Last week, TOP and the Saana Institute co-hosted a panel event to discuss the importance of boosting trade to support development and regional integration in East Africa. We heard from Frank Matsaert – CEO of TradeMark East Africa, and Patrick Obath – Director of the Kenya Private Sector Alliance about the obstacles East African businesses and states face in terms of trade facilitation and regional integration and how UK aid is helping address some of these challenges.
Last week, TOP and the Saana Institute co-hosted a panel event to discuss the importance of boosting trade to support development and regional integration in East Africa. A variety of recent studies have shown that developing economies bear a disproportionate amount of global trade costs due to the “thickness” of their borders – trade is being stifled by poor logistical performance, lack of energy and technology, transport connectivity and lengthy customs procedures. This is the case particularly in Sub-Saharan Africa.
- Only 10% of African exports go to other African countries, while 75% of European exports go to other European states
- The current cost of trading across borders is estimated at $2 trillion, 15% of world trade, 10% of which is the result of border and customs procedures
- Transport costs can make up between 50% and 75% of the price of retail goods in Africa.
Infrastructural reforms to improve border management, product standards, transport and distribution would have vast benefits for African economies by significantly lowering trade costs and easing regional integration. These issues have risen up the international policy agenda with the recent conclusion of the World Trade Organisation’s Trade Facilitation Agreement and this year Africa will host its first ever WTO Ministerial Conference in Nairobi in December. In East Africa, a pioneering $600 million Aid for Trade initiative – TradeMark East Africa (TMEA) – is seeking to make trade facilitation happen.
We heard first-hand about the obstacles East African businesses and states face in terms of trade facilitation and regional integration and how UK aid is helping address some of these challenges, through DFID’s role as the founding donor and major investor in the TMEA vehicle.
Frank Matsaert, CEO of TradeMark East Africa, emphasised the infrastructure deficit that is still holding trade back in Africa. What infrastructure there is, is not fit for purpose and transport times are still adding disproportionately to the cost of trade – almost 40% of the price of an item in East Africa is made up by transport costs. The two main transport corridors in the region carry 98% of regional trade (and 70% of the whole region’s GDP is created within 20km of those corridors) – with East African trade booming, it is vital that these constraints are dealt with sooner rather than later.
Faster clearance times at the border means cheaper trucking costs and therefore lower consumer prices and more competitive exports. TMEA are harnessing the power of ICT to make trade faster and more efficient, while also reducing corruption. In Uganda for example, a container tracking system is transforming trade across that country.
It is also vital to focus not just on the big traders, but on the vulnerable groups who don’t always benefit from traditional trade facilitation. TMEA are scaling up the poverty reduction element of their work to ensure that women traders and those in the formal sector can see more of the benefits of formal trade. Non-tariff barriers remain very persistent, but go far beyond bureaucracy to cover sexual harassment and lack of facilities at border posts.
Patrick Obath,Board Director of TradeMark East Africa and Director of Kenya Private Sector Alliance spoke about the huge potential of East Africa and regional trade – the EAC encompasses 150 million people and has a GDP of $138 billion. The tripartite free trade area that is being created between EAC, COMESA and SADC (due to be in place by 2017) would make this 600 million people.
Trade within the region is rising fast, despite difficulties such as the use of 5 different currencies. In 2010 Tanzania overtook the UK as Kenya’s biggest trading partner. However, it is currently mainly services being traded between EAC countries, not commodities. There is an urgent need to see manufacturing in Africa for Africa; value must be added to raw materials. This will also see a transfer of technology into Africa and a subsequent increase in the number of jobs available.
Alongside the necessary improvements needed in hard and soft infrastructure, there is also a need to change the business culture in East Africa so that business owners want to have open markets and expand rather than simply protecting their own turf.
The discussion included comments about the need to think about Eastern, not just East, Africa. How can countries such as Ethiopia and DRC begin to join up with the progress being made in the EAC? And further afield, can the lessons of TMEA be used to create similar programmes in West Africa?