The Role of the East African Community in the Reconstruction of Rwanda

1. The Role of the East African Community in the Reconstruction of Rwanda Mushimiyimana Emmanuel, BA Political Science, Msc in Governance and Development

2. Research questions • How is Rwanda reconstructing itself through the EAC? • What are the political and Economic gains achieved during the five years of integration. • What does Rwanda still hope to gain from the integrations? • What are the remaining challenges that Rwanda is still facing in the community? • How to overcome those challenges?

3. Literature • Region Integration=Free Trade, Collective Self-Reliance, security (Fry and O’Hagan, 2007) • Open, competitive market= increase in availability of goods and service in the market= welfare to people (David Ricardo) • Global security is a sum of regional securities (peacekeeping, peacemaking and preventive diplomacy (Boutros-Ghali) • Democracies never go to war against each other (Immanuel Kant) • Protectionism bring conflict and war

4. Methodology • Qualitative: interview to businessmen of Huye Market (focal areas of this research), Observation and identification of commodities in Rwanda domestic markets and shops • Quantitative: I analysed quantitative data from BNR, World Bank, MINICOM and MINEAC related to trade balance of Rwanda and the EAC • Epistemology is constructivism: I tried to comply with the knowledge of responded and avoid my own interpretation

6. Table 1. The EAC Human Development situation (year of estimate 2011) Source: UNDP (July 2012)

7. 2. 1 THE POLITICAL IMPACT OF EAC TO RWANDA RECONSTRUCTION • Security: Rwanda is strategically located for EAC to guarantee that the threat to security of Rwanda is a concern of the whole EAC. This reflect a natural collective defence incentives of the EAC (see table below) though its modus operandi and legal as well as institutional establishment is still low and not so reliable.

8. Table 2. Comparison of trading and strategic distances in the region

9. 2.Political Impact • Bargaining power: capacity to negotiate increased due two facts: (1) EAC can negotiate better with EU and USA as well as other big power and trading partners than Rwanda alone. Case of EPA and TIFA (see citations below). (2) EAC has a shelter of more than 76% of total Rwandan Diaspora worldwide

10. 2.2 Bargaining power • “(T)he EAC signed a regional “interim” agreement with the EU at the end of 2007. The “interim” EPA gives the EAC members duty-free and quota-free access to the EU market in exchange for an asymmetric and gradual opening of their own economies to EU imports. The EAC continues to negotiate a comprehensive EPA with the EU. The EAC also signed a Trade and Investment Framework (TIFA) with the United States in July 2008 to strengthen economic relations between the two parties”: World Bank (2010)

11. More than 70 percent of Rwandan Diasporas live in EAC

12. 2. Political Impact • Lock-in to reform: Gaining political stability comparing to other East African countries experience, having a-cross-cutting-cleavages and economic and business oriented citizens rather than ethnic oriented ones. • Rwanda have been able to reform her education system, introduced Kiswahili and English into her teaching in Primary schools. Indeed, Rwanda as well as other EAC member tried to counterbalance and learn from the escalation of the ethnic violence that followed the 2008 elections in Kenya.

13. Lock in to reform • In terms of economy Rwanda have been having the innovative behaviour, since 2007, due to direct and open competition, services and goods in Rwanda are improving to the model of Ugandan and Kenyan Products. • The introduction of banks such as KCB and other services such as the Ugandan and Kenyan Universities to Rwandan compelled the crucial reform in education sector. KCB induced a clear competition and innovation in business sector as well

14. 3. Economic impact of EAC to Rwanda reconstruction • Project cooperation: EAC has some project such as Power Master Plan, railways and other important projects such as electricity power plant, ICT infrastructure, methane gas, oil exploitation, and fishing. • The optical fiber for ICT is currently set • Unfortunately, this mutual exploitation of resources and joint infrastructural built-up is still limited that they do not have yet the real impact to Rwandan economy and the rest of EAC. Transport still hinges upon roads and induce the increase on cost of business and production in EAC

15. Competition and Scale: Though Rwandan economy is still less than Kenyan, Ugandan and Tanzanian, her local market is improving due to the effect of competition. The interview with businessmen in Huye local market said that since 2007 Rwanda has got a relative increase in terms of production and innovative marketing and selling. Indeed, they ascertain that new Rwandan products have been put on market resulting from food processing like maize flour, rice and house construction materials such as steel reinforcement bar. • However a trade diversion is occurring as a challenge to Rwandan trade with EAC and Rwanda still have a challenge of raising up domestic production and export as expressed in graph below.

16. Table3. Availability of goods from EAC in Rwandan market (year of reference 2007, same interpretation applies in 2012 since the current observation on the market is quite similar)

17. Imports of Rwanda from EAC have been increasing sharply while export increase slightly (at a very low pace)

18. Economies of scale increased welfare state of Rwandans: more commodities are available at least from EAC: food such as maize flour, rice, juice and cooking oil, and other goods such as house construction materials and manufactured commodities of daily consumption and an open market. • However, EAC CET since 2009 and an open market caused a fall of tariff revenue of Rwanda of 25% since 2009 (world Bank, 2010)

19. Conclusion • Politically, Rwanda has got an important impact in EAC in terms of security, stability, and reform in both education and business sector. • Economically, EAC increased the level of innovation and competition in Rwanda: Rwandans are trying to diversify and to improve the quality and quantity of their products However, the production level is still low to compete both domestically and regionally and this lead to trade diversion • FDI in Rwandan increased more than in Burundi and other EAC countries but this is not due to EAC integration per se but the domestic policy reforms in ‘Ease Doing Business’

20. Interviewees’ suggestion • reform in trade; retailers told me that they compete with some industries that sell by retailing too. They informed me that this do not happen in Uganda or Kenya as the industry network with retailers to access the market instead of competing with them, they also informed me that the industries are still few in Rwanda to satisfy even the local market though there is a clear innovation since 2007. • They mentioned also that the tax is high domestically and this does not ease the business at local level. They mentioned as well the issue that in Rwandan market there is not a big market where people from different country may come and meet to by commodities while in Uganda for instance different businessmen from Congo, Burundi and Rwanda meet in her market. There is a need to empower regional trading system, of course with country specializations, and this will possibly happen when COMESSA trading hub which is in process in Rwanda will be ready for use.

21. Key recommendation • Increasing internal tax would be an alternative to compensate the decrease of custom tariff revenue due to EAC CET. However, this would affect businessmen too much who feel the burden of paying tax, and the people who do not fully enjoy the cut of price of commodities in the RI due to internal taxes and • Cost of transport of goods from EAC which is high. • The use of asymmetric principle and set of rules of origin are not currently sufficient to counterbalance the trade diversion between Rwanda and EAC. The government of Rwanda must help private sectors to improve production and introduce public-private enterprise and industry where private sector failed

22. recommendation • Rwanda= 1) lack of sufficient internal production. 2) market dominated by Ugandan and Kenyan products. This limit market competition. • Therefore Rwanda does not need to focus on domestic tax revenue but to create an easy business environment and set up small and large scale industry domestically to increase the production of goods to export in EAC

23. Specialization/Comparative advantage in the region • Uganda = Agriculture Industry and food processing, services (education, technique) • Kenya= Manufacturing Industry, Banking services • Tanzania and Burundi = ? • Rwanda = Mining? Tourism? ICT? Possibly mining, how, (Research is open)

24. Recommendation • Regional infrastructure is a need to impact more on economy and welfare of EAC citizens. • International financial agencies and donors may help to implement such projects like oil pipe line and rail ways to cut the price of transport and decrease the price of goods and services. • The integration of Rwanda and Burundi into EAC= Change in tribal and ethnic conflicts to elite cooperation and capital based relationship, some challenges remains though and the two countries integration in EAC need to be supported.

25. Thank you for your attention! • Questions, inputs and comments are welcome. • Emmanuel Mushimiyimana