DIAZ: EAC partnership the cornerstone of post Covid-19 recovery


DIAZ: EAC partnership the cornerstone of post Covid-19 recovery
President Uhuru Kenyatta during a virtual meeting on May 12, 2020 convened by President Paul Kagame of Rwanda, the current EAC Chairperson. PHOTO | PSCU

In Summary

  • With the sourcing of goods from global hubs such as China drying up or facing blockades, countries in the region must turn to each other and leverage on abilities to bolster trade.
  • Local capacities to bolster productivity have already emerged with countries now working to produce protective gear and sanitizers to arm their virus fight.
  • The inwards turn must, however, take a regional approach with each party leveraging its comparative advantage to support its peers.

Images from around the world showing flowers being dumped told of a worsening situation as the ongoing coronavirus pandemic dealt a blow to the industry globally.

Nearly 40 per cent of the best flowers are grown in the East Africa region.

The Covid-19 crisis has torn apart the popularized global value chains (GCVs) and has been a forcing hand in many countries looking inwards.

The devastation is widely captured in revised growth estimates which calculate current conditions as the worst seen since the 2008/2009 great recession.

Global growth to contract

According to the International Monetary Fund (IMF), global growth is expected to contract by up to three percent in 2020 while taking out an estimated $9 trillion (Ksh. 959trillion) from the global economy.

The loss which equates to the combined gross domestic output of Japan and Germany has largely resulted from global supply disruptions arising from lockdowns to partial restrictions on the movement of both labor, cash-flows, goods, and services worldwide.

The observed slowdown has resulted in spill-over effects touching base in Africa and particularly the East African region.

Output for regional economies is expected to take a substantive hit even as the weight of the virus is felt unequally.

For instance, the IMF expects Kenya which previously bared the highest projection for growth in the year to see its output fall to one percent – the lowest projection among member states.

The country has seen its fair share of hits with forex exchange earnings expected to tank as exports fall and remittances sink.

As a response to the pandemic, governments in East Africa have undertaken both fiscal and monetary measures to contain the impact of the virus’s spread.

Restrictions on cross-border movements to contain the outbreak has however had the opposite effect of dragging down trade and commerce.

A keen look at the situation in Tanzania: the U.S. embassy has raised concerns over the need for the government to open up on the pandemic and deploy appropriate measures to tame the rising and unreported COVID-19 cases.

Going by the previous numbers before a ban or reporting cases and the latest developments at the Namanga border—where a large number of truck drivers from Tanzania are testing positive—it’s not no doubt the country needs support.

The onus is not just on Tanzania but the entire East Africa: authorities need to put in place rapid testing facilities across the region to help identify infections faster and curb further spread of the virus.

The decline in East Africa

According to an April survey by the East Africa Business Council (EABC), businesses in the region anticipate a 48 percent average decline in cash flows with tourism, hospitality, logistics and retail trade being the most hit sectors.

Further, 36 percent of businesses have already made the decision to lay off staff in a bid to survive the effects of the pandemic.

Movement of traders and labor opportunities across borders have highly reduced business transactions between member states as tight restrictions remain in effect.

In Uganda for instance, non-residents must enter a 14-day quarantine period privy to carrying out any business.

The situation on cross-border trade is well captured by long-distance cargo movers: borders across the region are now defined by long truck queues as countries enforce screening and testing for drivers.

Cargo trips between Kenya’s coastal city of Mombasa and Uganda’s capital Kampala are reportedly down to one from a high of three as compared to pre-Covid-19 levels.

The reduction of trade between member states is devastating.

According to a 2018 EAC Trade and Investment Report, the value of the region’s trade stood at Ksh. 639billion ($6 billion) with 60 percent of residents drawing on the trade for their livelihood.

The data however only captures the formal bit of the trade with trade among members being linked to informal traders who mainly cross the border on foot.

The majority of cross border traders are described as vulnerable, small and registered and mostly make-up women in small and medium enterprises (SMEs).

While the share of EAC trade to regional GDP has eased slightly in the last decade, the trade still accounts for over one-third of the countries combined economic output.

The Africa continental trade agreement remains on the radar to stimulate Intra Africa trade, manufacturing, free movements of goods and services, higher employment opportunities and opening the skies in the future.

Harmony to sustain trade in the region

As countries turn inwards to replenish their need for goods and services amidst the global disruption to supply chains, trade harmony within the region will serve to sustain trade between Kenya and member states.

With the sourcing of goods from global hubs such as China drying up or facing blockades, countries in the region must turn to each other and leverage on abilities to bolster trade.

Local capacities to bolster productivity have already emerged with countries now working to produce protective gear and sanitizers to arm their virus fight.

The inwards turn must, however, take a regional approach with each party leveraging its comparative advantage to support its peers.

Earlier in May, EAC states led by Chair Paul Kagame held a consultative online meeting to discuss continued free movement of goods while at it, managing the cross-border spread of the pandemic.

The leaders who also included Yoweri Museveni (Uganda) and Uhuru Kenyatta (Kenya) agreed to support the efforts including the roll-out of border screening and testing while recognizing the role of SMEs in the trade.

The actions of the region’s frontmen are crucial in the facilitation of trade between partners in spite of the mushrooming hardships.

East Africans must follow the lead to blossom trade between them as a means to survival before the restoration of global supply chains.

Moreover, global supply chains must not be the way out as local capacities in the region can be utilized to build future resilience to disruptions and trade balances.

Further, platforms already exist to build on trade cohesion and raise the region’s GDP. Buy East Africa Build East Africa (BEABEA) is one means to the better ends.

Time for Africa to increase production

This is time for Africa to increase producing raw materials for value addition and create safety and measures within the private and public sector to contain the disease but also increase agribusiness and local food production.

The success of producing masks and some PPE in the region is a true entrepreneurship spirit appreciated and making the people innovative to create innovation and employment in a very difficult situation.

The EAC Industrialization Policy running to 2032 is another with plans to raise jobs in manufacturing to 2.3 million across the region from the current 456,000.

Already partners in the region enjoy close trade collaboration.

According to data from the Kenya National Bureau of Statistics 2020 Economic Survey, Kenya’s exports to the region were valued at Ksh. 140.4billion with Uganda carrying the bulk of Ksh. 64.1billion in value.

On the reverse, Kenyan imports for the region represented KSh 67.7 billion in value with Uganda holding another majority value at Ksh. 8.5billion.

The tariff and non-tariff barriers need to be improved to create incentives to grow trade and sustain industries and maintain employment as private sector continues to face immense challenges.

The relationships in trade should be leveraged to yield higher results in both material and non-material gains for the betterment of the region.

Member-state geographical interconnectedness must also serve for the better of all parties.

For instance, the majority of member states are landlocked with only Kenya and Tanzania having a coastline.

South Sudan, Rwanda, Uganda, and Burundi must, therefore, work in tandem with the pair to preserve their access to the international markets through the port of Mombasa and Dar-es-Salaam.

Ultimately, Covid-19 will serve as a test to the resilience of member states and the region as a whole.

With borders in the international market closed off in large part, the six EAC members must look inwards and to themselves in the now and the post Covid-19 economic recovery journey.

Chris Diaz is a Business Leader, Director EABC & Group Director Bidco Africa Ltd. Twitter: @DiazChrisAfrica

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