What you need to know:
The EAC trade deficit declined by 36.8 per cent in 2016 partly due to a fall in imports into the region, Dorothy Nakaweesi writes.
Falling prices and demand for exports from the region resulting from unfavourable global economic environment pushed down East Africa’s total trade - a new report has shown.
According to EAC Trade and Investment Report 2016 released this month, regional total trade declined by 19.5 per cent for the second consecutive year.
Total trade recorded last year declined to $44.6 billion (Shs161 trillion) down from $55.4 billion (Shs201 trillion) recorded the previous year.
“Total exports declined by 6.8 per cent to $14.9 billion (Shs54 trillion) from $16.0 billion (Shs58 trillion) in 2015,” the report showed.
Imports into the region also fell to $29.7 billion (Shs107 trillion) in 2016, down from $39.4 billion (Shs143 trillion) recorded in 2015.
The report stated: “The fall in imports was attributed to the fall in crude oil prices that could have reduced the import bill for petroleum products.”
Overall, the EAC trade deficit declined by 36.8 per cent to $14.8 billion (Shs53.7 trillion) in 2016 partly due to a fall in imports into the region.
The total intra-EAC trade also declined to $4.2 billion (Shs15.2 trillion) in 2016.
“Intraregional trade is still low and constitutes only 9.4 per cent of total EAC trade despite the implementation of Single Customs Territory that provides for removal of tariffs and other barriers to trade among partner states,” the report showed.
The study concluded that the inadequate trading regime which restricts the export of certain commodities to partner states, lack of product diversification and existence of Non-Tariff Barriers in the region have affected intra-regional trade.
While measures to attract Foreign Direct Investment (FDI) have been put in place, the level of FDI into the region is low.
“Total FDI into the region amounted to $6.7 billion (Shs24.1 trillion) in 2016, has averaged about $6.9 billion (Shs25 trillion) over the last three years and was mainly concentrated in the extractives sector which does not provide much in terms of employment,” the report noted.
FDI into the EAC grew modestly due to increased investment inflows into Tanzania and Uganda during the year.
The report showed: “Nevertheless, the level of FDI into EAC is still low as a percentage of global FDI inflows despite progress in creation of more conducive investment climate in the partner states.”
The low level of FDI inflows was mainly attributed to the lack of effective markets due to low per capita income, structural and institutional challenges that make the EAC less attractive to investors.
So what needs to be done to change the declining regional trade?
Mr Aly Khan Satchu, a Nairobi- based financial analyst with focus on East Africa, says there is need to open the borders.
“There has been plenty of back-sliding and friction in this area. Rwanda is a Lode Star and the rest of the EAC would do well to embrace complete free movement of people which is in fact our most valuable asset.”
He adds that both Tanzania and Kenya -the two elephants in the EAC room- have seen serious liquidity issues.
“Private Sector credit growth is at or close to 0 per cent in both economies and this has been a big weight on EAC trade,” he explained.
Mr Gideon Badagawa, the executive director Private Sector Foundation Uganda (PSFU) responding to what the region should do to address the situation, said: “We need to address the Non-Tariff Barriers challenge so that goods can move easily and swiftly.”
Giving an example of Kenya continuing to block Uganda’s sugar imports is a non- tariff which would have otherwise promoted trade between both countries.
“Rwanda imports cheaper construction materials and sugar from sources outside the region. Why? Because they reduce the tariffs as they would pay full scale if they sourced from within EAC,” he added.