Manufacturing, agro-processing and industrialisation driving EAC growth - Daily Post Uganda

Manufacturing, agro-processing and industrialisation driving EAC growth

The East African Community (EAC), with a population of about 168.2 million and a combined GDP of US$ 155.2 billion is one of Africa’s fastest growing regional blocs. Growth in the EAC is driven by a progressive manufacturing sector characterised by agro-processing and industrial production and exports, says EAC Trade and Investment Report 2018.

According to the report, the export sector is dominated by tea, coffee and horticulture. The region possesses significant amounts of extractive resources including oil and gas, high value minerals and renewable energy.

This Report provides a detailed analysis of the trends for the year and synthesises the prospects for enhancement of trade and investment in the region. “The aim is to provide a platform for stakeholders, academics and policy makers to review the status of trade and investment, examine the developments at the regional and global level that have an impact on trade and investment in the EAC and measures to link the Region to the global economy,” it says.

Key developments during the year 2018, with potential to influence future trade and investment outcomes, include the positive economic growth of the Region that positions the EAC as a trade and investment hub; the growing Global Value Chains that impact on agricultural production and industrial processes; logistical infrastructural development; and the Africa Continental Free Trade Area (AfCFTA).

The East African Economy expanded at 5.7 percent in 2018, up from 5.6 percent in 2017. The report attributes the growth to increased infrastructure investment in roads, rail and electricity; increased private consumption as well as recovery of commodity exports buoyed by improved weather conditions.

The construction sector improved in the whole of the EAC. There was also remarkable expansion of the services sector, particularly information and communication technology as well as manufacturing.

Most EAC partner states experience growth

All Partner States with the exception of South Sudan experienced higher growth in 2018. Burundi’s economy grew by 3.8 percent up from 1.3 percent in 2017. Rwanda’s economy experienced the highest growth in the Region expanding by 8.6 percent in 2018 up from 6.2 percent in 2017. Kenya, Tanzania and Uganda also grew by 6.3 percent, 6.9 percent and 5.6 percent in 2018 up from 4.9 percent, 6.8 percent and 4.8 percent in 2017, respectively.

Merchandise trade

Merchandise trade grew by 11.7 percent to US$ 52.4 billion in 2018 from US$ 46.9 billion in 2017 as a result of an increase in the import bill and a fall in exports during the year. Total EAC exports decreased by 4.7 percent to US$ 14.0 billion in 2018 from US$14.7 billion in 2017 of which, intra-EAC exports accounted for 22.4 percent.

The decline in exports was attributed to low international prices of mainly agricultural commodities on account of higher production resulting from improved weather conditions. There was also a decline in the export of primary minerals. This situation was due to a fall in international demand resulting from the declining economic growth in China and the Far East. As a result of all this, earnings from coffee, tea and minerals fell by more than 24 percent during the year.

Exports to EAC and SADC amounted to US$ 3.1 billion and US$ 1.9 billion, respectively in 2018. This signified the growing importance of the EAC and SADC markets. The increase in exports to SADC, excluding Tanzania, was attributed to the increased benefits arising from the membership to the EAC-COMESA- SADC Tripartite. The main products exported by the Region included agricultural products especially maize, sugar, rice, coffee and tea as well as manufactured goods.

EAC Exports outside Africa

Outside the Africa Continent, the EU was our biggest trading partner and exports to the EU increased only by 6.5 percent to US$ 2.5 billion in 2018 from US$ 2.3 billion in 2017. This constituted about 17.5 percent of total EAC exports. However, exports to the USA and the rest of the world fell by 20.6 percent and 12.7 percent, respectively during the year mainly due to falling demand.

Imports into EAC

Total EAC imports grew by 19.2 percent to US$ 38.3 billion in 2018 from US$ 32.2 billion in 2017. Imports from the EU amounted to US$ 4.3 billion and accounted for about 11.3 percent, while imports from the rest of the world declined but still constituted 44.3 percent of total imports.

EAC’s key sources of imports

The main source of imports from the rest of the world were Asia and the Middle East signifying the importance of countries like China, India and the UAE as trading partners. The increase in imports was mainly under petroleum products arising from the higher global crude oil prices to US$ 73 per barrel on average during the year. In 2018 imports of petroleum products, vegetable edible oil, motors, machinery and medicaments constituted over 60 percent of total imports.

Overall, EAC continued to register a trade deficit with the rest of the world in 2018 partly because of an increase in imports into the Region. The deficit for the EAC increased by 39.4 percent to US$ 24.3 billion in 2018 from US$ 17.4 billion registered in 2017.

Agricultural goods dominate EAC trade

The composition of EAC trade continued to be dominated by agricultural commodities, namely coffee, tobacco, cotton, rice, maize and wheat flour. However, manufactured goods such as cement, petroleum, textiles, sugar, confectionery, beer, salt, fats and oils, steel and steel products, paper, plastics and pharmaceuticals were also traded across the EAC bloc.

Growth seen in EAC intra-regional imports

EAC intra-regional imports grew by 13.9 percent to US$ 2.8 billion from US$ 2.5 billion in 2017 and accounted for 7.4 percent of total EAC imports. Kenya’s imports from the rest of the partner states continued the growth experienced in the previous year.

Imports into Kenya grew by 14.7 percent to US$ 676.5 million. The increase was, to a large extent, driven by higher imports from Uganda and Tanzania. Imports from Uganda were mainly milk, dry beans and raw materials for the preparation of animal feeds. Imports from Tanzania mainly consisted of paper and paperboard, and ceramic products. Uganda’s imports from the Region grew by 40.8 percent to US$ 796.3 while Rwanda’s imports from within the Region also grew by 14.7 percent to US$ 549.1 million in 2018.

Kenya named Uganda’s main intra-regional trading partner

Kenya was Uganda’s main intra-regional trading partner and imports mainly included petroleum products, cement, iron and steel and pharmaceutical products. Rwanda’s intra-regional imports were dominated by salt, fats, cereals, and soaps, iron and steel, plastics and paper from Uganda and Kenya. Tanzania’s intra-EAC imports increased by 24.5 percent to US$ 302.7 million in 2018 from US$ 243.2 million in 2017. Tanzania’s key imports from the EAC partners included pharmaceuticals products, soaps, plastic items and other consumer goods, mainly from Kenya and Uganda.

Burundi and Sudan’s imports from EAC fall

Burundi and South Sudan’s imports from the EAC fell by 11.1 percent and 18.5 percent, respectively in 2018. Burundi main EAC trading partners was Tanzania and imports mainly consisted of chemical fertilizers, cement and textile articles. South Sudan’s main trading partners were Kenya and Uganda and imports mainly consisted of maize, sugar and manufactured commodities.

Intra-regional exports grow

Intra-regional exports grew by 5.6 percent to US$ 3.2 billion in 2018 from US$ 2.9 billion in 2017. Noticeably, exports from all Partner States grew with the exception of South Sudan during the year. Burundi experienced 44.3 percent growth in exports while exports from Uganda, Tanzania and Rwanda grew by 11.4 percent, 9.5 percent and 6 percent, respectively during the year.

Exports from Kenya to the other partner states experienced a modest growth of 0.1 percent in 2018.

Despite the increased total trade, the Region continues to face challenges related to the trade performance. These include: vulnerability of the agricultural sector to the vagaries of nature; dependence on exports of primary products; and the rising oil prices. As such, there is need to reduce dependence on imports of fossil fuels, motors, crude palm oil, textiles and capital items.

Initiatives such as fast tracking the production of EAC oil and gas reserves, assembly of motors in the region and improvement of agricultural production through irrigation, post-harvest handling and value addition should be explored.

FDIs TO EAC slump

Foreign Direct Investments into East Africa decreased by 15.9 percent to US$ 5.7 billion in 2018 from US$ 6.8 billion in 2017.

Inflows to the United Republic of Tanzania increased by 2.3 percent to US$ 3.1 billion while inflows to Burundi and Rwanda decreased by 76.8 percent and 11.5 percent to US$ 15.1 million from US$ 65.1 million in 2017 and to US$ 1015.3 million in 2018 from US$ 1147.7 million in 2017, respectively. FDI into Kenya, South Sudan and Uganda fell by 32.4 percent, 11.7 percent and 51.8 percent to US$ 485.5 million, US$ 408.6 million and US$ 630.6 million in 2018, respectively.

Overall, FDI inflows to the EAC were concentrated in manufacturing, construction and services sectors. FDI into manufacturing and construction amounted to US$2.1 billion and US$ 1 billion in 2018, respectively.

China and India major sources of EAC FDIs

China and India continued to be the major sources of FDI into the EAC with inflows amounting to US$ 1.1 billion and US$ 281.02 million, respectively. Total intra-EAC investments decreased by 20.8 percent to US$ 152.7 million in 2018 from US$ 192.9 million in in 2017.

The Trade and Investment Report 2018 focuses on market-driven integration as the driver of economic development and growth. Trade and investment are important drivers of productivity; employment generation; and access to a range of products at low prices necessary to enhance the standard of living. The Report is aimed at showcasing progress in regional trade and investment.

It shows that EAC has to focus on improvements in critical areas if the Region is to grow. 

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