Why intra-EAC trade is dwindling

Trade among East African Community states has declined by 31.4 per cent, thanks to non-tariff barriers and increasing imports from Asia.

A new report by the United Nations Economic Commission for Africa (Uneca) shows that intra-EAC trade fell to $2.4 billion in 2017, from $3.5 billion in 2013, with Kenya and Tanzania being blamed for the decline.

The situation may not change soon, as partner states grapple with trade and political tensions between Rwanda and Uganda over the lock down of the Gatuna border post; and Rwanda and Burundi continue to differ over security matters.

The report, An Analysis of the East African Community’s Trade Performance, which The EastAfrican has seen, was presented to the EAC Secretariat for discussion by the states, but officials in Arusha say it is yet to be tabled.

The intra-EAC trade decline reflects a gradual loss of competitiveness among the region’s manufacturers compared with Asian exporters, as well as increasing protectionism fuelled by political tensions that have engulfed the region over the past couple of years.

“The EAC has been hailed as a dynamic regional bloc, sustaining consistently high growth rates over the past 15 years. But it appears this has been taken for granted, and it doesn’t explain the decline in intra-EAC trade,” said Ismael Buchanan, senior lecturer of International Relations at the University of Rwanda.

“I have been in several meetings where it is constantly said that EAC faces much higher tariffs on its exports to other parts of Africa, even more to outside the continent. This shows that intra-EAC trade is even more important to each state in the bloc,” he added.

Sugar shortage

Tanzania, which accounts for 30 per cent of the EAC economy, was responsible for the worst decline in intra-regional exports, from $1.1 billion in 2013 to $318 million in 2017.

Kenya, which accounts for almost half of the region’s GDP, saw its intra-EAC exports slide from $1.6 billion to $1.1 billion in the same period. A major decline was recorded in 2017 during a sugar shortage in Kenya, which the government tried to solve by importing sugar at a zero tariff rate from outside the EAC.

This led to an escalation of trade barriers between Kenya, Tanzania and Uganda, as the other two raced to protect their sugar manufacturers.

Tanzania imposed a 150 per cent tariff on sugar from Uganda in 2018, arguing that sugar imported into Kenya at zero tariffs had been smuggled to Uganda and repackaged by a Ugandan firm for export to Tanzania.

As a result, a trade deal to import 5,000 tonnes of sugar from Uganda to Tanzania was cancelled, thereby significantly eating into intra-EAC trade figures. Uganda and Tanzania subsequently imposed a 25 per cent import duty on Kenyan exports, claiming that confectionery products had used sugar imported at zero tariffs.

“This action by Kenya started the whole chain of trade barriers, significantly hurting the region because under EAC regulations, this tax rate on sugar from outside the region should have been 100 per cent. Sugar is a sensitive product that needs protection from dumping,” Mr Buchanan told The EastAfrican.

Consistent trade partner

Uganda has been the region’s most consistent trade partner, surpassing Tanzania in 2017, according to the Uneca report.

Uganda’s share of intra-EAC trade jumped to $800 million in 2017, from $780 million the previous year.

Rwanda saw its regional trade stagnate at slightly below the $200 million mark, a trend it has experienced since 2013.

Experts are optimistic that intra-EAC trade will rise once again, especially due to infrastructure projects such as the Central Corridor's 2,561km standard gauge railway linking Tanzania, Rwanda and Burundi.

Additional reporting by Moses Havyarimana.