The Economist reports on the soon-to-be “East Africa’s common market”, which has some promising characteristics and then some that Austrians will probably disagree with. I am no expert on African politics (let alone “East African”), and so I am in little position to comment on any political barriers which public-private institutions will face, or barriers that the politicians themselves will face as they push for this economic union. Nevertheless, I’d like to mention a couple of points.
The article opens with:
FREE-TRADE fingers crossed, some time this summer goods should start being sold without tariffs across borders within the five countries of the East African Community (EAC). The new common market will take in 130m-plus people in Burundi, Kenya, Rwanda, Tanzania and Uganda.
Then later comes back to this and says:
Faustin Mbundu, a Rwandan who chairs the East African Business Council, says the real benefits of the common market will accrue only with more and better roads, railways and power stations. Some say a new capital for the EAC must be built from scratch, perhaps on a shore of Lake Victoria, with a new international airport to match Nairobi’s.
Although that last sentence quoted is not entirely relevant to what this particular point, I thought it pertinent because it suggests that the infrastructure Faustin Mbundu says is necessary for a common market to really take-off should be built by the State. To me, it seems difficult to understand why the economist writing the article would not mention that it would be a far better choice to allow foreign capital to be invested to provide these services (any corruption and mercantilism is the fault of the government allowing these to exist, not a natural byproduct of free-trade).
Secondly, and most importantly:
The next step is monetary union, with political federation a far remoter prospect.
Given the failure of the euro and of the European Central Bank (well, soon enough, at least), which had better legs to stand on when it was built, how quickly do you think that this new African monetary union will fail? Do you think that this new monetary union will use any printing powers to lower the rate of interest? The worst part is if that does happen then any business cycle will be blamed on the free trade, and not on the central bank.