TIlE PITFALLS AND PROMISES OF REGIONAL INTEGRATION IN EAST AFRICA A.P. MAHIGA+ IN TRODUC nON Regional co-operation among the three East African countries of Tanzania, Kenya and Uganda is one of the oldest regional schemes in thi s century dating from 1902. Its performance does not equal that of some younger regional schemes in the developed countries, but in comparison to other Third World regional schemes, its scope and authority ranks high. 1 Its long history makes it all interesting case study. East African co-operation has taken several forms and has had a chequered history. It was established by the British Administration in East Africa as a convenient contrivance for rationalizing British hegemony in this part of Africa.2 When independence was won by the three countries, the institutions of East African co-operation - then known as the East African High Commission, were bequeathed to the three independent states and changed the name to East African Common Services Organizat- ion (E.A.C.S.O.). The three countries tried to use E.A.C.S.O. as a necleus for an East African Federation. The attempt failed in 1963.3 The enthusiasm to form a federation has temporarily concealed the weakness in the economic co-opertion which had been inherited. After earlier att empts at federati on had been frustrated, the Partner States became more concerned with economic co-operation and in correcting its weaknesses. The Kampala-Mbale Agreement of 1965 and the Treaty for East African Co-operation of 1967 were part of the effort to improve and strengthen economic co-operation instead of political unification. 4 The current effort by the Partner States to review the Treaty of 1967 is part of the effort to preserve and strengthen economic co-operat- ion. The significance of the review exercise has to be seen in the context of previous conflicts and compromises which have characterized East African integrati on in the post-colonial period. Periodic crises are common occurrences in any organization. I n regional organizations such a common markets, the crises may become more controversial if the scheme fails to generate and distribute adequately the costs and to benefits of cO-operation among the Partner States. The outcome of a CriSIS may be an up-grading of the common interest i. e. to accelerating integration, a +Formerly Lecturer in Political Science, University of Dar es Salaam. 25 deadlock situation where no compromises are reached or down-grading of the common interest which means some degree of disintegrati on. 5 Integration and disintegration can sometimes be simultaneous processes. In order to determine the extent of integration, the diff erence between the two processes is what counts. In a previous paper we showed and argued that there has been a slight overall disintegration in the joint tasks undertaken by the East African countries during the last ten years. How- ever, we also argued that during the same period, the East African Community has attained more institutional autonomy and fl exibility than 6 at any other period in the history of East African co-operation. The following examples illustrate the above argument. In 1966 the East African Currency Board ceased to be a regional monetary institution and the Partner States established separate Central Banks. The University of East Africa broke into three national universities in 1970. The Income Tax Department which was one of the oldest East African institutions starting from 1927 was decentralized into national institutions in 1973. These three cases show a decline in the scope of co-operation. At the same time, some institutions - especially on the admini strative side have been introduced and strengthened. The Treaty of 1967 introduced the institutions of the East African Ministers and ministerial councils. The CommonMarket Tribunal and the East African Development Bank are also some of the institutional innovations which have added considerable flexibil~ ity and autonomy to East African Co-operation during the last nine years. One of the major chall enges to East African integration at the present time is to strengthen the administrati ve authority while making it commensurate with expansion in the scope of integration. TIlE STRUCTURE AND CONTENT OF EAST AFRI CAN CO-OPERA nON The last comprehensive exercise to review the provision of East African Co-operation was in 1967 which led to the signing of the Treaty for East African Co-operation in, June 1967. This document, like its predecessor the Kampala-Mbale Agreement, endorses national sovereignty. It does not refer to a political unification of the East African integration as a regional scheme for maximizing economics of scale in industry and commerce in order to augment national development. This kind of arrange- ment doest of COUrse, enta'l I the sh'armg of some sovereignty m , those areas of joint action , but t h e Iocus of most political decisions are reser- ved for the nation-stat e. There h ave been occasional reference to an East African Federation by authoritative SOUrces but it is expressed as a wishful distant goal r th th '. 7 a er an an ImmedIate practical commitment. 26 East African Co-operation consists of three aspects (a) A Common Market which provides for a common external tariff which ranges from 15 per cent to 75 percent. It also provides for regulated free flow of manufactured goods. 8 (b) The self-financing services of the East African Corporations. They comprise the Railways, the Harbours, Post and Telecommunicati ons and the Airways. These Corporations provide some of the essential infrast ructural and communications services to the Partner States and facilitate the working of the Common Market. (c) The General Fund Services which are financed by the Partner States and other miscellaneous sources. The General Fund Services are of three categori es: (i) Administrative servi ces for the overall co-ordination of the Community such as the various secretaries. (ii) Servi ces which provide anxilliary functions to other services such as meteorology, civil aviation, publishing etc. (iii) Specialized scientific research institutes pert aining to tropical diseases, agriculture, fisheries etc. All the three aspects of the Community have had some strengths and shortcomings. During the last fOUl"years the shortcomings have become more obvious and politically sensitive. Some of the commonest problems of the Community are (a) the unequal distribution of benefits with Kenya as the traditional greater beneficiary than Tanzania and Uganda. (b) The national orientation and the different paths of develop- ment of the Partner States which has tended to increase controversy in several areas of Co-operation. (c) The shortage of foreign exchangf' in the Partner St ates has created problems of transferring funds from one country to another.9 These are real and substantial problems. They may be more evident in East Africa at this time, but they also manifest themselves in varying intensity in other regional schemes in the Third World. However, it is our contention that these problems are actually mere symptoms of much more fundamental causes which we now turn to. Most of the problems can be traced to the kind of integration which was imposed on the East African countries by the colonial administration. East African infegration has to be examined in the context of capit alist penetration and colonial occupation of this part of Africa. The basic motives of British imperial interests in East Africa Oike elsewhere), were to tap materials for British industries as well as to secure outlets for British manufacturers' investment opportunities and surplus population.lO The early influx of British and Boer settlers in Kenya who embarked on plantation farming made Kenya a convenient centre for establishing subsidiary British industries for processing agricultural 27 materials and for establishing import substitution industries. The common external tariff was intended to protect the infant British industries based in Kenya from competition of other industrial countries. The free movement of manufactured goods within East Africa ."8.& designed to facilitate the flow of manufactured goods from Kenya to the rest of East Africa. Hence the so-called common market was and has always been restncted to the protection of manufacturing industries. Agricultural and other raw materials have never been part of the common market. Primary commodities in their raw or semi-processed JOrnl have mostly been for export to metropolitan markets. The import-substitution industries in East Africa have traditionally beer. mainly geared to the higher income urban- based market and biased 1 against rural based mass-based marketl An analysis of the commodity composition of East African import rate shows the predominance of manufactured goods of the luxury and semi-luxury items and a bias again- st intermediate and capital goods. Table 1 provides a breakdown of East Africa's trade on the basis of the Standard International Trade Classification (5.1. LC.). The Table shows the following pattern: (a) There is a predominance of exports of raw materials (as shown in sections 0 and 2 in the second column). (b) Imports from outside East Africa consist mainly of machinery and transport equipment, manufactured goods and chemicals (5 ection 7, 6, and 5 in the third column). (c) Regional trade in column one consists mainly of manufactured goods, (section 6) food and live animal (section 0) and fuels (secti on 3). The initial arrangement of the common market also provided for the free movement of capI'taI • The prOVlSlon . , allowed manufacturers and financiers to invest anywere h . E mast Af'rica while permitt mg , an un- restricted flow of profit s t0 Kenya were h the regional headquarters of most busin ' esses were and finally the transfer of those profits over- seas. Most manufa tu .. d ' f c nng m ustnes were based in Kenya because 0 their earl . Y connection with the white settl ers. There was little Ulcentive to establish th . T em Ul anzania and Uganda because those markets could be conv . tl emen y reached through the common market arrangements and the b b' reasona ly good transport system between Nairo I and the lucrative m k t f ar e s 0 northern Tanzania, the Dar es Salaaam area and the l(ampala-Iringa area. In 1956 the value of Kenya's exports as a percentage f h o t e value of regional trade was 58 . 9 per 28 U ~ (I) ... ..... ,..... ....~ < ~ 0 ~ 1Il 6 (/) cd.9 ClI z .......ClI ~ V ClI I-< < u '"C:J ClI ~ ...... S'"C:J U ~ I-< < ~ @. cd *- ~ < ... e "* "*...... "* ......"* I Cl)u ......~ l() ~ "t to N r') ~ '-7 ~ ~ ClI cd f-i I-< cd N N 0 ~ ..lO: I-< ....... CI) ClI '0 ClI 1Il ...... .... 0 I-< ClI U p. ...... cd -< f-i ~ 'ld ~ ~ ...... ~ ....1-<......1Il 1Il ~'"C:J ClI ... > ..... cd '"C:Js ClI a 1Il 6 a'"C:J .... ClI ClI ~ 0 u ClI r-- 0\ a OIl cd 13 ... ~ClI ...... .... U ~r;::: ~ 13 ............u .... P. ...... '"C:J ...... o u cd ~ U (/) ...... ,.., I-< ClIP. I-< I-< cd 1Il ClI ..c: .... ClI .... ~ ClI ~ '"C:J 0 ClI >ClI '"C:JClI e~ ClI'"C:J .~ ~ ~o s ...... .r-4 -.-4 ~ ;::J u g.. u'" 1Il I-< ~'O] ClI ...... .a u.;:l f-i'" ~ 0 j:Q UCli ~ ..c: U ~u a:d ~ cd ClI ~ .... cd 8~..lO: ~... 0 u I-< cd 1-< ..... u CI) ClI CI) 0 ...... N r') '-7 l() 1.0 r-- to 0\ f-o (/) 5 29 cent, in 1965 it was 65.3 per cent and in 1974 it was 78.4 per cent. This pattern of trade shows the concentration of industries in Kenya.12 Before the rational i zation of financial institutions in Tanzania in 1967, most major urban centres in East Africa had branches of some of the major British banks and insurance companies. Unlike manufacturing industries, these financi al businesses were operating where their clients were ~ i.e. in the urban centres of Tanzania and Uganda. However, Nairobi served as the headquarters of all the financial instituti ons operat- ing throughout East Africa. Throughout the history of the Common Market the inter-territorial movement of labour has never been part of the Common Market arrange- ments. The absence of large- scale industri es in East Africa which need specialization and regional movement of labour partly explains the persistent omission of a provision on labour movement. Another reason for the omission is the avail ability of an abundant and cheap labour force which has created some "unemployment" of varying intensity in each of the three countries.13 The so..called unemployment problem which has forced each country to jealously prot ect its labour market is a result of the colonial distribution of the economics of these countries. The low and often season- al wages paid to the labour force with one-foot on the modern sector and another on the rural areas as subsistence producers were instrumental in creating a growing army of unemployed and semi-employed people. No country with its own share of the problem would welcome a policy which encourages a regional shaping of the problem. 14 The Treaty of 1967 tried to remedy the problem of the unequal distri- bution of benefits of the Common Market and the Common Services. With regard to the Common Market the Transfer Tax System, the East African Development Bank and a system of fiscal harmonization of incentives were proposed to assist in correcting the inbalance of regional trade and industrial development. 15 The Transfer Tax is a legali zed tariff applied by Tanzania and Uganda against some Kenya goods under certain conditions. Transfer taxes are imposed by a country with an overall deficit in regional trade in manufa- ctures on imports from a country with which it has a deficit The objecti ve of the Transfer Tax system was to encourage industrialization in Tanzania and Uganda which were lagging behi nd Kenya. The absence of a machinery to allocate industries on an East African basis has led to duplication of industries which compete for the Common Market. 16 30 The independent industri al pol icies of the Partner Stat es may al so have contributed duplication of industries which aim to export to the East African Market. As a result of this situation the relative importance of the East African Common Market as a destination of the exports of the Partner States has been declining. Tabl e 2 below shows the declining trend between 1964 and 1973. Table: 2: The Relative importance of the East African Common Market as a destination of exports (I n percentage~.) 0t each Partner State. Year Kenya Tanzania Uganda 1964 35 7 13 1965 39 9 14 1966 27 6 16 1967 33 5 14 1968 31 5 12 1969 31 6 12 1970 31 8 10 1971 32 10 8 1972 27 6 4 1973 24 7 4 Source: Computed from Annual Trade Reports 1964-73. +The percentages do not include re-exports. There has been a marked decline in Kenya's export to the other Partners. The highest was in 1965 when Kenya's export accounted for 39 per cent of total exports and lowest was 24 per cent in 1973. Tanzania's share has remained relatively steady, but Uganda has recorded a sharp decline since 1971. The East African Development Bank was established in order to promote the industrial development of the Partner States in a manner which would also reduce the industri al imbalances between them. The Treaty re- quires the Bank to loan or invest 381- per cent of it s capital to TaJlzania and the same amount to Uganda. Kenya is supposed to get 22t per cent. The Bank has had some difficulties in realizing its objectives. The authorised capital of the Bank is only 400 million shillings whereas the total annual industrial investment for the Partner States is about 4,000 million shillings. The contributi on of the Bank can therefore be very small. The character of the Bank does not provide for investment in agricul tural activities al though agricul ture is a leading activit y in each of the three countri es. 17 The limited capital whi ch has confined the Bank to minority participation with private and public enterprises, has not been able to initiate independent 31 projects. The Bank's operations have so far been directed to the individual states as the Treaty stipul ates. As a result of the above limitations, the Bank has not been able to determine or influence the kind of industries to be established. However, with increased capital and the adoption of a regional industrial co-ordinating machinery, the Bank can be an important public institution for promoting complementary industrial development. With regard to the common services, the Treaty provided for the rellis. tribution of the corporation's headquarters all of which had been in Nairobi. The Railways and Airways headquarters remained in Nairobi. Tanzania was allocated the Harbours headquarters in Dar es Salaam while Arusha was made the administrative headquarters of the East African Community as a whole. The headquarters of the Post and Telecomrrnmications and the East African Development Bank are in Kampala. The rati onale for this exerdse was to give a symbolic feeling of sharing the services and to redi stri bute the benefits accruing from the physical assests and employment opportunities. Each Partner State was required to remit to the headquarters funds for the overall administration and development of the corporati ons. This scheme has been bogged down by financial bosses of the corporations and by dif ficult ies of transferring funds from one country to another which has left the Partner States indebted to each other. Inter- state transactions are settled in the following three ways: (a) Some transactions are off-set by movements of funds in the opposite direction. (b) Excess transactions are remitted in local currency up to a ceiling of 10 million shillings. This ceiling covers only 5 per cent of Tanzania's and 4 per cent of Uganda's annual deficits with Kenya. (c) Any payments over and above the 10 million shillings are settled in foreign exchange (mostly dollars) Since 1971 the interchangeabil ity of East African currencies was stopped. The currencies of the Partner States are counted as foreign exchange. This puts an additional strain on the overall balance of payments of the Partner States. Between 1969 and 1971 all the three countries experienced considerable current account deficits due to a substantial increase of imports especially of capital and intermediate goods. The balance of payments current account for Kenya increased from a deficit of 58 million shillings in 1969 to 1,028 milli on shillings in 1971. Tanzania had a surplus of 150 million shillings in 1969 but by 1971 it had a deficit of 559 mill ion shillings. Uganda had a deficit of 44 million shillings in 1969 and had a substantial surplus of 146 miIlion shillings in 1970 which dropped precipitously to a deficit of 618 18 million shillings in 1971. There was some improvement in 1972, but the situation became much more serious in 1973 and 1974 due to the five-fold 32 increase in the price of oil and large food imports due to the drought conditions which hit many parts of Airica during that period. Every Third World country is heavily dependent on foreign exchange to finance development proj ects . Apart from the few oil producing coun :ries, almost all Third World countries have a chronic shortage of foreign exchange. The reli ance on foreign exchange reflects the economic dependency of these countries upon the metropolitan countries. The initial economic contact between the Third World countries and the metropolitan countries divorced the processes of production and consumption in the latter countries. The third world countries were made to specialize in the production of ra "'.' materials in order to support the industrial sector in the metropolitan::ou- ntries while most of the manufactured consumer and producer goods have had to be imported and paid for in the currency of the metropohtan countries. This situation has led to the now famous phrase that "underdeveloped countries produce what they don't consume and consume what they don't produce" .19 The connecting link in the above syndrome is the precious foreign exchange. It is perpetually in short supply because the price of raw materials (which are the foreign excLange earners) sold to the developed countries is always lower compared to the price of manufactured goods. The prices of both exports and imports are determined by the metropoli tan countL'ies except for the recent case of oil.20 In East AI rica for example, th"terms of trade have been declining every year. From 1964 to 1972 the import pnces have increased by over 40 per cent while the Drices of e"tJor's have increased by 3 per cent. This means that there has been an annual decline in the price of exports or an annual loss of 475 million shillings over that period. 21 The problem of foreign exchange in East Africa is thereforE' a deeper rooted one. Its solution does not lie in merely devising forffil.llae for inter- state transfer of funds or in increasing exports. It requires re- structuring the economies of the Partner States in such a way that they are appendages of the metropolitan countries. The Review Commission could have contributed towards this re-orientation by providing a foundation which will enable the Partner States economies to be complementary and 1 ess dependent on the developed countries. CENTRI FUGAL FORCES OF NATIONALISM The Britsh colonial presence in East Africa kept the three count ri es administratively closer but politi cally distinct. The last minute effort by the British Government to re-organize the East Airican High Commission into the E. A. C . S. O. was intended to facilitate the development of East Ai rican co-operation from a colonial institution to one of independent states. The 33 change did not include the harmonization of the independence time-tables of the three countries. The politi cal histories of the three countries were so different that efforts by the nationalist leaders of the three countries to synchronize their independence dates and to form a federation failed. The realities of separate sovereignities became evident shortly after the independ- ence of the three countries. The main problem was competition for benefits among the Partner States especially Tanzania and Uganda's demands for an equitable share of the Common Market and Common Services benefits which had been concentrated in Kenya. The distribution problem is less sensiti ve if the benefits are there but are not fairly distributed. On the other hand when a regional scheme is not able to generate adequate benefits the problem becomes more sensitive and controversial. The Raisman Commission of 1961 and the Kampala-Mbale Agreement of 1965 did not provide satisfactory formulae for dist ri buting the benefits among the Partner States. The Treaty of 1967 was more accept- able to the Partner States. However, both the common market and the common services have shown some weaknesses which have constrained their ability to generate benefi ts. The emphasis on import substitution industries by all the three countries and the increasing demand for capit al and intermediate goods (which are not produced in East Africa) has made the East African countries more dependent on external imports than on each other.22 The East African Common Market is therefore becoming of diminishing importance to the Partner States because it cannot meet thei r requirements for capit al goods in which each state tries to be self-sufficient in import substitution goods. If this trend continues, the attraction and justification for a common market may not be tenable. Likewise, the performance of the common services have been marred by financial losses, administrative problems and the diffi culties of transferring funds. The combined effect of these problems has been to produce one of the most heat ed debates among the Partner States on every aspect of co-operation, but basically it boils down to the question "who gets what and how much from hi s co-operation?" Sometimes there are national based demands which are not necessarily for the action as a whole, but are articulated and expressed by particular interest. In post colonial East Africa for example, there has emerged a class of African businessmen in alliance with international big business and a bureaucratic class w.hich is also in alliance with international concerns. Both of these classes are capable of manipulating and influencing the state machinery to enhance their interest. Their state is closely related to the nation-state and sometimes 34 their interests are in direct competiti on with regional public concerns. 23 PRESSURES TO DECENTRALIZE THE CORPORATIONS One of the most controversial issues which is creating uncertainty on the future of the East African Community concerns the decentralization of the four Corporations. The Treaty of 1967 was not explicit on the extent to which the corporati ons' s headquarters and the regions in the Partner St ates should share administrative powers and financial control. The vague- ness of the Treaty did not caUse any major conflicts during the first seven years since the Treaty aame into force. Since 1974 the pressure to decen- tral ize has become a politically sensiti ve issue which is threatening the survival of the Community as a whol e. The controversy was mainly sparked off by two things: (a) The crisis in the foreign exchange position of the Partner States referred to above, added strain on their abil ity to transfer funds to the corporations' head- quarters. The Partner States began to scrutinize more closel y the obligat- ions of the regional offices to transfer funds to the headquarters of the corporations' (b) Two select committees of the East African Legislative Assembly on performance of Airways the Railways Corporation revealed several cases of gross mismanagement and corrupt practices by some of the senior officials. The Report on the Airways was presented towards the end of 1973 and that on the Railways was presented in June 1974. The findings of the committees made the Partner States reluctant to transfer funds to another country. At the ti me of the inquiry the Airways Corporation had a deficit of shill ings 24.6 million and Rail ways Corporation had a deficit of shillings 48.7 mHlion in 1973.24 Tanzanian and Ugandan members of the Assembly were critical of the administrations of these two corporations both of which have their headquarters in Nairobi. The Harbours and the Post and l'elecom- muni cations have consistently realized a surplus although they also have had their own share of mismanagement and financial losses.25 In the wake of these developments the Partner States virtually stopped transf erring funds to the Corporations headquarters. It appeared that Mombasa office of the Harbours Corporation started the move. The finance council of the Communi ty met in July 1974 and decided that the Mombasa office should transfer shillings 33.8 milli on to the headquarters in Dar- es Salaam. The transfers were not affected. By the end of April 1975 Kenya was withholding shj.llings 175.8 million owed to Harbours' Headquarters in Dar es Salaam and shillings 16 million owed to the Post and Telecom- munications in Kampala. Tanzania's obligations to the Railways and the 35 Airways headquarters in Nairobi was shi 1lings 35 million to each headquarter. Uganda's obligation to the Railways and Airways Corporations was shill ings 7 million and shillings 45 milli_on respectively. At the same time the corporations owed t heir overseas creditors shilli ngs 287 million. 26 The crux of the problem is not only a lack of goods among the Partners but it is the absence of clear definition in the Treaty of what constitutes headquarters' expendi ture that has to be paid for in foreign exchange. Headquarters' expenses consist of salaries of staff, overhead costs such as maintenance of buildi ngs, servicing of foreign loans and importation of capital goods. The first two items are paid for in the currency of the country where the headquarter is located while the other items are most ly paid for in foreign exchange. Since the regi ons have to transfer most of their funds to the headquarters in foreign exchange (other than the currency of the host country), the difference between the local expenditure and over- seas expenditure incurred by the headquarters is a net saving of foreign exchange for the host country. The following example illustrates the above argument. In July, 1975 it was reported that the East African Ai rways headquarters account had a deficit of shillings 10 million. It owed an oil company shillings 15 million and another shillings 7 million was owed to overseas creditors. At the same time the corporation's regional offices in Tanzania and Uganda were with- holding shillings 38 and 4B million respectvely which would have been trans- ferred to the Nairobi offi ce in foreign exchange. If the shill ings 76 million from Tanzania and Uganda had been duly transferred to Nairobi the Corporat- ion woul d sti 11 have a net surplus of shillings 44 milli on in foreign exchange deposited in its account in Kenya. 27 Although that money belongs to the Corporation, it adds to Kenya's overall foreign exchange holdings. The same is true with respect to the other countries. The Partner States have been trying to arrive at a formula that would only permi~ the transfer of the exact amount required by the headquarters and involving a minimum of foreign exchange. That formula has not been agreed upon because of the mutual suspicion that already exi sts and loopholes in the accounting system. All the Partner States have now agreed that the Corporation's admini strative powers and financi al controls should be de- centralized so that each region undertakes its own planning and pays its overseas obligations directly. What the Review Commission may have to deter. mine is the Irreducible minimum powers short of a complete break-up to be retained at the headquarters. Recent developments in East Africa indicate that the decentralization exercise may get out of control and set a process of !atal break-up of the 36 corporations. lt has been reported (although not officiall y confirmed) that the C anadia:. consult ancy firm CANAC which was commissioned to study the decentralization of the Railways Corporation has recommended & break-up of the Corporation with one year of transition.28 Passenger traffic between Kenya and Tanzani a was stopped in 1974, goods traffic has been considerably reduced and marine transport was also stopped after the corporation detained all the ships in Ki sumu. For two years now each country has run its operations almost independently. The Mombasa office of the Harbours Corporation is keeping a separate account and dealing directly with overseas creditors and Uganda has already started her own domestic fl ights. More detrimental to regional co-operation is the unilateral decision by Kenya to expel Tanzanians and Ugandans working for the General Fund Services in Kenya and the banning of Tanzanians and Ugandans working with the East African Airways at Nairobi Airport. There have been several cases of expulsion of non-cit izen East Africans residing in the Partner States. These acts add tension to the already strained relations among the Partner States. 29 Decentralization of the Corporations may reduce some of the existing tension and reduce the administrative and financial hurdles which the Partner States have failed to resolve. All the same, decentrali zation is going to be a costly undertaking by the Partner States entailing additional overhead costs. By the same token, the Partner States are going to forgo the advantages of .the economics of scale which the Corporations are capable of realizing if they are properly managed. DEPENDENCE AND MANIPULATION The current problems of the Corporati ons have revealed their dependence and vulnerability to international financial institutions. All the four corpora- tions order most of their equipment and spares through the Crown Agents in London. As a result of the outstanding debts following the deadlo.ck in t.~e transfer of funds, the Agents refused to extend any more credit to the Corporations. Spare parts were in short suppl y and the services rendered by the corporations have suffered. The four Corporations have some of the biggest and well- equiped workshops in East Afri ca whi ch, with some modi- fications could produce spare parts. The recent hard experience with spares can probably encourage more self-reliance by the Corporations. The World Bank is the largest creditor of the Railways, the Harbours and the Post sand Telecommunicati on Corporati ons. 30 The loans to the Corporations are guaranteed by the Partner States which undertake to repay them if the corporations fail to meet thei r obligations. In May 1976 the East African Community tot al outstanding external obli gat ions stood at 37 shillings 425 mi Ilion owed to the World Bank, Crown Agents, t he United Kingdom and other countries.31 The World Bank announced that it was stopping all ah' to the East African Community because Uganda had failed to meet its repayment obI igations of previ ous loans. The Finance and Communications Councils of the Community met quickly to consider the World Bank decision. The World Bank is also a maj or aid donor to the individual Partner States, that may explain their immediate reaction to the Bank's decision. The Partner States agreed to pay the out- standing debts by a transfer of funds formula based on the gross fixed assets held by each of the Partner States. Reporting on the decision of the Council the Sunday Nation wrote that: "The discussions, in which Mr. Damzy and other officials of the World Bank participated, were held in a spiri t of friendliness and co-opera- tion and augured well for the future well-being of the East African Community"32 The World Bank resumed its loan commitments after the agreement by the Partner States. It has taken the leverage of the World Bank on the East African States to reach an agreement wi thin two weeks on an issue which has divided them for three years. The agreement is, however, only an ad hoc solution to meet the demands of the World Bank which also shows the powerful role of the Worl d Bank in East Africa in infl uencing policy decisions. CONFLICTING IDEOLOGIES Since 1967 the ideologies and development strategi es of the Partner States especially those of Tanzania and Kenya have become different (Tan- zania has been pursuing a social ist oriented strategy while Kenya has follow ed a free enterprise type of strategy).33 The political changes in Uganda have not permitted the evolutior.. of a consistent strategy as in the other two countri es, but in essence it has been a free enterprise type during both the first and the second republics. The differences have so far affected minimally the existing areas of co-operation. They may later constrain the prospects for integration if each count ry rigidly pursues her own strategy. 34 Some of the obvious disintegration occurred before Tanzania's and Kenya's strategies had become divergent. The break-up of the common currency and the East African Tourist Association are cases in point. The University of East Africa was divided into three national universities in 1970, but proposals to split it had started as early as 1966. These occure- nces can be attributed to the centrifugal forces of nationalism. The break-up of the Income Tax Department in 1973 had both nationalist and ideological motivations. The Department had on several occasions been 38 criticised for being too bureaucratic and inefficient and that it needed to be decentralized. It was also argued that the contribution to the Departments' revenue was unequal among the Partners. Kenya was contributing more than the other Partner States because there are more private fi rms in Kenya which are subject to income-taxation. 35 In addition to the above arguments, there was an ideological argument. Tanzania wanted to introduce a more egalitarian income tax system which would t ax more heavily people in the higher income bracket. On the other hand Kenya was planning to introduce a tax-system which would provide greater incentives to private investors. These changes which are essentially ideological, could not be implemented without dismantling the I ncome Tax Department which had hitherto imposed a uniform income tax structure for all these three countries. 36 Apart from the break-up of the Income Tax Department ideological differences have also complicated the operations and administration of the corporations. The different ideological orientations in the two countries have now and then been apparent in the content and tone of the press in the two countries. One obvious example was the controversy in 1974 over the use of Tanzanian roads by Kenyan trucks weighing more than 18.75 tons. The issue was superfi cally technical, but the press turned it into a socialism vis-a-vis capitalism debate. The governments of the two countries refrained from being drawn into the ideological debate; nonethel ess the issue showed that there is an ideological dimension in the relationship between the two countries which cannot be ignored. The Tanzanian press and the Tanzanian members of the East African Legislative Assembly exposed and criticised the operations of private trans- port companies which were directly competing against the Railways Corpo- ration. The Corporation had had deficits annually since 1962.37 The losses al'e due to various reasons among which is competition from read transport. The criticisms were handled in an anti-capitalism tone. The Kenyan press and the individuals who participated in the debate concentrated on attacking Tanzanian socialism rather than addressing themselves to the problems of the corporation. These kinds of exchanges tend to undermine good-will and understanding among the Partner States. ldeologi cal differences can be an obstacle to integration if the Partner States are reluctant to compromise some of their ideological principles. 38 The leaders of the three countries have demonstrated their willingness to be pragmatic and fl exible hence their consent to review the Treaty. All the same there is always the possibility that national based interest can exploit the ideological differences for their selfish ends. The views which have been 39 aired in the press several times in defence of private enterprise and socialism by the Kenyan and the Tanzani an press repectively are cases iI' point. Similar cases may arise if the East African countries decide to esta- blish joint industries. Issues like the extent of private and public ownership and control and "the degree of workers participation are likely to generate ideologically-tinged arguments. Considerable flexibil ity and compromi ses may have to be exercised if East African co-operati on is to be preserved. FI exibility and compromise may temporarily cont ain differences and postpone temporarily certain differences and postpone confl iets, but a viable regional scheme among underdeveloped countries has in the long run to confront squarely the phenomenon of dependency upon developed count ries. TIle concept of integarion itself may have to be redefined so that it takes into account the realities of dependency whil e at the same time it offers one of the alternative strategies for overcoming underdevelopment. In the final analysis, therefore, underdeveloped countri es intending to form viable regional schemes have to make an ideological choice which is based either on "the existing economic structures or on disengaging from internati onal capitali sm. CONCLUSION This paper has attempted to provide a brief analysis and to summarize the major problems of the East African Community. lt has been an exercise in isolating and showing the interconnection of the various forces which have been und.ermining the East African Community thereby shedding light on what might be done to contain them. It has been pointed out that the approach to tackling the problems of integration in Eas t Africa has hitherto been to provide remedial formulae to cope with the unequal distribution of benefits. The paper argues that such formulae may be helpful in resolving temporary crises, but a long-term solution would have to tackle the root causes of underdevelopment. Regional integration which addresses itself to the phenomenon of under- development has of cour se to take into account the diff eren t conceptions and levels of understanding of the phenomenon among the Partner Stat es. A regional scheme may never materialize if it wait s until all the Partners have reached the same level of understanding and interpretation of the causes of underdevelopment. What is important is to devise a regional scheme which can lay the foundation for re-orienting the economics of the Partner States from the inherited structures of dependency while accommodat i ng the difference among the partners. In East Africa for example, thi s can be done by providing possibilities in the next Treaty for more complementary 40 relationships among the various economic sectors by institutlng the practice of co-ordinat ed planning even on a limited scal e. The current Review Commission may use its mandate from the Partner St ates to c.ommit them to a kind of integration which encompases more vital economic sectors. The sucess of such an exercise depends very much on the good wi 11 of the Partner States which sometimes may entail making temporary national sacrifices for the future common good. If this basic pre-requisite is lack- ing, East African integration may easily succumb '0 the disintegrative forces whi ch are already threatening the East African Communit y. FOOTNOTES 1. For an earlier collection of regional integration studies in developed and underdeveloped countries see J.S. Nye, Jr. (ed.) International Region- alism Readings, (Little, Brown and Company. Boston 19W), tor more recent theoreti cal approaches to comparative integration and measurement see L. N. Lindberg, "Pol itical Integration as a Multidimensional Phenomenon Requiring Multivariate Measurement" and J.S. Nye, Jr. "Comparing Common Markets: A Revised Neo-Functionalist l-,.1.odel", in L.N. Lindberg and S.A. Scheinghold, (eds.), Re~ional lntep.ration Theory and Research, (Harvard) University Press, Cambridge, Massachusetts, lY/l) pp. 45-127 and pp. 192-231. 2. For a brief but comprehensive analysi s of East African co-operation from the colonial period to the early 19605, see C. G. Rosberg Jr. wi th A. Segal, "An East African Federation", International Coneil'iation, No. 543, May 1963. 3. There have been several works to explain the non-realization of the East African Federation between 1960 and 1963. For example see T. M. Franck, (ed.), Why Federations Fail, (New York University Press and London, University of London Press 1968) - for a general and comparative studies. Also see J. H. Proct or, "The Effort to federate East Africa: A Post Mortem", The Political Quarterly, Vol. 37, No. 1. January - March, 1966. 4. The det ails of the Kampala-Mbal e Agreement appear in P. Robson, Economic Int egration in Africa, (George Allen and Unwin Ltd. London 1907) pp. 149-154. ror the full text of the 1967 Treaty see The Treaty for East African Co-operation (East African Community Printer, NairobI EJo'/). 5. For a detailed discussion on crises in integration and their effects on integration and/or disintegration, see E. B. Haas, "Technocracy, Pluralism and the New Europe", In J. S. Nye, Internati onal Regionalism, pp. 152-154. Also see P.C. Schmitter "A Revised 'Theory of Regional Integration", International Organization Vol. XXIV, No.4, 1970, pp. 842-850. 6. See A.P. Mahiga, The in the niversities 41 7. In 1973 a Select Committee of the East ;'~rican Legislative Asse~bly was appointed to study the feasibili ty of establishing an East Afncan Federation which in principle had the support of the Partner ~tates. The Report was one of the most detailed studies o.n East Afncan Co-operation with concrete proposals for a federation. It was pres~nted to the three governments in 1975, but there has been no action on It so far. The Assembly has asked the Authority to conduct a referendum on 'the subject. 8. The regulated free flow of manufactured goods is in the form of Transfer Taxes which are imposed by Tanzania and Uganda on some goods from Kenya and by Tanzania on some goods from Uganda to assist in promot- ing industrial development in Tanzania and Uganda. The Transfer Tax system is discussed in subsequent pages. 9. Problem (a) has preocuppied the Partner States from the colonial period. Problem (b) is of a more recent origin whose implications have not yet been fully analysed. Problem (c) has become a serious issue in the last four years. The chairman of the Review Commission Professor W. Damas has referred to it as the biggest problem in the East African Community. See The Standard (Nairobi), 19 January, 1976. 10. For a good study of the economic history of East Africa from colonial occupation to 1939, see E.A. Brett, Colonialism and Underdevelopment in East Africa, (Heinemann, Nairobi 1973). 11. This argument is developed and substantiated by K. Guruli in his article "Towards an Independent and Equal East African CommonMarket", in L. Cliffe and J .5. Saul (eds.), Socialism in Tanzania, Vol. 1 (East African Publishing House 1972), pp. 55-95. 12. The percentages are computedfrom the East African trade reports for the relevant years which appear in The East African Economic and Statistical Reviews, issued by the East African Statistical Department. In 1974 Kenya's exports to Uganda alone constituted 47.5 per cent of the total regional trade. 13. Employmentand unemploymentin this context refers to the availability, non availability of wage employmentin urban areas but not to fainful employment in other sectors of the economy. The most up-to-da te unemployment figures for Tanzania and Uganda are not ava.ilable. The ILO Report of 1972 showed that in 1970 Kenya had an urban unemploymentof 11.5 per cent. EmploymentIncomes and Equality. A Strate for lncreasin Productive Em 10 ent in Ken a (International a ur ice, eneva , p. 14. By relegating the rural areas to petty commodityproduction and as seasona 1 reservoirs of labour, the colonial administrations contributed significa ntly to the well-known phenomenonof rural-urban migration thus contributing to urban unemployment. Despite innovative efforts to promote rural develop- ment by the independent governmaIt, the problem of rural-urban-influx has persisted. 15. The Systems of fiscal incentives isonly mentioned as commendable in the Treaty (Article 19). Unlike the Transfer Tax and the Development Bank, it is not elaborated. The CommonMarket Secretariat later prepared deta iled proposals for fiscal incentives and were presented to the CommonMarket Council. It appears that no agreement was reached and they were shelved b~cause of different interpretations by the Partner States on purpose of FiscalI~centlves: ~or details see A. Huzlewood, Economic Integration: The East Afncan Experience, (Heinemann, 1975) pp. 82-53, 11-120. 16. See H.•E. Gru~~~ "Industrial Development in.East Africa: An Appraisa 1 includIng PossIbIhties for Future Acceleration". Rasilimali Tanza nia I nvest- ment Outlook, (Tanzania Investment Bank Publication, January 1973) p. 24. 42 17. For detail s on the establishment of the Bank and its cha rter, see The Treaty - Articles 21 and 22. 18. This thesis has been expanded by Clive Thomas in his writings on the Politica 1 Economy of underdeveloped countries see his article" The Transition to Socialism: I ssues of Economic Strategy in Tanzania Type Economies", (Mimeo, Universtiy of Dar es Salaam 1973). Also see hi s book Transition to Socialism.. (Monthly Review Press 1974). 19. The deteriorating situation in the terms of tra de of commodities from under- developed countries has been extensively discu ssed in scholarly writings E. Arighir, Unequal Exchange: A Study 'Of the Imperialism 'Of Trade, (London N.L. B. 1972 and End ofll1usian-Verdict an UNCTAD 3, (A World Develop- ment and Movement Publicatian, London, 1972) p. 9. The last booklet summarizes same of the salient issues an international economic system raised at UNCTAD 3. 20. Far an illustration and discus sian of trade indices and terms of trade in East Africa, see Review of Economic I ntegration Activities Within the East African Cari1!!.1.unity 1973/74, (Common Market and Ecanomic Affairs Secretariat, Arus:a 1974) pp. 49 and 68. 21. Regional expo L't s a s a percentage 'Of external exports declined from 21.5 per cent in 1966 ta 15.3 per cent in 1973. Regional imports as a percentage external imports declined from about 20 per cent in 1966 to 13.1 per cent in 1973. For more discussian an this subject see Review of Economic 1nte~ration Activities within the East African Community 1973/4, pp. 39-42. 22. A detailed and analytical discussion of the class structures of post-colonial East Africa see I .G. Shivji, Class Struggles in Tanzania, (Tanzania Publish- ing House, 1975) especially pp. 61-165. C. Leys Underdevelopment in Kenya: The Palitical Ecanam 'Of Nea-calonialism (Landan, Heinemann, 1975 especially Chapters 1- ,M. Mamdani, Class Strug~les in U~anda, (Paper presented at the Secand Bi-Annual Canference 'Of the African Assaciation 'Of the Mrican Assaciatian 'Of Political Science April 4-8, 1976 at Lagos Nigeria. A gaod example 'Of natianal based interest in competitian with regional concerns is that 'Of road trcmsport vis-a-vis railway transpert. 23. See Re art 'Of In uir inta the Affairs 'Of the East African Airwa s Cor oration, (East A rican egis ative Assem ly, Arus a, 1 . A so ~ort 0 nquiry into the Affairs 'Of the East African Railwa s Car 'Oration (EasfMrican Railways orporation ast rican Legis ative Assem y, Arusha, 1974). 24. The figures are taken from the Statistical Surve of the East African Communit Institutions, (East African Statistical Department, airo i, 1 pp. and 1 respectively. 25. For summaries and comments of views expressed in the East African Legislative Assembly see Weekly Review, (Nairobi) 15 February, 1975, pp. 6-9.24 February, 1975, pp. 3-6, 15 July, 1975, pp. 4-12. 26. See Weekly Review, 15 February, 1975, p. 7 and 19 May, 1975, p. 15. 27. Figures quoted from Weekly Review, 7 July 1975, p. 9. 28.1t was first reported in the Daily Nation, (Nairobi) of 7 June, 1976, p. 1. The following day the East African Legisla tive Assembly meeting in Arusha expressed surprise at the reports and wanted clarifi cation see Daily News, (Dar es Sa laa m) June 9, p. 3. 29. For reports and comments on the expulsion of nen-citizen East Africans (Weekly Review, 26 April, 1976) fram the Partner States see (in brackets) Sunda~ News (Dar es Salaam) 13 June, 1976, p. 6. (Editorial) Daily Natien, 9 June, 19 b, p. 1 Daily News, 15 June, 1976, p. 1. Daily Nation, 24 June, 1976. 43 30. For the extent of World Bank Financing see African Development, October 1974, pp. 15-18. 31. Sunday Nation, May 30, p. 3. 32. 1bid., p. 3. 33. Tanzania's Socialist Policy has been criticised by Orthodox Marxists for its softness against imperialism. Nonetheless, Tanzania's option for State inter- vention in the economyand egalitarian pur sui t is a radica 1 departure from neo- colonialism pa r-excellence. For a debate on this topic see the article by 1. G. Shivji, T. Szentes, W. Rodney and J. S. Saul in L. Cliffe and J. Saul, Socialism in Tanzania, Vol. 2, pp. 304-357. 34. For a comparison of the development strategies of Tanzania and Kenya and their consequences, on regional integration see A. P. Mahiga, National Development Strate~ies and Re~ional lnte~ration in East Africa, (Ph. D. thesis, University of Toronto, 1975), Chapters B-lO. 35. The allocation of the income-tax collections to the Genera 1 Fund was based on 10 per cent of personal inctlmes and 40 per cent of profits from companies operating in East Africa. 36. For a comparison of the tax- structures of Tanza nia and Kenya which were introduced after the break-up of the Income Tax Department see Tanzania Income Tax Bill 1973, (Government Printer, Dar es Salaam 1973) and Republic of Kenya Income Tax Bill (Government Printer, 1973). Nai robi, 1973). 37.See Daily News, 6 July, 1974, p. 4. 38. Recently MwalimuNyerere said he was prepared to postpone Socialism in Tanzania for the Sake of African Unity see Weekly Review, 21 February, 1976 pp. 3-4. 44