Lack of product diversity leaves East Africa exposed

A worker at Empire Kenya Tea prepares for auction and export on August 5, 2020. Green tea is one of the cash crops widely grown across East Africa as it has been a high forex earner. PHOTO | LABBAN WALLOGA | NMG

By VINCENT OWINO

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East African countries are among the 45 nations in the continent that still depend heavily on the export of primary commodities such as minerals,

ores, fuels, metals, agricultural produce and foods, a phenomenon which increases their vulnerability to economic shocks and slows growth.

This is why the UN Conference on Trade and Development (UNCTAD) is urging them and other African countries to implement various policy recommendations that will see them diversify their exports by boosting the services sector.

The UN agency’s new report, released July 14, suggests that the commodity-dependent African countries could become more resilient to external economic shocks if they diversified their exports, especially through expanding their service exports.

“Dependence on commodity exports has left African economies vulnerable to global shocks and hindered inclusive development for far too long,” said Rebeca Grynspan, UNCTAD Secretary-General.

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The service sector exports from the region both constitute a small percentage of the total exports and are only concentrated on about three services which make up more than 70 percent of all services exported, says the report.

It’s only in Kenya, where service exports constitute about 28.2 percent of all exports, that they are a little diversified, spread across travel, transport, cultural and recreational services, telecommunications, insurance, maintenance and repair, financial services, sectors.

In Uganda, services constituted 15 percent of its exports in 2005-19 mostly in transport and travel.

A similar situation was observed in Tanzania, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo, where services as a share of all exports were between 0.1 and 21.5 percent.

As such, UNCTAD recommends that Africa should “build capacities to innovate, enhance technologies and infrastructure for industrialisation, and strategically cater for the financial needs of domestic businesses.”

Also, leveraging the opportunities presented by the Africa Continental Free Trade Area can help the countries diversify their exports.

What’s more, the concentration of African service sector on traditional services rather than knowledge-intensive services, such as ICT and telecommunications, does not help the situation as they “do not have a direct impact on the complexity and diversity of the export basket.”