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'Imports suffocating East Africa's trade'

January 15, 2020

 

 

The World Bank has projected a weaker economic growth in sub Saharan African in 2020, pinning hopes on investor confidence to turnaround fortunes of the region's economies.

 

According to the Bank's 2020 Global Economic Prospects, growth is expected to pick up to 2.9 per cent this year, assuming investor confidence improves in some large economies, energy bottlenecks ease and robust growth continues in agricultural commodity exporters.

 

The forecast is weaker than previously expected, reflecting softer demand from key trading partners, lower commodity prices and adverse domestic developments in several countries.

 

But for East African Community, the problem is further compounded by low intra-trade, meaning much needed foreign exchange is spent on imports from outside the region, leading to slowdown in manufacturing and reduced job opportunities.

 

This is the reason increasing intra-East African Community trade is top on the agenda of the regional private sector-led umbrella body - the East African Business Council (EABC).

 

This was the major resolution arrived at in Arusha last November during the two-day high-level East African Business and Investment Summit.

Even though the EAC is one of Africa's fastest growing regional blocs, registering economic growth of 5.7 per cent in 2018, more intra-trade won't be easy.

While the Summit took stock of EAC achievements for the past 20 years, it is increasingly becoming clear that the more resolutions are made to increase intra-trade, the more the challenges the region faces.

 

"Mechanisms for resolving Non-tariff barriers were put in place, for instance, the national monitoring committees and regional forum have been established to monitor the elimination of NTBs quarterly," chairman of the EAC Council of Ministers and Rwanda's Minister for Foreign Affairs and International Co-operation Vincent Biruta said.

 

"Elimination of NTBs Act was assented to and it is being revised. The regulation to operationalise the Act is being developed, bilateral engagements between partner states are being undertaken, and adoption of Comesa-EAC-SADC online reporting is in place," he added.

 

The resolutions of the EABC Summit are expected to be the foundation upon which partner states will take national and collective community action to improve intra-regional trade.

 

Biruta said the resolutions will be considered for implementation.

"An action plan shall be developed to implement the resolutions of the High Level East African Business Summit, and the first step is to submit the resolutions to the Heads of State summit," he said.

 

Infrastructure development

 

EABC chief executive Peter Mathuki attributed the region's growth to infrastructure development, extractive economy and booming agricultural sector but is cautious, given the persistent non-tariff barriers, pressure from cheaper imports, high cost of doing business, unharmonised domestic tax regimes, infrastructure bottlenecks, deficient skills and technology and high cost of finance, this could only be a dream.

 

According to Mathuki, the private sector will reach out to the government and work on getting rid of NTBs.

 

"We engaged in candid conversation about the future of East African businesses and came up with a raft of measures aimed at increasing intra-EAC trade to 40 per cent, as well as reposition the EAC bloc as a leading trade and investment destination," he said.

 

Increasing EAC trade

 

Currently, intra-EAC trade is at 12 per cent. EABC is seeking to increase it to 24 per cent in the next five years and eventually 40 per cent.

 

However, according to EABC chief executive Peter Mathuki: "The main challenge is exemptions, remissions and special arrangements within the EAC are constraining the benefits that would accrue.

 

Specifically, exemptions to import inputs, vehicles as well as generous repatriation provisions mean that most of the benefits are re-exported."

"In addition, remissions and exemptions imply that industries are not using local intermediate products leading to low capacity utilisation," he said.

 

Further, inadequate employment and technology transfer provisions lead to low benefits for citizens.

 

"Inadequate procurement, monitoring and enforcement have led to high costs and poor quality products," he added.

 

He said while intra-regional trade had declined in the past two years, he is optimistic that things will improve because of deliberate policy drives.

"On diversifying production, the East Africa Community Industrialisation Policy Implementation Action Plan covering the period 2012-2017 is being revised to promote the transformation of the region's manufacturing sector," said Biruka.

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