major suggestions:- -

(i) that East African Legislative Assembly be formed;

(ii) that East African High Commission with legal statua replace the Governor¹s Conference; and

(iii) that the Legislative Assenibly pass biÏl's pertaining to-commerce,- road -transport, mining, communi.cation and collective marketing0

These suggestions were acceptable to the British Government and so the EAHC took over from the Governors^1- Conference in 19~9.

As with the Governors' Conference the East African High

Commission 'vas composed of the Governors of Kenya, Uganda and Tanganyika'. Although the EAHC was extremely-powerful in its de- cisions, such decisions could be vetoed by the British Govern- ment0 The responsibilities of the High Commission was to manage the services ,.,hich 'vere common among the ·East African countries in addition to their overall responsibilities.

The East African Common Services Organization (EACSO) 1961-1966.

Tanganyika achieved independance status in 1961. In view of this the EAIIC ,.,ho se Authori ty was composed of the three Governors gave 1my to the EACSO wi th the President of Tanganyika on the Board of the Authority. The EACSO inherited.most of the services

- 27 -

and duties of the EAHc.ll

2.2.4. The Idea of Federation

The British Government in 1919-was empowered. bY-.. i!.~_e Mandate Agreement to incorporate Tanganyika into a federation with Kenya and Uganda:. The British :Parliamentary Committees which continued to come to East Africa for the purpose of evaluating the possibi- li ti es of clos er · co-operation: or f~<!eration a~~~g;_ the three

·--.-

British ·dependen.ci~~ _ ;t.~_ ~11st _Africa, found out· that the three countries \vere not ready""for federation.l/ However the Governors¹ Conference meeting in 1945 recommended that in the event of

federation becoming necessary then Kenya, Uganda and Tanganyika should form one grouping8 In pre-independence era the idea of federation was of interest to the British Government, the Kenyan Settlers and the leaders of the political movements of East Africa

(PADŒCA}.gj At independence the idea of federation was abandoned.

2.3Q Intra-Country Trade in East Africa

2.3~1. Imported Goods -Kenya, Uganda and Tanzania traded in two types of goods - imported goods and locally

1/

The Ormsby·-Gore {192q,) and the Hilton-Young of 1928-29.

The leaders'of political movements in Ke~ya, Uganda and Tanganyika promi13ed in 1957 to form a federation after independence.

- 28 -

produced goods. A swn.mary of trade in imported goods is given in Table· 2 and 3 below slio\ving total value of net- transfers.in thé region {East Africa) as a whole and secondly net transfera for e~ch country as a per cent of net importa.

Table 2

EAST AFRICA

NET · TRANSFERS

. 195.6-1963 .

Year .J.: Million

1956 14.7

i957

15· ;9

i958 ^16'~1

1959 17.3

1960 19~9

1961 19.7

1962 21:.7

1963 22.7

Source: See following pageo

--

^{.... -.} -·

- ·

L

•

- 29 -

Table 3

EAST Ali'RICA

NET TRANSFERS AS PERCENTAGE -OF NET IMfORTS ----'· _,. --.. , .. .. 19-56- 19'6"3.- ---..

. . --· --

Year KENYA UG.ANDA TANZANIA

- ^.... - ^·-·· ---

1956

-

^17o7

.

^{+ ~2o~ + 8o0}

1957

-

^{l8o2 + 39.0} _-- ^+--12.0

--

l95tr ^{.... -.. -}

-

^{21~0- + lt1~6 + 1~. 7.}

1959

-

^{22~0 + 43.8 + 12.8}

1960

-

^{22.1 + 4~~6 + 21.9}

1961

-

^{22o3 + ltl.l.1 + 20~3}

1962

-

^{23.8 + 4.6.0 + 2~.~}

1963

-

^{23.6 + ~1o1 + 24..7}

..

Source: Tables .2, 3, Nd_eglva, Ph:j,Jip The Common Market and Development in East Africa,

East African Publishing Hoase, Nairobi, 1968, p.32.

Net transfera represent goods imported from the rest of the world and destined for use in the importing country but which .were eventually exported to a partner countryo Table 2 and 3 above show that overall trade in net transfera was pregressively in- creasing over the period 1956-1963 and, secondly, Kenya had the largest volume of imported goods which were destined for resale to either Uganda or Tanzania. Transfer trade in Uganda was quite

' ·,

- 30 -

significant in the period under reference. Purchases of manufactured goods which had been imported for use in èither Kenya or Tanzania amounted to no less than forty percent of total· imports·. Tanznnia's trade in net transfera was, howeve~not as much in volume as that of Uganda. Importa of such goods increased more than threè-times-.. --

8% to 2~.7% of total importa over the period.

Several explanatory factors could be given for the above trade pattern: first, Nairobi was the centre for agricultural, industrial and commercial interests for the whole of East Africa such that im- ported goods tended to concentrate in or around Nairobi.

Secondly, Nairobi and Mombasa are near to Uganda and Arusha/Moshi in North-Eastern Tanzania than Dar-es-Salaam.1/ Buyers from Uganda or North East Tanzania would consider Nairobi as their first priority for goods 'vhich were not available in thei'r localities. Thirdly, the development of the Mombasa port enabled importera to consider Mombasa as their port of landing for their imported goods.

2.3.2. Trade in Locally produced goods - As ^point~d out in Chapter I the économies of Kenya, Uganda and Tanzania are heavily dependent on _agriculture auch that the highest portion of trade of these East African

countries is with the rest of the world. Table ^~ below indicates, in

1/

The distance from Dar-es-Salaam to Moshi/Arusha is six times more compared to the distance from Moshi/Arusha to Mombasa.

31

Table 4

EAST AFRICA

DIRECTION OF DOMESTICAI.LX PBODPCEP EF.~H:TS ... _.

(i955, "19$9•irid·t963) -

in ~·ooos

...---

Year 1955 1959 .. 1963

-.

.KENYA Total 31,702 45,.603 ^.. 63,623

. -

È!J2orts outside the ^...

Common ~Iarket 25,667 33,306 43,832

E!J!orts to the

Common Market 6,035 12,297 19,791

UGANDA Total 49,781 47,:l19 39,716

Ex~orts_outsid!i! the

Common M:arket 41,902 42,091 51,475

'

Ex!!orts to the

Common Market 7,879 5,228 8,241

TANGANYIKA Total 37,889 47,861 66,976

. ,E!!!orts outside the

Common Market 36,188 IJ:5,287 63,553

1 Exports to the

1

1

j

j Common Market 1,701 2,571J: 3,423

i

Source: Ndegwa, Ibid., p.40.

- 32 -

Table 5 EAST AFRICA

Dl}~~CTION OF DOMESTICALLY PRODUCED KXPORTS (1955, 19~9 and 1963)

·in percentages.

Year 1 1955

KENYA: Total Experts 100

Exp9rt outside · _{. -}

80.9 Common J.l'larket ^- -· ^-·- ·-

~- ·- -·

-·. ~Exno::.·t to Conunon -~1arket 19~0

UG.l\NDA; Total ]~;~n orts ₁₀₀

}~XI> ort outside

Comraon HarJ~c-t 811.1

·· üomriHin Harket 15.8

TANGA-

NYIKA' ^{T_otal Experts 100}

F.::p 0 :;:t ~3 outside

Comnon Harkct ^95.5

E:;:p o:;_·ts to Common Market '1.4

;

159 100 73.0

-· --

26o9

100 88.9 11.0

100

9¹.~:.6

5.3

Sou~cc: Worked out by me from table four.

1 '63 ₁

100 68.9 31.1

100 86.2 13.8

100

94.9 5.1

- 33 -

in value terms, the direction of exporta for Kenya, Uganda

and Tanzania in the years 1955, 1959 and 1963~ Trade in locally produced goods is very significant in relation to total country trade especially for Uganda and Tanganyika.

Table four may be summarized as :Îollow: ..

For Kenya the importance of trade in locally produced goods within the common market is evident. The reason for this is that from the very beginning (early coloniai period) agricultural as well as industrial development was- greater in Kenya than \vas the

case in Uganda or Tanzania. On this issue Rweyemamu commented thus:

"During the Colonial period a partially interlinked institutional structure of private trading interests grew up which has shaped the export enclave of the country. Its East African base was Nairobi, Kenya, where in conjuction with settlers it was able to pressure the colonial administration to adopt policies conducive to its continued growth."JJ

-Tanganyika' s extremely low exporta to the Common Market is not \VÏ thout reasono Except for skeleted services by air and water through

Lake Victoria, there is little communication between Uganda and Tanzania.g/ Secondly, the Immigrant population in Tanganyika was

1/

See Rweyemamu, J.F. Underdevelopment and Inàustrialization in Tanzania, Nairo~~~ 197~, p.32o

gj

The Mombasa railway gave Uganda access to the sea. Formally ivory was being carried on head for mil~to Dar-es-Salaam.