Why economic growth remains elusive in EA

The loading and off-loading section at the Dar es Salaam Port in Tanzania. PHOTO | FILE 

By Scott Allen

In Summary

• It’s not only the slow ports or bad roads that up the price, it’s old policy and legal habits and slow border crossings across the region

Nairobi. Transport costs in East Africa are among the highest in the world.  This is largely due to infrastructure and regulatory constraints but the major reasons for the high costs are policy, legal and regulatory constraints, not infrastructure.

It’s not only the slow ports or bad roads that up the price, it’s old policy and legal habits and slow border crossings.

It takes 28 days and $600 to move a 40 foot container from the port of Shanghai, China to Mombasa, Kenya. It can take almost the same amount of time for the same container to reach Bujumbura, Burundi from Mombasa — at a cost of $8,000. This represents almost thirteen times the cost. Quite frankly, this is ridiculous. There are 130 million people in East Africa with a combined GDP of $173 billion. Endemic poverty still exists in many parts of the region. However, it is not all doom and gloom. Many countries in East Africa are seeing a rise in their middle class and reduction in poverty.

Rwanda and Tanzania, in particular, have recently been pointed out as two of the global star performers in reducing poverty by an Oxford University Poverty and Human Development Initiative report (see the story in The EastAfrican March 23 edition). According to Paul Collier and the World Bank, Rwanda has also been successful in reducing income inequality.

According to the report, Tanzania and Rwanda could eradicate absolute poverty (average person earning less than $1.25 per day) within the current generation. That is exciting news. Interestingly, the report also pointed to trade as a key factor in improving conditions in countries that have been successful in reducing poverty.

Kenya is on the verge of becoming a middle income country (increasing its current $800 per capita income to the middle income level of $1,000) and other countries in the region are not far behind. While this is good news, it is not enough. A per capita income level of $1,000 only means earning $83 per month or less than $3 per day. Nearly 45 per cent of East Africans are still officially poor. A number of questions come up:

Q: What is so important about the regional economic integration process in East Africa and how will it contribute to reducing poverty in the medium to long-term?

Ans: Larger markets allow companies to reap economies of scale, produce a larger set of goods in greater quantities and therefore increase variety and reduce costs for consumers. 

If done properly, it can also provide a huge incentive for expansion of business and job creation, the latter currently being a major concern of policy makers in the region.

Q: If regional economic integration is a good thing, then why is it taking so long? 

Ans: Change can be extremely difficult to accept, particularly if it destabilises the status quo. To be fair, the European Union took almost five decades to get to where it is now and East Africa has made remarkable progress within a relatively short time frame.

TradeMark East Africa held a one-day seminar earlier this year with high-level participants from the public and private sectors. The key issue discussed was the Single Customs Territory initiative of the East African Community and how to achieve full operationalisation of the EAC Customs Union (and no, we still don’t have a fully functioning Customs Union in East Africa).