KAMPALA, UGANDA – Most of us dread sitting for examination papers. The East African Community (EAC) at Summit level of Heads of State should be no exception.

There is a big problem in the neighbourhood. This year the EAC will have to sit the paper on ‘relevance of good governance in the integration process’, because the Burundi situation is getting out of hand. Failure will be a huge setback in the aspirations for a Common Market. Success however, will make the EAC that much stronger and more competitive as a investment destination. Burundi is tittering at the edge of an abyss. Foreign investor confidence is being tested. Uncertainity does not attract money. It simply scares it away, but the Burundi opposing parties remain stuck in their uncompromising positions. This has put the rest of the EAC in a muddle. Worse still, all efforts at peace-making have been soundly rebuffed, including the manhandling of EAC Secretary General, Amb. Richard Sezibera last October.

The African Union has fared no better. The Burundi government was scalding in December when the AU mooted a force of 5000. There is nothing as frustrating as being caught up in a situation that is not of your own making. Both Rwanda and Tanzania have had to take in refugess, which  puts an added strain on their national budgets. A quick response came from Germany, who offered $18 million in appreciation of Tanzania’s efforts to handle the influx. Other help is hard to come by. The United Nations High Commissioner for Refugees (UNHCR), is cashstrapped.  Not long ago it complained that they only got 40% of what they wanted in 2015. That aside, Burundi is scheduled to assume the Chair of the EAC Summit. Under present circumstances this is unlikely to happen and probably it is the last thing on everybody’s mind as the United States sends Special Envoy Thomas Perriello to try and sort things out.

The pity of it all, is that a couple of years ago, Burundi was on the mend. An overhauled tax administration was beginning to collect higher revenues. In 2012, tax revenues were 75% higher than in 2009 – a 25% increase in real terms. The contribution of tax to GDP had risen from 13.8% in 2009 to 16.7% in three years. Since 2010, Burundi had been recording average annual growth of 4%. According to the African Development Bank (AfDB) GDP growth was expected to rise to 5% in 2016, thanks to the implementation of infrastructure projects in the energy, like the Ruzizi III dam, which recently receive $138 million from the AfDB. Latest estimates show the economy is contracting at 2%. A classic case of the one-step forward-three steps backward syndrome that frequently marks African development.

Displaced people have little or no purchasing power. They are denied the opportunity of being productive which is fundamental in any economy.  On the other hand, there is no incentive to work when you are fearful for your life. Yet the country has 6% of the world’s nickel. A cluster of associated industries can develop from this natural resource and transform the country.  The metal is is widely used for the alloys it forms and about 60% of world production is used in for making stainless steel. In other words, Burundi is sitting on a potential cash pile. In 2014, a deal was struck between the government and UK-based Kermas Group to get the Musongati mine working. Things are now uncertain.

President Obama late last year scratched off Burundi off the list of countries elligible to export goods duty/quota free to the US under the African Growth and Opportunity Act (AGOA). Foreign donors have abandoned ship. At least for the time being. The rest of East Africa cannot do that. Small as it is, Burundi is an integral part of the EAC. When we market ourselves to international investors it is with the understanding that there is a market made up of 130 million people, includin Burundians. In 2014, the UNCTAD World Investment Report showed that East Africa attracted just over $7 billion compared to $6 billion the previous year.  Notably in 2013, Burundi pulled in $30 million. Ironically the Burundi government last week conceded that the present instability had cost the country $33 million.

Ensuring stability in the EAC is crucial. More so now, when China is shopping around for factory sites. Companies have been directed to increase wages by at least 13% every year. Steadily increasing wages at home is pricing China out of the cheap manufacturing bracket that was the cornerstone of their frenetic export-led model. Now, Chinese President Xi Jinping wants the country to move up the Global Value Chain and the leave the making of trickets to others. China is attempting to restructure its economy, reorienting the manufacturing sector toward the production of more technology-intensive goods and expanding the service sector. He said China needs to rebalance away from investment and trade and toward domestic consumption and service industries. Investors people are now looking for cheaper production locations elsewhere.

The EAC can take advantage of this trend, but it cannot afford its drag its feet when other regions are offering themselves will great enthusiasm. Many investors are shifting production from China to such places as Vietnam and Cambodia, countries that have people with nimble fingers and a strong work ethic. However, when it comes to garment exports, the EAC offers the benefits of AGOA which Vietnam or Cambodia cannot do. Luckily the US Congress agreed to extend the AGOA preference package until September 30, 2025. This  isample time for quick-footed African countries to position themselves in a niche market of their choosing. Ethiopia is already far ahead of the EAC in marketing itself as an AGOA-compliant country with plenty of cheap electricity (although in recent months a dry spell is causing some worry). In recent years, the EAC member countries have been involved in upgrading infrastructure or have plans to implement other projects intended to please investors.

 Burundi has been part and parcel of these plans, including the One Stop Border Posts that best symbolise the EAC Common Market ambitions. What a shame to see it all go to waste. The fate of Burundi and to a certain extent, the rest of the EAC,  lies in the hands of a just few men and women. The world is watching and negative perceptions are very hard to change. While giving his last State of the Nation last week, President Obama said something notable. He said:  “A better politics does not mean agreeing on everything. But democracy does require basic bonds of trust between its citizens. “It doesn’t work if we think the people who disagree with us are all motivated by malice, or that our political opponents are unpatriotic. Democracy grinds to a halt without a willingness to compromise, or when even basic facts are contested, and we listen only to those who agree with us.”

Source: The East African Business Week

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.