Diversity in exports and products does little to boost EAC’s industrial production

Wednesday November 29 2017

Burundi and Kenya export mostly products from

Burundi and Kenya export mostly products from the chemicals and plastics sectors, followed closely by food and beverages. PHOTO | FILE 

CHRISTABEL LIGAMI
By CHRISTABEL LIGAMI
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The East African Community’s industrial production remains low, even with most partner states reporting diversified manufactured exports baskets.

According to the inaugural EAC Industrial Competitiveness Report 2017, the region’s manufacturing value added (MVA) per capita at $87 is well below the goal of $258 by 2032 set in the EAC Industrialisation Policy.

Although the MVA growth rate is above the global average (1.1 per cent between 2010 and 2015), placing it in the context of the regional policy and in comparison with similar countries in sub-Saharan Africa reveals that such growth is not so impressive.

Most EAC partner states, the report says, have fairly diversified manufactured export baskets except for Rwanda. Burundi and Kenya have similar export structures, exporting mostly products from the chemicals and plastics sectors, followed closely by food and beverages.

Rwanda’s manufactured exports structure stands out from the rest of the EAC, as manufactured metals dominate the export basket (74 per cent in 2014), although other product groups gained some importance, such as food and beverages.

In the region, Kenya boasts the highest product diversification with its top five products contributing to only 22 per cent of manufactured exports. This contrasts with Rwanda, where 80 per cent of its export earnings derive from its five top products, in particular base metals.

In terms of market diversification, all EAC countries show a certain degree of vulnerability, with the top five destinations absorbing more than 50 per cent of overall manufactured exports.

In this respect, Tanzania has the largest spectrum of markets reached by its manufactured products (belonging to both the EAC and the Southern Africa Development Community helps in this direction).

The aim of the competitiveness report, which was launched by the EAC and the United Nations Industrial Development Organisation, is to provide a compass to policy-makers, the private sector and a wider range of stakeholders on the broad direction of the industrial development of the EAC .

The report assesses the EAC’s industrial performance vis-à-vis other regions and role models in Asia and Africa and sheds light on strategic short- and long-term industrialisation paths  that EAC should pursue.

According to the report, due to the fact that MVA is growing slower than GDP, the share of manufacturing in GDP has been contracting, from 9.8 per cent in 2000 to 8.4 per cent in 2015, thus not leading to the desired structural change towards manufacturing, falling short again of the regional target of 25 per cent by 2032.

“The faster growth of the EAC’s GDP compared to its MVA stems from relative increase in the value added from the service sector (6.1 per cent per annum since 2000), whose contribution rose to almost half of GDP in recent years.

These developments neglect to a certain extent the benefits that the manufacturing sector can have on the economy as a whole, as understood from theoretical knowledge and empirical evidence,” says the report.

Among the main sectors of an economy, it is the manufacturing sector that is expected to create the strongest inter and intra-sectoral linkages, by demanding inputs from the primary and secondary sectors and by exploiting the services sector.

At the same time, goods produced in the manufacturing sector are expected to be demanded by firms in different sectors.

“This creates a positive spiral effect, where sectors reinforce each other. In the case of the EAC, this has not yet taken place,” says the report.

“More national sourcing and building partnerships with domestic firms would have a range of positive spillovers. To put this analysis in perspective, while in the EAC, manufacturing sectors (which accounted for 14 out of 27 sectors observed) contributed to 22 per cent of backward linkages and 16 per cent of forward linkages in the economy, the respective shares in Vietnam were 40 per cent and 27 per cent.”

Taking out the food, beverages and tobacco sectors reduces the EAC share even further.

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