MODELLING EAST AFRICAN COMMUNITY ON A NETWORK EXCHANGE GRAPH
http://www.africa-business.com/features/eac.html
As the global economy continues to experience ups and downs, countries are toiling to come up with ways of addressing their individual concerns. One main way is through formation of integrated economic blocs/networks via which common currency, free trade and lower tariffs are applied. After all, the economic problems are globalized/networked. By doing this, Countries are seeking to confer value to each other following the consequent interactions. The outcomes of such country to country interactions more often are resulting in networks through which the respective power of each country hence node can be assessed.
Even deeper analysis reveals more interesting ideas from such interactions. Taking the newly formed East African Community for example, we see Kenya, Uganda, Rwanda, Burundi and Tanzania join hands to influence trading activities in the region. This new trade bloc aims to work towards economic policies that are pro-market, pro-private sector and pro-liberalization. By pooling in their resources and promoting free trade within the region, the East African Community aims to emerge as a leading trade entity in East Africa. Considering that this notion is highly influenced by the successful economic blocs in other parts of the world this certainly goes hand in hand with information cascade. Since all countries are virtually connected by a major concern; i.e. the global economy we observe sequential decision making where each country’s decision is highly influenced by others. Forming a new economic bloc may not be the best solution out as seen in the instability of Euro but the fact that some blocs like NAFTA (North America Free Trade Agreement) have been quite successful is really influential for developing economies.
Back to the East African Community, a major issue when setting up the bloc has been how each individual country will benefit from the bloc. Policy makers have had to accept that some countries will benefit more from the bloc than others. Moreover, they have also observed that some countries being not better off outside the bloc have no choice but be part of it. The fundamental reason is that as they interact and negotiate some countries will be better positioned in the network than others. Consequently such countries will be more powerful.
Uganda, Rwanda and Burundi are all landlocked countries. Their closest outlet to the sea is either via Kenya or Tanzania. As Uganda is Kenya’s immediate neighbor in the west, it uses Kenya’s port for most of its importation and exportation. Burundi will benefit to do its trade via Uganda then via Kenya. Rwanda will rely heavily on human resources from Kenya since it has a young semi-skilled population. Kenya approximately exports 3/5ths of its goods to Uganda and Tanzania. This bloc will therefore be working on a five-node path. In the implementation of such a graph, the one exchange rule is not applicable since countries will interact both ways.
Since one exchange rule is not enforced. Kenya stands to benefit most from the bloc as it will have a high between-ness thus conferring more value. Rwanda, Uganda and Burundi will have no other better option and so will stick in the network despite their weaker positions. Tanzania will definitely be impressed by its relative strength although its analysts will be concerned that despite its bigger size in terms of population, and resources it still lags behind Kenya.
Is forming networks helpful to the underdeveloped countries? It certainly seems like networks based on such exchanges empower the countries that are already endowed leaving the question whether such blocs are the best way to improve the underdeveloped countries. It’s even more legitimate in other blocs like Euro where countries like Greece clearly mismatch Germany. Maybe such network exchanges should be restricted to confer more value to the weaker countries since the stronger ones are already inherently strong without them.