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More balanced trade emerging within the EAC?

06 April 2013

According to an article in the East African press, a report commissioned by Kenya’s Ministry of the East African Community maintains that the growth rate in Kenyan exports to the EAC “has been declining over the past eight years”, and has been slower than for other EAC members for the past 5 years. It had been expected that with the implementation of the EAC Customs Union, “Kenya would dominate regional trade by diversifying its exports to the EAC market”. This, however, has not been the case.

The report showed that “Kenya’s contribution to total intra-EAC exports declined from 78.3 per cent in 2005 to 57.2 per cent in 2010,” while the country’s share of total intra-EAC trade increased over the period from 7.5 to 16.7%, indicating increased levels of imports.

According to press reports of the analysis, “Tanzania and Uganda’s contributions to total intra-EAC trade increased sharply from 6.6 and 4.2 per cent in 2005 to 20.67 and 19.2 per cent respectively in 2010.” Tanzania’s contribution to intra-EAC imports for the same years fell from 22.4% to 18.9%, while Uganda’s fell sharply from 70.1 to 36.9.

It was maintained that available opportunities had not been properly utilised because Kenya had “[failed] to diversify its exports”, although the report also showed that Kenya was ahead of its neighbours in this. However, some Kenyan businessmen reportedly blamed “non-tariff barriers imposed by the other EAC countries” for the decline in Kenya’s relative export performance. Product standards are seen as a particular problem in products where local production is being developed: a Kenyan producer of edible oils commented that this had been the case for his company’s exports to Tanzania.

In addition, press reports in January 2013 indicated that ongoing disputes between Uganda and Kenya, regarding accreditation of clearing agents, were further undermining trade.

It was also reported that Kenyan companies are increasingly setting up operations in neighbouring countries, which is seen as a better way of consolidating local market share. Agricultural product areas where Kenyan exports to EAC markets have declined include vegetable oils and vegetable oil products, alcoholic beverages, coffee, teas, spirits and vinegar.

Kenyan products are also facing increased competition on the EAC market from South African products, with the increased penetration of South African companies into the EAC and movement towards the tripartite FTA gaining momentum. At the beginning of January 2013, it was announced that imports from COMESA and SADC “will continue enjoying preferential treatment, courtesy of the EAC Customs Management Amendment Bill, 2012”, which was adopted in December 2012.

The trends in the report throw into stark relief the growing anxiety among Kenyan exporters over lack of progress in concluding the EAC–EU EPA process. The Permanent Secretary in the Kenyan Ministry of Trade has indicated, however, that Kenya will not sign the EPA “until all the contentious issues are resolved”, particularly new issues introduced by the EU “not mutually agreed by both parties”. 

Editorial comment

A customs union on its own will not lead to increased intra-regional trade. Implementation structures and procedures are equally important, as is the country’s capacity to supply competitive products. The continued existence of non-tariff barriers has certainly contributed to slowing down intra-regional trade. Yet the world has not stood still: Kenya’s manufactured exports to the EAC region are increasingly facing competitive challenges from not only South Africa, but also China and other Asian suppliers.

In terms of trade in food and agricultural products, it is far from clear how accurate official statistics are. Unrecorded informal cross-border trade in food and agricultural products is extensive and needs to be factored into the overall intra-regional trade picture.

Of longer-term significance is the trend towards increased Kenyan investment in neighbouring countries. This is seen as a more effective means of serving expanding consumer demand and consolidating the corporate position on regional markets (e.g. in the dairy sector). This trend in Kenyan corporate investment could, in the longer term, play an important role in rebalancing the relative economic weight of EAC members. 


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