East African Community: A Balance Between political correctness and economic benefits

The aphorism that any decision made by a politician, whether social, religious or economic will always be a political decision, directly applies to what is happening in the body politic of the East African region. The principle of free trade devoid of tariff and non-tariff barriers is turning into a wild goose chase as local politics plays out to the detriment of the greater good of the regional integration.

A critical look at causes of the current trade jitters, reveals that it is more of local politics rather than economic factors that are driving a wedge in the free trade agreement of 13 December 2018. All the member countries are embroiled in acts that roll back the modest gains so far in the trade sector. In all this scheming, Uganda comes out more bruised than the others. Uganda has in the recent past made major inroads into the regional market to a point of registering a surplus trade balance with Kenya its major trade partner. This is a result of myriad intervening factors ranging from a leap in industrialization to good weather that has boosted agricultural production.

Traditionally, Uganda has provided a market for manufactured goods from Kenya but with industrialization, most of the hitherto imported goods are now locally produced, thus import substitution. On the other hand, Uganda’s export to Kenya had jumped to $825m in 2018, mostly agricultural products, majorly spurred by good weather, yet Kenya experienced bad weather affecting the farming areas due to flash floods. It can be argued that it was an opportunistic reap. It was inevitable for Kenya to import a lot of foodstuff from Uganda to ameliorate the shortfall. However, with the current good weather, Kenya’s local politics of appeasement is playing out. Mount Kenya region is experiencing a bumper harvest of Milk and the farm gate price of a liter had fallen to Ksh 20. The problem here wouldn’t have been the low prices but rather, the cries of abandonment and sideling of the central region by Uhuru Kenyatta while appeasing other regions.

There is a bitter fall-out between a big section of the Kikuyu, who believes they have not benefited from his regime, yet he is their ‘homeboy’. This feeling has led to the split of Jubilee party headed by Uhuru into Tangatanga allied to Deputy President and Kieleweke faction that supports Uhuru and Raila handshake. As a reaction, Uhuru raised the farm gate price to Ksh27 to cool the tempers against the Market forces of demand and supplies. This also meant that Ugandan milk had to be blocked, even if it is cheaper due to the cost of production.

The threat to impose a 16% tax on Ugandan milk against the free trade principle is informed more by local politics than market forces. This also applies to eggs, cereals, and sugar. It is more of protecting local farmers to satisfy local politics than economic considerations. When Kenya hits hard times, Uganda offers a fallback solution. Uhuru is facing a revolt on his home tuff in the Mt Kenya region, as a result, he has decided to use foreign foodstuff as an excuse for poor prices.

The trade wars pervade other countries, Kenya is up in arms also with Tanzania. It banned the importation of rice over claims of standards and packaging. It also banned wheat, Bakharesa drinks and Maize claiming that it has high levels of aflatoxins. Surprisingly, the Kenya Bureau of Standards (KEBS) has banned 17 local  posho brands for containing high levels of aflatoxins. This clearly shows how local politics affect regional trade. This has led to a reduction in trade earnings for Uganda from $825m to $535m between 2018 and 2019.

Rwanda using internal politics 

Rwanda is using trade to settle internal politics. The blockade of the Uganda- Rwanda border is an attempt to arm-twist Uganda to release people who were being charged for espionage and abduction of individuals perceived to be opposed to Kagame. The blockade has hurt both sides since Uganda is the major supplier of foodstuff and most essential goods. Rwanda is facing a food crisis, that the nationals have resorted to smuggling from Uganda to escape the pangs of starvation. To enforce this, Rwanda is killing its nationals found crossing to Uganda to look for food. This is hurting regional trade. The Uganda trade figures have fallen from $249m to $173m for the period 2018-2019.

Before the civil war, South Sudan was the biggest regional market for Ugandan products, at the pick of the war, trade drastically reduced, though with some semblance of normalcy currently, trade has shifted from $311m in 2018 to $364 in 2019. This explains why political stability is crucial for regional trade.

The same scenario is playing out in DR Congo with political stability taking root. The export earnings have moved from $489m in 2018 to $525 at the close of 2019. Political decisions by countries which are inward-looking negatively affect regional trade. However, the biggest challenge is diversification. All countries produce more or less the same products, Uganda which has the comparative advantage in agriculture is seen as a threat to other countries because its unit cost is low. This explains why regional traders find it profitable to import foodstuff from Uganda rather than deal with local produce. A case in Kenya, with a home glut of Milk, traders choose to import Milk from Uganda because of bigger margins. Kenya’s cost of production is higher than Uganda, naturally, traders will look for a cheap source to make higher profits.

The situation is not helped by the rate of industrialization by Uganda, now that most of the goods that were hitherto imported mostly from Kenya are being produced locally, this explains the recent trade deficit between the two countries.

The Tanzania blockade of Uganda’s sugar led to a decline in export earnings from $91m in 2018 to $83m in 2019. This was about a 7.6% drop. This drop increased the sugar surplus to about 152,000 tones. Domestically, the cane farmers are affected by lack of market for their cane or low prices. What should be realized is that a wrong political decision will affect the economics of the region.

However, figures from Uganda Export Promotions Board, indicate that, despite the trade wars, Uganda’s exports grew between the period 2018-2019 from $13.4tn to $13.8tn, mainly due to diversification of export frontiers like DR Congo, Middle East, Asia, and Northern Africa.