Form 6 Economics – ECONOMIC INTEGRATION AND COOPERATION

CONCEPT OF ECONOMIC INTEGRATION:

• Economic integration is the union of countries which has common objectives and agreed to cooperate in order to create collective bargaining so as to enjoy social, political and economic advantages.
  
• Economic integration is the union of countries/ group of countries which work together voluntarily to meet their common economic social and cultural needs through jointly owned and democratically controlled enterprises and individual activities.
  

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Examples of economic integration are East African community (EAC), European Union (EU), Southern African Development Cooperation (SADC) etc.

FORMS OR TYPES OF ECONOMIC INTEGRATION

Economic integration pas through different stages of development before reaching at the highest/ final stage as follows:-

1. Preferential trade area (PTA)
   
2. Free trade area/ free trade
   
3. Custom union
   
4. Common market
   
5. Economic union.
   
6. PREFERENTIAL TRADE AREA (PTA)
   

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This refer to the initials stage of economic integration where by member countries agreed to make gradual reductions of trade barriers (tariffs) among member countries as the way of reducing international cost of trading and enjoying international benefits. Example PTA OF COMESA

     2. FREE TRADE

This is the second stage of economic integration where by member countries agreed to eliminate all trade barriers against movement of goods and services from one country to other countries. In the free trade area member countries agreed to create free movement of goods and services from one country to another but each countries form own banners and tariffs against non members.

     3. CUSTOM UNION

This is the stage of economic integration which involves elimination of trade burners within a region to create free movement of goods and services (free trade) and member countries form common tariffs to non members.

     4. COMMON MARKET

This is the stage of common integration where by member countries agreed to create free movement of goods and services (free trade) and form common trade barriers against non- members and free movement of factors of production such as labour, capital, entrepreneurs within a region/ member countries under common market people are free to work, to invest and own land within a member countries. Example of common market is East African Common Market.

     5. ECONOMIC UNION

This is the highest form of economic integration where by member countries agreed to create free movement of goods and services, free movement of factors of production such as land labor, capital and entrepreneurs, formation of common tariffs against non members further more countries agreed to create common polices such as fiscal policies, monetary policy, trade policy and other economic policies within a region. While well developed economic union use same currency in transaction. Example of economic union is European Union which uses euro currency.

THE CONDITIONS NECESSARY FOR SUCCESSFULLY ECONOMIC INTEGRATION

Successfully economic integration is the one which achieve pre determined objectives within a specified period of time /at given on desired resources (cost). The following are necessary factors for successful formation of economic integration.

1. Countries should be geographically close. This will facilitate transactions and reducing cost of transaction and interaction / meeting.
   
2. Production of different commodities facilitate people to sale what they produce and buy what they fail to produce and gain from Trade.
   
3. The use of different currencies of low variations in terms of value or similar currency. This will ennglish-swahili/courage” target=”_blank”>courage trade and gain in international trade.
   
4. Political stability among member. This   will ennglish-swahili/courage” target=”_blank”>courage production activities and international transactions among member countries. 
   
5. Countries should have equal level of development. Economic integration of developing countries should formed by countries with equal level of development (developing countries) while developed countries should create integration of developed countries but not mixture of developed and developing countries. This will create equal trade and equal gain. 
   
6. Countries should have similar goals and determination. This will facilitate member countries to from common strategies and polices of achieving objectives.
   
7. Availability of improved economic infrastructure i.e. transports and communication system because improved infrastructure facilitate movement of commodities and people from one country to another.
   
8. Similar political and economic ideology i.e. countries should be in same economic system that use common polices and strategies of achieving regional objectives
   

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GENERAL ADVANTAGES/ IMPORTANCE OF AN ECONOMIC INTEGRATION

All economic integration may have the following benefits in general.

1.  To increase the volume/extent of market and volume of trade. Economic integration provides a chance for country to exchange within and outside countries boundaries this will increase gain in trade.
   
2. Increase in collective bargaining and rise in price of an exported commodities. Before economic integration each country bargain individual but after formation of economic integration countries will bargain together for their benefit against non members
   
3. Improvement in social and economic infrastructure. Economic integration has a tendency of creating common policies of improving social and economic infrastructures such as roads, railway, school, hospital, air way.
   
4. Improvement of technology within member countries. Economic integration allows free interaction and movement of people and goods from one country to another also they formulate common strategies   of technological development hence all this help to transfer and development of technology.
   
5. Increase in level of employment. Since economic integration allow free movement from one country to another, Free investment in any country and free to work anywhere within a region, this will increase employment of the factor of production such as land, labor and capital.
   
6. Maintenance of peace and security (political stability) within a region it occurs because member countries agreed and formulate common strategies and policies of maintaining peace and securities within member countries.
   
7. Increase in supply and production of goods and services within a member countries due to the investment and free movement of goods and services this will increase consumers utility and choice.
   
8. Trade creation. This is the process of purchasing commodities at low price within a region compare to the cost of purchasing from non member.
   
9. Economic integration stimulate competition among firms of member countries competition increase due to the free interaction among people and commodities that lead to the increase in efficiency and qualities of commodity exchanged.
   
10. Economic integration promote social political and economic cooperation this will increase benefit to member countries.
    

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DISADVANTAGES OF ECONOMIC INTEGRATION

Most of economic integration formed by developed countries has the following disadvantages in general.

1. Increase in import which lead to unfavorable balance of payment, this occurs to the countries which has weak economic base which increase demand for import.
   
2. Excessive competition among countries that leads to the decline in an infant domestic industries and unemployment problem to affected countries.
   
3. Loss / decline in government revenue since economic integration involve reduction and elimination of tariffs (tax) therefore it reduce government revenue collected from tax.
   
4. Increase in importation of low quality and harmful products, this cause country to be a dumping area.
   
5. Economic integration may cause occurrence of imported inflation, this inflation may occur due to the importation of commodities from the countries which are already affected by inflation.
   
6. Economic integration may cause unequal gain, this occurs due to the unequal industrial development and business of one direction.
   
7. Economic integration may cause cultural destruction. This occurs due to the interactions of people of different culture from different countries.
   
8. Trade diversion. This is the situation which occurs when people/ country purchase commodities at higher cost/ price within member countries due to geographical and organization barriers compare to the cost of purchasing commodities from non members.
   

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GENERAL PROBLEM FACING MOST OF ECONOMIC INTEGRATION FORMED BY LDC’S

Most of economic integration in developing countries likes EAC, SADC, and ECO WAS, face the following problems:

1. Shortage of fund for running economic integration and economic activities within the region such as investment, this cause failure of most of economic integration to achieve predetermined goals.
   
2. Political instability. Political conflicts which arise within the region or outside the region / neighbor countries affect social and economic activities of economic integration.
   
3. Low development of technology. This hinders industrial development and limit efficiency in investment and production activities within the region.
   
4. Low development of economic infrastructure. In most developing countries there are poor roads, railways and communication networks which limit production and movement of people, goods and services from one place to another.
   
5. Lack of political commitment and bad leadership. Most of countries which form economic integration in LDC’S   has bad governance and they are not committed for the development of integration but they are committed for individual country’s benefits this limits achievement of common objectives.
   
6. Low level of education and skills among people. Most of people in developing countries are not educated and skilled enough to conduct social and economic activities, this limit investment and other economic activities.
   
7. The storage of market and price fluctuation in the market since most countries produce agricultural products with similar type this limit availability of market because every country produce such kind of commodities and price of agricultural product fluctuate more that cause loss 
   
8. Rapid population growth, this increase pressures on resources utilization, occurrence of environmental problems, communicable diseases, labor unemployment and other social economical effects.
   

   REGIONAL ECONOMIC INTEGRATION (INTEGRATION BLOCKS)
   

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Most of state worldwide decided to establish and join in the economic grouping for the purpose of enhancing economic cooperation among the member countries, some of grouping have risen and fallen while a number of them survive.

The regional economic integration discussed in these subtopics is:

1. East African community (EAC)
   
2. Southern African development community (SADC)
   
3. The common market for eastern and central African (COMESA)
   
4. European economic community(EEC/EU)
   
5. Economic Community of East African States(ECOWAS)

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EAST AFRICAN COMMUNITY (EAC)

This is the cooperation/ union of east African countries which has common objectives and self commitment to increase/ Deeping cooperation among member of integration so as to enjoy mutual advantages socially, politically and economically.

East African community is the regional intergovernmental organization of Kenya, Tanzania, Uganda, Rwanda and Burundi.

East African community just like other economic integration aimed at increasing collective bargaining in economic, social and political issue and formation of common strategies and polices of achieving common objectives and benefits

BACK GROUND/ HISTORY OF EAST AFRICAN COMMUNITY

The east African community (EAC) is the community with long history, the genesis of east African community can be traced back to 1923 when east African governor’s conference formed, and then on 1^st January 1948 the east African high commission replaced, the east African governor’s conference. Then after Tanganyika independent on 9th December 1961. The east African service organization (EACSO) was established. These create a foundation of former and current / new east African community. 

FORMER EAST AFRICAN COMMUNITY

This was economic cooperation of east African countries namely Tanzania, Kenya and Uganda. The reality of establishing former east African community signed by president of three east African countries on 6^th June 1967 in Kampala Uganda. But communities come into existence effectively on 1^st December 1967 as a replacement of eastern African service organization and effective formation of east African common market(EACM), from that day most of function performed by EACSO and employees were taken by EAC. Also Arusha became headquarter of the EAC.

The former east African community were aimed at promoting free trade of commodities, to provide common services, creating free movement of people, increase in extent of market to deep cooperation, making common research and development.

FACTORS/ REASONS FOR DECLINE OF FORMER EAST AFRICAN COMMUNITY

The collapse of former east African community is due to the following reasons:

1. Difference   in political and economic ideologies among member countries for example Tanzania was socialist country while Kenya was capitalist country.
   
2. Political misunderstanding/ conflict between Tanzania and Uganda, this cause late MWL JK NYERERE and IDD AMIN could not meet when east African community meet.
   
3. Failure of east African development bank to meet expected objectives.
   
4. Donors influence and the problem of neo colonialism. Some of member countries serve colonial interest that goes against interest of east African community.
   
5. Lack of clear and agreed pattern of industrial specification and each country work for their own goals and plans that cause unequal gain in east African community. 
   

   THE NEW EAST AFRICAN COMMUNITY
   

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The new East African   community is the economic integration of east African countries   aimed at creating deep cooperation among East African countries economically, socially and politically. The formation of new East African community started in early 1980’s when member of former east African community meet for division of asset and liabilities of former east African community but the treaty for establishing East African community signed on 30^th November 1999 but new East African community started to work effectively on 1^st July 2000.

East African community has five member countries namely Tanzania, Kenya, Uganda, Burundi and Rwanda it his head quarter Arusha, Tanzania.

OBJECTIVES OF NEW EAST AFRICAN COMMUNITY

The currently formed East African community has the following objectives.

1. To create free movement of goods and factors of production within a member state by making gradual and reduction of the tariffs and other form of barriers (common market)
   
2. To strengthen and develop policies and programs aimed at winding and Deeping cooperation among partners in political, economic and social matters
   
3. To promote gender and enhancing the rule of woman economical, social, political and technological issue development
   
4. To promote sustainable utilization of resources and balance growth in development of partner state
   
5. To enhance and promote equitable economic development within the partner state and raise standard of living and quality of people life in member countries i.e. people centered development.
   
6. TO promote peaces security and stability within and good neighborhood among member countries
   
7. Enhancement and strengthen of partnership with the private sector and civil societies in order to achieve social economic development. 
   

   THE AREAS OF COOPERATION IN THE NEW EAST AFRICAN COMMUNITY/ COOPERATION
   

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The current formed East African east cooperation covering the integration and cooperation in the following areas.

1. Cooperation in trade and development.
   

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East African community agreed to create trade militarization where by member countries should reduce up to elimination of trade barrier to the custom union and common market in order to create free movement of goods and factors of production.

     2. Cooperation in social and economic infrastructure

They agreed to harmonies and adopt policies and laws of improving social and economic infrastructure and joint use facilities in transport and communication for joint development

     3. Monetary and fiscal cooperation (financial cooperation)

Member countries agreed to establish monetary and fiscal union means economic policies and elimination of obstacle against financial investment within member state like banking and convertibility of currencies and other strategies of achieving monetary union i.e. the use of one east African currency.

     4. Cooperation in human resources, science and technological advancement.

Under this union member countries create union and cooperation in education, training, and jointly establishment of common policies and strategies of human resources mobilization, science and technology development.

    5. Cooperation in agriculture and food security.

With the aim of adopting scheme of rationalization of agriculture production in order to promote complementary and specialization in order to increase food supply and having surplus food for security for food shortage.

    6. Cooperation in tourism and wildlife management

Member countries agreed to have common, collective and coordinated policies and approaches of promoting and marketing quality tourism, conservation and utilization of wildlife and tourist center.

1. cooperation in environment and natural resources management
   
2. cooperation in investment and industrial development other are legal and justice, role of woman political matters and private sector
   

   Note: the merits demerits and problems facing east African community are similar to those discussed in general in the previous page.

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