By:Mohamed Raage
I. Introduction
At an ordinary summit held in Arusha, Tanzania, on November 25, 2023, the heads of the East African Community states marked the acceptance of Somalia’s bid to join the EAC. Somalia’s interest in joining this intergovernmental organization dates back to 2012 when President Shariif was the incumbent president. However, since that time, successive Somali governments have been occupied with fulfilling the legal requirements of the EAC and attempting to harmonize Somalia’s draft constitution with acts related to investment, trade, customs, and taxation within the framework of the EAC agreement.
The East African Community is an intergovernmental regional organization that currently consists of eight member states, including Somalia, which recently approved its membership. The organization was established in 1999 when three partner states (Kenya, Uganda, and Tanzania) signed the treaty on November 30, 1999, and the treaty came into effect on July 7, 2000. However, this organization has the objective of improving cooperation among its member states on numerous significant affairs. It aims to enhance cooperation in political, economic, and social fields while establishing an East African common market to facilitate economic integration. Monetary union and customs union have also been achieved during its existence, and the process of establishing full-fledged federations of East African states is ongoing. Currently, the organization comprises the Republic of Kenya, Tanzania, Burundi, the Democratic Republic of Congo, Rwanda, Uganda, South Sudan, and the Federal Republic of Somalia.
The accession of this East African bloc will bring both benefits and challenges to the Somali community. Firstly, it will offer significant advantages to the Somali people, as the region will establish a common market allowing the unrestricted movement of goods, services, capital, and labor. This will particularly benefit Somali entrepreneurs already engaged in business within this East African bloc, alleviating investment restrictions, tax pressures, residence barriers, and deportations that Somali citizens previously faced. On the other hand, it may impact Somalia’s fragile aid-dependent economic system, which, in turn, will have a significant effect on monetary circulation, trade balance, and local production. It appears that the Somali people and even the Somali government are primarily focusing on Somalia’s joining the EAC from an economic perspective and easy access to travel. Therefore, this analysis will exclusively examine the economic standpoint.
II. Economic Opportunities and Migration
The fact that Somalia has joined the EAC presents significant economic opportunities that the Somali people could benefit from. This will create the opportunity for Somalis to engage in trade in a market with over 370 million people. However, the reality is that those conducting business within the EAC gain access to sell their commodities in this highly competitive market. Yet, what Somalis back home could sell isn’t sufficient for their economic short-run, as Somalia’s local production doesn’t even meet the domestic needs in the country, except in some specific sectors including the blue economy, livestock, and some limited cash crops. Unconditional investment, trade facilitation, and migration may contribute to the growth of Somalia’s economy and reduce the prevalent unemployment in the country. Although unemployment, economic growth, and improved living standards are the ambitions that all partner states are pursuing, this could be advantageous for all states. However, the level of the return receiving each state depends on several factors controlled by state influence or, perhaps, how state partners mobilize internal resources. For example, a Kenyan citizen educated in Kenya and a Somali citizen educated in Somalia may not compete effectively in an integrated labor market. Here, good governance, resource mobilization, effective financial institutions, and good human capital are important factors. The combination of these factors may enhance and determine the level of return each country gains through competition.
The flow of locally produced commodities within these partner states offsets a significant amount of importation that some states previously engaged in. However, it may also create long-term economies of scale as the output of firms increases, while the average production costs decrease. This occurs as both exogenous and endogenous factors change, driven by the expansion of market actors incentivized by unrestricted investment and market entry. Production diversification, optimization of resource utilization, full-fledged technological integration for production, and innovation are outcomes of the purely economically driven market that this common market appreciates. Above all, this aims to eliminate previously existing oligopoly and monopoly practices, leading to a reduction in commodity prices as numerous firms producing homogeneous products enter the market.
Aside from the economic benefits of Somalia’s accession to the EAC, it facilitates the migration of citizens in each member state since a common passport will be issued by each state. A shared passport fosters a sense of regional unity and integration among the citizens of East African countries, symbolizing a shared identity and purpose, and strengthening ties among member states. The unified passport allows citizens from East African Community countries to travel seamlessly across member states without the need for individual visas or entry permits. This promotes enhanced mobility and freedom of movement, making it easier for individuals to explore new opportunities, visit family and friends, or engage in cross-border business activities.
III. Impact on Somalia’s trade balance and economic stability
Somalia has had an unregulated, fragile economy vulnerable to global economic shocks, controlled by a few remittance and telecom corporations. Its economy is primarily aid-dependent; the country has no significant amount of local production, and the markets exhibit an unhealthy oligopoly nature. Somalia’s aggregated trade balance has been consistently negative since its establishment in the 1960s. This integration is feared to exacerbate the previously existing trade deficit and increase the outflow of monetary resources. Somalia’s dollarized economy is unstable due to its reliance on budget subsidies from international financial institutions. Nevertheless, economic advantages cannot be reached without effective government institutions supporting the smooth functioning of the economy through incentives, subsidies, tax concessions, and loan facilities. Additionally, the lack of economic infrastructure is another impediment that makes Somalia the least beneficiary of this integration. The political instability and security concerns in the country discourage any investment that could contribute to the economic well-being of Somalia. However, even Somali businesspeople may divert their attention to invest in other EAC partner states at the expense of their own country, potentially resulting in significant economic repercussions for Somalia.
IV. Conclusion
Somalia’s entry into the East African Community (EAC) presents economic opportunities, including a vast market and potential growth, yet poses challenges due to a fragile economy and security concerns. Economic benefits, such as trade opportunities and reduced unemployment, depend on factors like governance and resource mobilization. The common market is expected to stimulate local production and enhance regional unity through a unified passport system. However, concerns arise about trade balance, economic stability, and the potential redirection of investments. To fully realize benefits, effective governance, incentives, and infrastructure development are crucial. In summary, while Somalia’s EAC accession offers economic promise, strategic planning is essential to navigate challenges and optimize positive impacts on the national economy.
ABOUT THE AUTHOR
Mohamed Raage is an independent researcher based in Hargeisa, Somaliland. He holds an MA in Public Administration from the School of Social Science at IGNOU, New Delhi, India. He has authored numerous research papers and is currently working on a research project on peace.
Email: Moraage30@gmail.com
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