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Effective regional integration demands ending protectionism

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Effective regional integration demands ending protectionism

Effective regional integration demands ending protectionism
Photo credit: Business Daily

Uhuru Kenyatta, the charismatic president of Kenya, is one of the most popular African figures on social media platforms. His 375,000 followers receive updates about his government through his official Twitter account. For a leader who faces accusations from international institutions, such as the International Criminal Court (ICC), and Western governments, for his alleged involvement in the post-election crisis of 2008, the online sphere seems to have provided him a rare frontier to build a unique political base.

For Kenyatta, Twitter seems to be a place where he addresses the personal side of governing, embedded with less bureaucracy and protocol. Of course, there is enough manifestation of political correctness in his tweets. Nonetheless, he seems to have a very good grasp of balancing populism and integrity.

His tweets relating to the state visit he made to Ethiopia last week were no different. They show the intimate side of a president of a nation that aspires to build economic hegemony in Eastern Africa, using its competitive advantage in the services and manufacturing sectors. One of the tweets he made on March 12, however, signifies his ambition to enhance the economic relationship between Kenya and Ethiopia, in a different way to how it has for long been.

“For far too long, we have completely ignored growing trade and investment between Kenya and Ethiopia. That is something that I intend to turn around,” Kenyatta tweeted.

As much as the tweet is about Kenya, it is also about Ethiopia. Ever since they came into power, the Revolutionary Democrats have been shy about opening the border for enhanced trade and investment. Their economic policies have largely been oriented towards protectionism, especially of strategic sectors, such as finance, telecommunications and agriculture.

Now, Kenyans seem to favour a more open business regime in the very sectors that the EPRDFites are committed to maintaining a stronghold. They wish to expand their leverage in these sectors and establish a strong presence in the largest market of the East African region.

Surely, the sensitivity of the EPRDFites for opening up the borders for more trade and investment emanates from the structural weakness of the very economy they lead. Largely dependent on the rain-fed, subsistent and smallholder agriculture, the economy is not sufficiently matured in industrial and services production. Whatever is gained as a surplus from the agriculture sector is flowing to industry so slowly that structural transformation remains distant.

Even the intensive addition in production capacity and market linkages being created through huge public investment in infrastructure is not facilitating industrial development as expected. Hence, the nation’s economy performs well below the other economies of the region, not to mention Kenya.

This very emphasis of the ruling EPRDFites on the structural fault lines of the Ethiopian economy seems to be what caused them to refuse proposals of regional integration. One would, therefore, predict what officials of Prime Minister Hailemariam Desalgn’s Administration might have felt in listening to Kenyatta’s aggressive speech about swift regional integration.

Certainly, they would prefer a rather less hasty integration, with priority given to inter-country infrastructure development. Hailemariam’s suggestion of a special economic zone (SEZ) on either side of the border could be taken as a valid signal to the preferences of his administration when it comes to regional integration.

Of course, this stance of the EPRDFites has for long been firm. In all international and local forums, wherein the issue of regional integration has been debated, the Revolutionary Democrats have been declaring their preference to a regionalisation that prioritises infrastructure development.

In their favour, the infrastructure base of the nation has seen tremendous enhancement over the past two decades of their reign. Major economic backbones, such as telecommunications, energy, roads, housing, health and education, have seen a major leap forward under their leadership. Access to services relating to these backbones has, therefore, witnessed a considerable improvement. No doubt that their push in these sectors – evidenced by the more than 80pc share of total public investment – has a lot to contribute to the persistent growth of the economy, averaging 10.6pc, according to World Bank records, over the past decade.

It all ends there, however. The infrastructural base is not translating into competitive industrial and service value addition that enables the nation to compete with its neighbouring peers. Therein lies the deep seated insecurity of the ruling EPRDFites towards enhanced regional free trade areas, such as the East African Community (EAC) and the Common Market for Eastern & Southern Africa (COMESA).

If one is to go by the historical stance of the EPRDFites, and the evidence developed under their sponsorship, the desire of Kenyatta may take more time to be realised. Not even the ratification of the Special Status Agreement (SSA) that the two nations signed in 2012 is enough, as it settles for a consensus that falls short of full liberalisation.

Regardless of the compendium of evidence produced under the sponsorship of the Revolutionary Democrats- including the latest study on the pros and cons of joining COMESA, undertaken by professors at the Addis Abeba University (AAU)- global evidence shows that regional trade integration has a lot to offer to national economies. These entail increased investment flow, better market outreach, productivity gains, macroeconomic resilience and improved shock absorption capacity.

According to a study published by the African Union, African Development Bank (AfDB) and the United Nations Economic Commission for Africa (UNECA), one percent trade integration in Africa could result from a two percent to 2.5pc expansion in gross domestic product (GDP). Members of the COMESA free trade area (FTA), for example, have seen a two percentage point increment in their merchandise export share to GDP.

Ethiopia could be no different. After all, its protectionism has not helped it create competitive national industrial and service champions. Hence, its loss from opening trade up to regional players could not possibly be greater than its benefit.

That is why Hailemariam and his comrades ought to take the desire of Kenyatta seriously and work towards its realisation, albeit in a way that fits with the comparative advantage of the very economy they oversee. They can no more afford to refuse the discussion of regional integration and shy away from regional free trade areas.

Regionalising the local policy framework, both macroeconomically and sectorally, could be a starting point. This certainly involves indentifying the strengths and weaknesses, pros and cons of regional integration in each sector of the economy. The effort could then move towards putting in place concrete institutional and policy solutions to optimise the nation’s benefit from regional integration.

Preparing the business sphere for the tide of regionalisation is also important. It ought to be made clear to them that protectionism is an unsustainable path. Anything that is to long last must be built under competition.

As Kenyatta rightly said, it has taken far too long for the era of protectionism to end. No country, not least Ethiopia, can afford to live under the comforts of protectionism. It is now time to jump onboard regional integration with full gusto.

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