East Africa’s industrial performance has in recent years stood above the global average, but stayed around the average of sub-Saharan Africa, according to a new report.
The EAC Industrial Competitiveness Report 2017 states that these growth rates, as measured by the Manufacturing Value Added (MVA) and manufacturing trade growth rates, fall short of some of the targets set in the EAC industrialisation policy. They are also below similar regional economic communities in sub-Saharan Africa, including Ecowas.
Discounting by population size, the report shows that the EAC is still registering a low level of industrial production. And, based on the current growth rate, the region would only attain an MVA per capita level of about $87 in 2032, which is well below the goal of $258 set in the EAC Industrialisation Policy, and would not allow it to reach SADC’s production capacity of 2015.
The report comes as the EAC Industrialisation Action Plan (2012-2017) comes to an end.
It shows that MVA growth has slowed down in recent years, from 5.3 per cent between 2005 and 2010, to 4.6 per cent between 2010 and 2015, thus falling short of the 10-15 per cent annual growth rate projected in the EAC Industrialisation Policy and Strategy and below the sub-Saharan Africa average.
Analysis of the cotton and leather sub-sectors shows missed opportunities at the level of high value-added products in the value chain, such as for cotton apparel and leather footwear. Meanwhile, the analysis of industrial drivers has pointed to a number of key constraints to industrial competitiveness.
Nonetheless, although EAC’s exports of the top regionally demanded products generally grew since 2010, it did not happen at the pace and extent needed to match the EAC demand, thus allowing firms from outside the region to gain larger market share.
As a result, EAC firms lost market share in 22 out of the 25 most demanded manufactured goods, including cement, pharmaceuticals, iron and steel products, and fertilisers.
The report says that the past 10-15 years have shown signs of upward convergence among partner states in terms of MVA and manufacturing trade values, with Tanzania, Uganda and Rwanda growing significantly faster than Kenya.
While manufacturing firms increased their intra-regional exports in certain sectors, this did not happen at the pace and extent needed to match the demand growth, resulting in the EAC losing market share against emerging economies such as India (pharmaceuticals, heavy petroleum), China (iron and steel products and fertilisers) and Malaysia (fixed vegetable oils).
The report indicates that due to MVA 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, thereby denying the desired structural change towards manufacturing and again, falling short of the regional target of 25 per cent by 2032.
Export capacity is high
The faster growth of EAC’s GDP compared with its MVA stems from a relative increase in 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.
The report shows that the EAC growth of manufacturing export capacity is high, but declined from 22.5 per cent (2000-2005) to 1.7 per cent per annum (2010-2014).
It was mainly driven by sectors that experience strong fluctuations in demand and prices of base metals (manganese ore/concentrate), heavy petroleum and base metal waste, specifically copper waste and scrap (the price of manganese has been decreasing rapidly, for example).
Agro-processing, including food, beverages and tobacco, together with apparel and leather sectors, contributed to 40 per cent of manufactured exports in 2014, growing at double digit rates, above the 5 per cent average growth of all manufacturing sectors.
Metals, with all the fluctuations it brings, remained the second largest sector in 2014, whereas chemicals and plastics, which comprise fertilisers, agrochemicals, petrochemicals and pharmaceuticals, contributed to the largest group of medium and high-tech products.
Their share in manufactured exports has not increased, and in 2014 accounted for 15 per cent of the total. The sector grew by 2 per cent per annum since 2010, below the average of total manufactured goods.
The EAC’s capacity to export manufactured products is just above half of its capacity to produce such products, implying that most of its production is catering for its own markets. Over the period of 2000-2014 annual growth was high at 12.4 per cent.