Dhaqane Roble Halane
The East African Community (EAC) was re-established in 1999 by Kenya, Tanzania, and Uganda with the goal of achieving prosperity, competitiveness, security, stability, and political unification in East Africa. The plan was to form a political federation that would strengthen and expand economic, political, social, and cultural integration. The EAC currently has seven member countries: Tanzania, Kenya, Uganda, Rwanda, Burundi, South Sudan, and the Democratic Republic of the Congo, with Somalia on the verge of joining. The question remains: Should Somalia join the EAC?
In 2005, the East African Community and Customs Union (EACCU) was formed by the EAC with the primary goal of promoting the free flow of goods and services, labor, and capital from one partner state to another by lowering trade barriers and facilitating markets for each member state’s products.
In this regard, joining the bloc would bring Somalia numerous benefits. For starters, it would make the country’s market more competitive, giving consumers more options, improving resource mobilization efficiency, and scaling productivity. Besides that, knowledge transfer, including technologies brought by companies investing in the country, will benefit the nation’s labor.
Furthermore, free trade will eliminate economic distortions caused primarily by neighboring governments when importing and exporting goods, services, and foreign exchange.
Free trade will also allow businesses to use the most cost-effective economic resources. Domestic corporations can import raw materials and invest directly in other countries to produce cheaper goods. Moreover, government involvement will be limited when importing foreign-made items into domestic markets.
Finally, free trade will encourage competition and the elimination of monopolies, as well as political stability and security among countries.
Why should Somalia not join the EAC now, when there appear to be so many advantages to doing so?
First, because of Somalia’s limited capacity to supply various products to other countries, the move will have a negative impact on the economy. Free trade benefits only developed countries, but in developing countries like Somalia, it results in a balance of payments (BOP) deficit unless proper consideration is given to the types of goods and services that can be imported or exported based on the comparative advantages of the agreement’s member countries.
Second, Somalia does not yet have a stable economy, which means the government would be unable to provide subsidies to help small businesses remain competitive if large corporations invested in the country. Small businesses would be forced to close or go bankrupt as a result of this.
Third, the importation of many goods and services may cause the country’s revenue to plummet. It is critical for developing countries like Somalia to limit imports in order to maximize revenue and encourage local production.
The lack of effective export promotion measures is the fourth reason Somalia should not join the EAC.
Subsequently, because we lack a hard currency, participating in the exchange rate mechanism would be difficult and inefficient. Even if we printed money, it would be ineffective due to the local currency’s depreciation in comparison to neighboring currencies.
Therefore, while membership in the EAC would ideally bring numerous benefits to the country, we are still far from being developed enough to reap those benefits. Joining the bloc now would only exacerbate Somalia’s already fragile economy.
Author is an Economist and can be reached via: Dhaqaneeco@gmail.com or @DhRoble.
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