Opinion/Editorial
By Honest Prosper Ngowi; pngowi2002@yahoo.com
In Summary
The 16th ordinary meeting of the heads of states
of the East African Community (EAC) was held on the 20th February 2015
in Nairobi Kenya. These Presidents of Tanzania, Kenya, Uganda, Rwanda
and Burundi made a number of resolutions. Among them is the resolution
to speed industrial development in the regional block through banning
importation of second hand clothes and vehicles popularly known as
mitumba in Kiswahili.
The need for industrial development in this part
of the world is very clear if development goals are to be attained.
Whereas the need for industrial development in EAC is uncontested
territory, the routes through which industrialization of the sub-region
is to be attained is surely contested and subject to debate.
There are various perspectives through which this
seemingly political decision to industrialize the EAC through banning of
second hand clothes and vehicles can be looked at. In this article, the
author gives selected economic perspectives on the matter.
Why mitumba consumption?
Before any move to ban second hand clothes and vehicles in this part of the world one has to answer the why mitumba question.
There may be various schools of thoughts on the
matter. In the final analysis however it is likely to boil down to cost
and at times quality factor. If one was to take representative
social-economic profiles of consumers of second hand clothes in Tanzania
and arguably the rest of the EAC, one is likely to see the majority
belonging to lower social-economic strata.
For vehicles, they will belong to the middle class
of the society. For used clothes consumption especially the main
trigger is likely to be lower income levels that do not allow for
consumption of clothes belonging to higher indifference curves. These
are new clothes as opposed to the second hand clothes which can be
economically termed as giffenn or inferior goods. These are goods
typically consumed by low income earners, although outliers also do
exist in shapes of well-to do who consume clothes in this bundle too.
Before planning to kiss goodbye the use of second
hand clothes and vehicles, it is important to know that low income
levels is the main explanatory factor behind mitumba consumption.
Mitumba substitute therefore should be poor people-friendly.
Economics behind the ban
The planned ban of second hand clothes and
vehicles in EAC can derive its economic theoretical foundation from the
protectionism theory and school of thought.
It aims at reducing or even removing competition
from cheap imports. This aims at protecting domestic industries in
general and infant ones in particular. If this kind of protection will
not encourage productive and allocative inefficiencies within domestic
firms then it is good economics. It will also be good economics if this
kind of protectionism will prepare ground for domestic firms to graduate
from infancy and grow into not only domestically but also
internationally competitive firms.
The said protectionism can be done via various
routes including through imposition of tariff and none tariff barriers
(NTBs). Tariff will involve fiscal policy and fiscal policy instruments
including high levels of tax on import. NTBs can include import quotas
or embargo which, the latter, is total ban of particular kind of
imports.
Negative implications
Believers and scholars of free international trade
will be – and correctly so – critical to banning of importation of used
clothes and vehicles in the name of stimulating industrial development I
the EAC.
Standard international trade theories embrace and
romanticize free trade of goods and services. Restricting international
trade through banning used vehicles and clothes implies reduction of the
consumption menu hitherto enjoyed by consumers. This implies reduced
choices and can lead to reduced welfare. This is not popular within the
World Trade Organization (WTO) territories.
Banning importation of used clothes and vehicles
will have government revenue implications. This will happen inter alia,
through revenues associated with international trade. These include
import taxes, fees and charges accruing from used clothes and vehicles.
One may need clear cost-benefit analysis before banning importation of
used clothes and vehicles.
Trade theories
Based on both traditional and modern international
trade theories, production of vehicles in EAC may be technically sound
but not necessarily economically feasible. One does not need to be well
groomed in the international trade theories in order to understand that
the comparative and even absolute advantage of the sub region does not
lie in vehicles manufacturing. Going by Adam Smith’s theory of
international trade as well as those by David Ricardo, Stolper-Samuelson
as well as Heckscher-Ohlin models, production of vehicles is not what
the EAC does better. Resources endowment-based schools of thought would
have it that a vehicle produced in EAC, when adjusted for inefficiencies
may be more expensive than imported ones.
Ways forward
Assuming that there is a room for it, before the
appropriate organs of EAC start working on the heads of states’
resolution on banning importation of used clothes and vehicles, further
analysis is needed. A good economic analysis is likely to show that the
EAC would better concentrate on production and export of goods and
services they can produce more economically and efficiently. Vehicles
are not likely to be one of them, textile may be yes.
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