Somalia’s entry into EAC: Exploring opportunities

Somalia was last month accepted as the eighth member of the East African Community (EAC). This was more than a year after the Democratic Republic of the Congo (DRC), was admitted as well.

 Following fruitful discussions that lasted over a year, the country’s entrance into the bloc was authorised by regional leaders during the 23rd regular summit of the heads of state, which was held in Arusha, Tanzania, on Friday November 24, 2023.

 Somalia’s President Hassan Sheikh Mohamud said Somalia brings to the bloc her rich culture, heritage and strategic location with 3,300 kilometres along the Indian Ocean coastline, adding that Somalia would create an environment conducive to trade and prosperity within its national borders.

 According to President Yoweri Museveni who is one of the biggest architects of the EAC, a larger market stimulates wealth creation and prosperity. He stated that the key to bringing about economic growth in the area was the integration of the markets of the EAC partner states.

 Museveni while addressing the Heads of Summit, said Somalia’s borders would serve as bridges rather than as obstacles to trade, noting that Somalia is a member of the EAC and that all partner states are connected to his nation by historical, cultural, and linguistic ties.

 “Solidarity within the EAC is another justification for accelerating integration, with the Kiswahili language serving as a unifying factor and the peoples of East Africa being connected by shared histories, cultures, and languages,” he said.

Museveni who has been involved in Somalia affairs is optimistic that Uganda will increase her economic footprint in the region.
  
Background  
 The first major contact of Museveni’s administration with Somali is through Uganda’s peacekeeping mission which has been in Somalia since 2007 and helps to defend Somalia’s central government against the Islamists.

 Though the Somali Islamist militant group al-Shabab may see the Ugandan soldiers as their enemies, the international community believes that by supporting the struggling government in Somalia, they are doing a vital role.

 Uganda also hosts Somalia communities, so local traders can partner with Somali traders.

Uganda’s ‘comparative advantage’ will be the involvement in peacekeeping in Somalia since countries like Kenya and Tanzania, the addition of Somalia is simply rubber stamping the already ongoing trade.

Now that the Common Market is home to an additional 15 million people thanks to Somalia’s admission, where are the business opportunities for Uganda? 

For starters, Somalia’s biggest regional trading partners are Kenya and Tanzania. However, the country also trades with Brazil, Ukraine, Turkey but the biggest trade partners are China and India.

“Last year alone, the Mogadishu port received 5,967 tonnes of sugar representing 37 per cent of imports and 5,043 tonnes of rice representing 23 per cent of imports with Kenya being the main importer,” Mr Ahmed Mohamud told NTV Uganda in an interview early this year.

 Since 2016, the imports through the Mogadishu port have grown from 700,000 metric tonnes  to 1.2 million metric tonnes as of 2022. However, Somalia’s exports are still limited to camels and goats.

 Trade between the two countries is less than $ 1million with Uganda exporting $676,000 worth of goods while Somalia exports to Uganda $76,000 only. COMTRADE lists Uganda exports to Somalia as tobacco and manufactured tobacco substitutes, aircraft, spacecraft, beverages, spirits and vinegar, cereal, flour, starch, milk preparations and products, explosives, pyrotechnics, matches, pyrophorics.

 Others include dairy products, eggs, honey, edible products, Animal, vegetable fats and oils, cleavage products, railway, tramway locomotives, rolling stock, equipment, Furniture, lighting signs, prefabricated buildings and Soaps, lubricants, waxes, candles, modelling pastes.

 On the other hand, Uganda imports from Somalia include fish, crustaceans, molluscs, aquatics invertebrates, essential oils, perfumes, cosmetics, toiletries, articles of apparel, knit or crocheted and optical, photo, technical, medical apparatus among others.

 
The nod
 The development of trade routes such as the proposed corridor linking Kenya’s coast to Uganda, South Sudan and Ethiopia; the Berbera–Addis Ababa highway joining Ethiopia to the Gulf of Aden and the Red Sea; the Kampala–Djibouti corridor, and rehabilitation of road links to Ethiopia from Eritrea’s Massawa and Assab ports will be a game changer to enhancing trade in the region and continent.

 Ms Shakila Rahim Lamar, the head of corporate affairs and public relations at Uganda Airlines, says Somalia’s entry in the EAC will support easy movement of goods and services through air transport.

 “We expect taxes to go down because some countries had levies for arriving passengers. Additionally fully opened skies as per the Single African Air Transport Market arrangements will support liberalisation of the industry,” she says.

 Ms Lamar adds; “We also expect to see divestiture and regional development of hubs. Cargo operations will grow as well as passenger numbers.”

Uganda Airlines has four weekly flights to Somalia. But the fares are still high, for instance, the $517 (Shs2 million) to Somalia is quite high yet going for business in Dubai costs $397 (Shs1.5 million).  But Uganda Airlines does not carry that much cargo.

 Dr Thadeus Musoke Nagenda, the chairperson at Kampala City Traders Association (KACITA), says Uganda has been trading with Somalia for a very long time only that this will be formal and aggressive now.

“Somalia has a long coastline which can be exploited. They also have commodities which we can import although they are few because they are coming out of a civil war,” he says.

Dr Nagenda adds: “Traders can export building materials such as cement, iron bars, tiles, and electronics among others.”

However, Dr Nagenda warns that Uganda should be cautious while trading with Somalia as other countries are also warming up for the same market.
“Kenya and Tanzania are looking for that market hence for Uganda to get a competitive advantage, things like bank interest rates should not be ignored as traders will need capital from banks,” he says.

Ms Peninnah Mbabazi, a trade policy analyst at SEATINI Uganda, says despite two decades of conflict, Somalia’s agriculture, fisheries, and dairy sectors have remained resilient and production is growing to meet rising regional and international demand for high-quality commodities.

She explains that Somalia’s economic growth has been fueled, in part, by an increase in agricultural production. With increasing security, Somalia can become a powerhouse for animal products.

According to the Food and Agriculture Organisation (FAO), Somalia exported over five million livestock to markets in the Gulf States—its highest annual number of live animal exports in the past 20 years.

“These consisted of 4.6 million goats and sheep, 340,000 cattle and 77,000 camels, and the total estimated value of $360 million contributed 40 per cent to the country’s gross domestic product,” Ms Mbabazi explained.

She adds: “Expansion would also increase the EAC’s competitiveness regarding foreign direct investments by offering an attractive trade area; once Somalia’s security and governance challenges are addressed, the country’s inclusion could add immense economic benefits to the region.”

Ms Mbabazi believes that Somalia joining the EAC would bring increased potential for trade and investment within the region. As of 2022, combined EAC countries (excluding Somalia) have had a combined GDP of $305billion, total EAC trade was $78.75billion.

Trade analysts believe that by joining forces with its neighbours, Somalia will tap into regional economic integration initiatives such as the EAC Customs Union, the Common Market Protocol, the Monetary Union and the ongoing political confederation constitutional framework.

“This would provide Somalia with access to new markets and increase its trade potential, sparking economic development and creating new job opportunities through increased investment. The harmonisation of trade rules and regulations in the region, Somalia would have greater access to new markets and investment opportunities,” Ms Mbabazi explains.

All is not rosy
Despite her abundant natural resources and advantageous coastal position along the Indian Ocean, its economic standing is one of the weakest in the region, plagued by poverty and unemployment.

This presents a hindrance to Somalia’s full participation in the EAC economic initiatives and ability to reap its benefits.
Dr Madina Guloba, a senior research fellow at Economic Policy Research Centre (EPRC), observes that although the admission of Somalia looks rosy, there are challenges waiting ahead.

She explained that protocols like the Monetary Union, EA Common Currency will take longer to be achieved and new members bring in new dynamics because of the different structures of government back home.

“The issue will be an expanded market which is good for all since we will be more powerful but all this will depend on the governance and commitment by countries; for instance members are not remitting their contribution and that holds back the market,” she said.

Dr Guloba adds; “We are experiencing defaults by member states and with new members we are likely to see the same but also as a country how strategically they are prepared to harness from the market; as Uganda we should have to see what Somalia is bringing on board.”

On the traders’ readiness, Dr Guloba explains that Uganda has had problems with DRC and South Sudan; some countries come on board while others are not- for instance South Sudan and Uganda are not on the same negotiating table.

“Somalia’s closest neighbour is Kenya and Tanzania and they are going to get the big cake, but Uganda does not fit too big in that space, Uganda is performing below with South Sudan and DR Congo so by taking another market- it’s not a good thing,” Dr Guloba says.