Why trading blocs are vital for development

Long before the concept of economic globalisation, the Silk Road, Spice Route, and various other trade modes had already established and facilitated business networks and cultural exchanges.

Trade has evolved over time from a barter system to mercantilism and then liberalism from the 18th Century onwards. American Economist Paul Krugman famously quoted “the raw fact is that every successful example of economic development this past century has taken place via globalisation”.

Over the past 100 years, technological advancements have led to an increase in global trade. At the onset of the Covid pandemic in early 2020, many leading companies had to develop better supply chain systems, which combined with enhanced technological advancements assist in trade and have encouraged further economic globalisation.

This is realistic as programmes, policies, and activities seeking to improve economic well-being and quality of life for communities have been possible, thanks to the movement of ideas, people, goods, and practices across borders.

The principle of globalisation focuses on integration of markets, trade, and investments with few barriers to slow the flow of products and services between nations. This is not a new phenomenon. Historically, the earliest documented trading bloc was the Hanseatic League, established in the late 12th Century and implemented between northern European merchant associations.

Among the most interesting developments since the Second World War is the increase in regional trade regimes and trade blocs. These are intended to create less restrictive trade between members, while also increasing or standardising trade restrictions with non-members.

Cross-border flow and integration in the movement of goods, technology, labour, and capital, result from collaborations and breakthroughs in transportation and communication technology.

What prompts trade blocs to form? Countries aim to improve health of their economies by bettering trade relations, providing opportunities for collaborative manufacturing or trade, increasing healthy competition, and enhancing learnings of best practices.

In nations across Africa, donor and global financial bodies such as the International Monetary Fund and/or the World Bank have also been putting States under pressure to carry out structural adjustments and economic reforms in order to secure loans.

While many countries adapt to the structural adjustments and in some cases even practice devaluation of currencies, perhaps trading in blocs could encourage demand for commodities, enabling local industries and economies to perhaps slowly reduce dependence on high levels of foreign debt.

Less developed countries have become a supermarket of foreign products which are most likely cheaper, thereby affecting local industries and jobs. While countries are emerging from the scourge of the Covid pandemic, unemployment is the first issue economies must tackle.

They must cluster to exchange best practices to build economies, create jobs, and ensure that individual partner states' wealth is not purely transferred to build other economies instead each participant should thrive by building oneself first.

Kenya in this case should focus on farming and enhancing food security by ensuring food availability, access, utilisation, and stability, all while focusing on developing infrastructure, provide access to affordable housing, increased share of manufacturing, and universal health coverage.

Where trade is concerned, we witness news highlights from the annual meetings of prominent blocs known globally including the G20, G7, European Union (EU), North America Free Trade Agreement (NAFTA), Common Market for Eastern and Southern Africa (COMESA), South Asian Association for Regional Cooperation (SAARC), Association of Southeast Asian Nations (ASEAN), Asia Pacific Economic Cooperation (APEC), BRICS (Brazil, Russia, India, China, and South Africa), RCEP and many others.

Similar to this is our very own regional framework, the East African Community (EAC), a regional intergovernmental organisation founded in 1967. The work of the EAC is guided by its treaty in the year 2000, which established the community.

On 29th March 2022, The Democratic Republic of the Congo (DRC) officially merged into the East African Community (EAC) after the signing of the Treaty of the Accession of the DRC into the EAC in Nairobi, Kenya. President Uhuru Kenyatta, chairperson of the summit of EAC Heads of State, signed the Treaty of Accession with the President of DRC, Felix-Antoine Tshisekedi Tshilombo, in the presence of Ugandan President Yoweri Museveni and Rwandan President Paul Kagame. As per the treaty DRC now has up to 29th September 2022 to undertake in-house and constitutional procedures to ratify the treaty and deposit the instruments of ratification with the secretary-general. 

The EAC is looking at further enhancing the free movement of people, goods, and services across the community as well as boosting trade and strengthen person-to-person ties enabling East Africans to harness the comparative strength of each member state for problem-solving and supporting each other.

East African Community council of ministers last year formed the East African Monetary Institute which is the precursor to the East Africa Central bank. The goal of forming this monitor institute sets the East African Community on a journey toward a single currency.

Although this common currency was targeted to be adopted by the year 2024, plans changed after the EAC Council of Ministers, resolved that this deadline is not realistic by the stipulated time period, sending member countries back to the sketch board.

There have been discussions that Kampala, Uganda will be the home of the host country for the East African Central Bank. Tanzania, Kenya, and Uganda are determined to merge the respective shillings with Rwandan and Burundian Franc to form the single legal tender for the bloc by the year 2024.

South Sudan will also dissolve its currency into the envisaged East African Currency. At the entry of the Democratic Republic of Congo, it is expected that the Congolese Franc will also be merged into the new East African currency.

Trade is being facilitated between member states in the East African Community trade bloc in foreign currency, particularly the US Dollar. With regards to local currency, the Kenyan shilling is the most preferred exchange unit among member states.

With introduction of a single currency across all the seven members of the East African trade bloc, it is presumed that business will be easier and straightforward while removing confusion and barriers to trade and improving cross-border trade among the more than 250 million citizens of the East African community. 

While some blocs have not been fruitful for all participants, other trading blocs have been quite strong and the partner countries have been resoundingly supportive, at times even against the threat of sanctions.

This can be witnessed among the BRICS countries whereby Brazil, India, and China are trading with Russia in Reals, Rupees, and Yuans despite the threat of sanctions from the US and European countries upon Russia due to the Ukrainian attack.

Trade blocs are the road to development and prosperity of the region but they need to be structured and implemented in the true retrospect.

Ritesh Barot is a business and financial analyst, humanitarian, conservationist, occasional artist, recipient of OGW honour. [email protected]