Why intra-EAC trade never hits the roof

Arusha. Despite a modest rebound from the severe impact of Covid-19, trade within the East African Community (EAC) bloc remains lower than its potential.

A just-released report has pointed out factors impacting what could have been a robust trade in one of Africa’s most integrated economic blocs.

Persistent non-tariff barriers (NTBs), whose elimination remains futile despite relentless efforts, is one of the hindrances to the desired vibrant trade.

Another major cause is what is seen as protectionist tendencies by some EAC partner states, mainly to safeguard their industries or mere “national interests”.

The Ease of Doing Business in the EAC, which was released by the East African Business Council (EABC), wants policymakers to swiftly address the drawback.

Low intra-EAC trade apparently undermines the status of the Community which is seen as a fully integrated regional economic community (REC) in Africa.

According to the 2019 Africa Regional Integration Index (ARII), the EAC is the most integrated economic bloc among the eight RECs in Africa.

The Index assesses African regional integration based on five indicators, among them free movement of people and infrastructure integration.

Other indicators are macroeconomic integration, productive integration, and integration in trade and business-related spheres. However, according to the report obtained by The Citizen, the EAC scored the highest in only three out of the five integration indicators.

These are the free movement of people, macroeconomic integration, and integration through existing and newly launched infrastructure projects.

However, the seven-nation bloc did not perform well on trade integration or productive integration.

“This was due to low intra-EAC trade and investments,” said the report released by the Arusha-based apex body of private sector associations in the region (EABC). The regional economies were badly hit by Covid-19 but started to experience a steady recovery in 2021, a year after the outbreak of the global pandemic.

Intra-EAC trade, accounting for imports and exports in the seven member states, grew from 13 percent in 2019, valued at $7.1 billion, to 15 percent in 2021, valued at $9.5 billion.

By September 2022, EAC’s trade value had reached $10.1 billion, representing a 20 percent share of intra-trade within global trade, which stood at $62 billion.

The region also displayed resilience through increased public investment in 2021, driven mainly by the service and industry sectors on the supply side.

In fact, overall foreign direct investments (FDIs) in the region at the time ($4.7 billion) exceeded investments by its citizens outside the region ($160 million) in 2021.

Despite the progress made in the post-Covid-19 period, trade volumes and value did not hit the anticipated high levels due to NTBs and protectionist tendencies by some countries.

Although the business sector is generally familiar with NTBs, which manifest in roadblocks, protectionism is seen as another cancer eroding trade prospects in the region. EABC has been vocal on this in recent years, often calling for swift intervention by senior policymakers and heads of trade facilitation agencies.

Ideally, trade protectionism is a policy that protects domestic industries from ‘unfair’ foreign competition. The four primary tools used in trade protectionism are tariffs, subsidies, quotas, and currency manipulation.

Elsewhere, trade protectionism is seen as a purposeful policy by a nation to control imports while promoting exports.

It is done in an effort to promote the economy of the nation above all other economies by restricting imports through tariffs, import quotas, and other government regulations.

Debates on the pros and cons of protectionism have raged for years, but opponents argue that protectionist policies are often counterproductive.

They not only reduce trade but adversely affect consumers by raising the cost of imported goods as well as the producers and workers in export sectors.

The regional business body has often accused some partner states in the Community of employing “protectionist tendencies” in the aviation sector.

The protectionist measures are employed through safeguarding their respective airlines, including categorising flights within the EAC as “international.”

This has seen the liberalisation of the skies under the Yamoussoukro protocols remain on paper among the EAC countries, which have also failed to harmonise air fees and charges.

EABC maintains that protectionism in the domestic air transport sector contravenes the EAC Common Market Protocol, which aims to foster economic and trade relations among states.