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East Africa: Private Sector Needs to Prepare for Common Market
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The Monitor (Kampala)
OPINION
13 May 2008
Posted to the web 12 May 2008
Ben Naturinda
On May 2nd, at Ngurdoto mountain lodge in Tanzania, I had the honour of interacting with high profile business executives from East Africa who the EAC Secretariat and the EAC Business Council had gathered for a briefing about the Common Market for East Africa by 2011.
The proposed customs model has four main freedoms as follows: Freedom of goods; freedom of services; freedom of capital and freedom of labour.
These would move within the region without any encumbrances. Certain derogations are allowed to states in sensitive areas like labour in security services, but by and large, freedom of movement and establishment is granted to all.
While I agree that a common market is good for the region, deeper integration can have harsh consequences for the unprepared. The consequences are severer when integrating economies are negatively homogenous (small, relatively poor, etc.) There are likely company relocation effects in favour of the relatively better economy. This is the effect we have witnessed under the Customs Union, with apparent several factory shutdowns in Uganda.
Despite such undesirable consequences, integration is an unstoppable global order. Options lie in adequately preparing to cope and here is how.
For both the small and big, it is wise to seek to operate on a trans- boundary basis. I am not talking about relocation, but rather about seeking partnerships in the region.
Never mind if a firm's position in the new dispensation is that of minor partner. It is better than being out of business. Many contemporary business theories rightly urge that firms are better off avoiding the competition than fighting it. One way of avoiding the competition is just what I have suggested above.
It is wrong to believe that markets may be wiped away for small firms when freedom is granted to everyone. If that were the case, Sub Saharan economies would not be exporting to the EU, USA etc. New market dispensations often offer new possibilities. It is wise to find out what your firm could offer in the larger market setting. This is what marketers call niche markets. Find and prepare to exploit them.
Then, this relocation issue with firms closing shop in certain parts of the region can be questioned. All firms want large effective markets, with populations able to buy and consume. This capacity comes from employment and other economic activities around firms.
Firms cannot therefore wholly relocate to Kenya and hope to supply to Uganda, Tanzania, Burundi, Rwanda where people will presumably have lost jobs, have no income and thus not able to buy. Some form of economic equilibrium is most likely possible in the region with firms pursuing even wide locations. Relocation in a growing region is often driven by short term visions.
With the North American Free Trade Area (NAFTA) for example, firms did not close shop in Mexico and move to the larger USA Economy. Instead large firms opened branch factories in Mexico. With deeper integration, we will see more firms opening shop in Uganda.
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Firms must care to know. I have seen business operatives who when called to workshops, openly say "We don't want workshops but actions". The integration debate is very important for firms than technocrats because at the end of the day, it is the firms that compete not governments.
Firms must care to learn about every detail in the integration process not only to influence the negotiators but also to equip themselves with knowledge that can help them prepare for the new market structure.
Mr Naturinda is the deputy executive director of Uganda Export Promotions Board
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