Industrial and trade imbalances in East African Common Market: Dynamics and corrective mechanisms, 1962-1977

Kanimba, James Gad (1987) Industrial and trade imbalances in East African Common Market: Dynamics and corrective mechanisms, 1962-1977. PhD thesis, University of Glasgow.

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Abstract

This is a study of two causally related issues, industrial and trade imbalances in the former East African Common Market (EACH) from mainly 1962 to the break up of that Common Market in 1977 Industrial imbalances among the three member countries of the EACM, Kenya, Tanzania and Uganda, was the principal cause of the trade imbalances And the two forms of imbalances were a source of political sensitivity in Uganda and especially in Tanzania This sensitivity, which reflected a belief that the operation of the EACM had been inequitable, was a threat to the existence of that economic integration scheme in the early 1960s This study analyses the nature, the causes and the dynamics of the industrial and trade imbalances for the sixteen year period mentioned above Both quantitative and qualitative evaluations are made in order to establish the effectiveness of the mechanisms which were devised to correct the two forms of imbalances The study focuses on one of the corrective mechanisms, the East African Development Bank (EADB), which still operates today It was expected to reduce industrial disparities between Kenya and the other two countries Four perspectives concerning the operation of the EADB are adopted for the purposes of evaluating the effectiveness of this instrument The first is fund allocation The EADB was supposed to allocate the funds at its disposal according to a prescribed formula The second perspective is about countries' capacity to absorb the funds allocated to them The third concerns the relative importance of the EADB as a source of finance for projects, in comparison with the other sources of finance which the study calls the Non-Bank sources Finally, the EADB's effectiveness as a mechanism for correcting industrial disparities is evaluated from the standpoint of the performance of the projects in Kenya, Tanzania and Uganda The EADB was also expected to make its three member countries increasingly complementary in industrial field The measure of success it achieved in this direction is assessed It is found that the EADB was not an effective instrument for reducing industrial imbalances between Kenya and the other two countries There are several explanations for this First, the EADB did not have adequate funds Second, finance absorption in Kenya was higher than in either Tanzania or Uganda and the EADB had hardly any power over that factor Third, the EADB's contribution of finance to the cost of projects was small The Non-Bank sources were a more important source of finance Fourth, Kenya's capacity to generate investment greatly exceeded that of either Tanzania or Uganda Therefore, given that the Bank was a minor source of finance for the projects it cofinanced, its "balancing effect" was greatly offset by the "disparity effect" arising from Kenya's greater capacity to generate investment Finally, Kenya had more successful projects than either of the two countries And the amount of investment in those projects (effective investment) was far in excess of the amount of effective investment in either of the two countries An examination of the determinants of the success and failure of projects revealed that the EADB had scarcely any control of those determinants The study concludes that the reduction of industrial imbalances objective was unrealistic This conclusion is partly arrived at by evaluating the performance of the EADB It is also reached by taking into consideration the findings that during the active lifetime of the East African Community (EAC), 1968-1977, there had been a general trend towards industrial disparity between Kenya and her two Partner States Trade imbalances moved in the same direction For Kenya and Uganda, that trend goes back to 1962 The EADB was also ineffective as an instrument for making its member countries increasingly complementary in industrial field This was chiefly because there was no agreement between these countries on the harmonization of industrial development in the EAC The principal lessons of this study are the following To begin with, it is unrealistic to try to bring about balanced economic development among members countries of an economic integration scheme if conditions for economic growth in those members differ Secondly, as long as those members accept a high degree of intercountry trade, imbalances in trade between those countries will exist This should not, however, unduly raise political sensitivity of the member countries in trade deficit unless their share of trade in their economic block is falling and if they can not in the present or future induce investors operating in national boundaries to exploit the presence of a multinational market In connection with the EADB, it is argued that it could contribute more to the economic welfare of its member countries in two main ways The first is that it should be able to mobilize more concessionary funds than it did in the past The point is that the EADB should utilize increasingly soft loans such as those it obtained from the Scandinavian countries The second way, is for the EADB to strive harder than it has done in the past to raise the number of successful projects in its member countries Ways in which this goal may be achieved are found in the concluding chapter 8, of the thesis.

Item Type: Thesis (PhD)
Qualification Level: Doctoral
Keywords: Economic history, African history, Political science, Sub Saharan Africa studies
Date of Award: 1987
Depositing User: Enlighten Team
Unique ID: glathesis:1987-76686
Copyright: Copyright of this thesis is held by the author.
Date Deposited: 19 Nov 2019 13:54
Last Modified: 19 Nov 2019 13:54
URI: http://theses.gla.ac.uk/id/eprint/76686

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