Regional intergration: The quest for free and fair trade

Recent events in the global economy have placed doubts on some widely held beliefs that form the foundation of our economic system.

Recent events in the global economy have placed doubts on some widely held beliefs that form the foundation of our economic system.

Ever since the 19th century and the fall of mercantilism – the system that predated free trade, where there was a delicate balance of oligarchs that shared economic power, we have seen a gradual shift towards free trade and globalisation.

However, because the East Africa region cannot connect as quickly with the global economy as we can with each other, we have created a free-trade zone with the aim of creating a supra-economy.

The first step towards integration is treaties of preferential trade, but this is to discriminate against other nations.

For example, a Zambian tech company would not receive the same benefits as a Kenyan one when investing in Rwanda, or any other east African economy under current rules. In that respect, it is a form of trade diversion and not strictly free trade.

The world of free market economics is lumbered with certain dogmas that date back to Adam Smith and “The wealth of nations” and some of these dogmas include; smaller government, less regulation, privatisation, lower taxes, no subsidies, lowering barriers and removing punitive tariffs.

However, even in the EU there have been major contradictions that have never been ironed out.

For example, governments are not supposed to own companies but the German Federal administration sold off its assets to state and municipal authorities, so Volkwagen is Marjory owned by the State of Westphalia.

In setting up the EAC, we have decided to follow fundamentalist free market economics in the purest terms.

We are in negotiations to lower all barriers to entry into our economies, but in reality it is Rwanda companies that will pay the initial price of integration, they simply can not compete with the more efficient and competitive regional players.

We are faced with two pressing issues; how to divest state-owned assets fairly, and how to provide a competitive advantage for our companies regionally.

Total privatisation in Rwanda is impractical at the moment; there is not enough private capital for investment in infrastructure and market development, we cannot sell all our valuable assets to foreign control, so we have partial privatisation.

We also have the option of making parastatals non-for-profit organisations that reinvest all their profits into capacity building.

There is also the option of municipalisation—where they are turned over to local authorities; local authorities in our region lack solid assets that can secure debt and generate capital.

In turning over a state asset to a local authority, we will place revenue where it is needed at the grassroots; if we turned Bank of Kigali over to the City authority then we can square the circle by targeting funding while divesting costly assets.  

The issue of competitiveness is harder to address; it firstly requires our companies to develop a regional perspective, for too long they have had a cosy existence.

I will illustrate with a personal story, I worked for a marketing firm in Kigali and I once went to a leading company to offer services in rebranding them.

They were dumbfounded by my audacity; their logo is the globe with a map of Rwanda covering the whole thing—to them, Rwanda is the whole world.

How is a company like that going to survive in a global environment, when they have such a narrow perspective?

It is a question of perspective, a choice between optimism and pessimism; we should always look to what we can gain as opposed to what we will lose.

Most companies with names ending in “RWA , or starting in “SO” are doomed to failure very soon; a lack of ambition is what destroys a company in free trade.

These companies will have to merge and rebrand to compete regionally, individually they do not have the economies of scale to compete regionally, but collectively they might stand a chance.

Ends

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