The risks to commitment that the EIZ would face are three-fold. First, is the risk of the host country or countries reneging on their EIZ commitments – i.e. reverting on their commitment to give up sovereignty over the zone (fully or potentially over certain aspects like revenue collection, security, etc.) or putting up barriers to the interaction between the zone and the national economy. One can imagine a number of reasons why this might happen. Some of the most likely triggers would be political, social and economic issues within the host country, including fiscal crisis, economic or political nationalism, and elections and subsequent policy instability. In the recent research by Wellhausen (2010), 57% of the 412 arbitration and expropriation events in a global FDI database between 1970 and 2009 took place in or preceding an election year. One need only look at some of the situations that have impacted EAC countries in recent years, including the post-election violence in Kenya in 2007-2008 and to a far lesser degree the constitutional referendum in Uganda in 2005. One can also imagine a scenario where natural resources were found in or near the EIZ location and the implications this might have on commitment of the host government to share revenues from the zone. Finally, the success of the zone itself might raise (or equally reduce) the incentive of the host government to renege on the agreement in an effort to capture more rents or reduce liabilities.

The second risk is that other EAC members renege on their own commitments to the EIZ. Most likely this would occur with regard to commitments to support some infrastructure expenditure, to commit necessary funds to operational budget or to deliver effectively on their responsibilities for managing certain aspects of zone governance. One of the most likely reasons for this would be if member states (particularly those that did not host the zone) felt they were not getting sufficient benefit from it. The main concern here is the distribution of gains – i.e. the fact that the EIZ will contribute to a concentration of investment and economic activity, at least in the short term, in the country or countries in which it is based, with the perception (if not necessarily reality) that it would actually detract from investment that otherwise might have been made in other member countries. Other member countries may feel they could enjoy greater benefits by, for example, setting up a competing economic zone (perhaps with a more generous set of fiscal incentives) outside the EIZ. This raises the importance of any agreements made with respect to competition between the EIZ and other existing or future SEZs in the region. In the absence of a clear agreement among EAC member states on the existence of other SEZs in the context of the EIZ and, perhaps more importantly, on the nature of the incentives that can be provided within zones, this presents a potentially serious risk to zone investors (developers). For example, in the early years following the agreement to establish the Singapore-Suzhou Industrial Park (SIP)<sup>14</sup> , the local government in Suzhou opened a competing industrial park in close proximity to SIP and with much lower land prices. This was one of several factors which dramatically impacted the economic returns of the project.

Finally, there is the risk of the wider breakdown of the EAC and the implications this would have for the EIZ. Should the zone be developed explicitly within the context of the EAC (e.g. with EAC institutions being involved in the board or in operational management, or with aspects of the EIZ Law being dependent on EAC Law or regulations), the EIZ might be undermined in the event of the dissolution of

> 14 A joint venture between the Chinese and Singaporean governments

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