This week, Uganda’s Cabinet adopted a resolution to impose retaliatory tariffs against Kenya, taking their simmering trade war a notch higher. The decision reflected a radical shift, or rather a loss of patience by Kampala, whose responses in this old trade war have been rather meek.
Lauded by the domestic manufacturing sector, the Ugandan action reflects a degree of frustration. Hemmed in by Covid-19 disruptions, Uganda, which has suffered multiple revenue deficits during the past two quarters, is also witnessing a rising trade deficit. A Kenyan delegation that was supposed to visit the country to verify its capacity to manufacture surpluses of milk and sugar aborted its mission.
Despite extensive tours of Uganda’s dairy and sugar processing facilities, previous verification missions by Kenya have not altered Nairobi’s claim that Kampala is simply repackaging imports.
Trade figures for October released by the Bank of Uganda show the monthly deficit had climbed $330 million. Nearly half of that was accounted for by a fall in Uganda’s exports to her East Africa neighbours. And while the focus has been on Kenya, Uganda’s imports from the EAC have been rising, with Tanzania taking the lion’s share. A look at the basket of goods explains why. Basically agrarian, Uganda’s exports to neighbours are mainly unprocessed agricultural produce while her imports are made up of mainly manufactured and intermediate goods.
That is why Kenya’s narrowing of the sluice gates to imports of milk, sugar and, lately, eggs is felt deeply. There is also a growing belief in Kampala that Kenya, which tends to have a preference for imports of raw agricultural produce, is deliberately stalling Uganda’s rise as a manufacturing power.
The focus on Kenya is not surprising. With the biggest middle class in the region and less favourable natural factors for agriculture, Kenya is the region’s consumer powerhouse. Landlocked, Uganda cannot afford to rub Dar es Salaam the wrong way, because it is the only other route to the sea.
For the Democratic Republic of Congo, which is poised to become the seventh member of the EAC trading bloc, the developments must be revealing. The DRC is by far the largest net importer from the EAC. By joining the bloc, it faces a potentially huge blow to its revenues from imports from the EAC. Were Kinshasa to look at regional trade through the prisms of Kampala and Nairobi, the idea might be less appealing.
The reality is that unbalanced trade has rather short-term benefits. Money follows money. If your partners are too poor to trade with, you earn less from them.
In aggregate terms, Kenya is probably earning more from Uganda today than it did during the economic collapse of the 1970s and ‘80s.
Even Uganda, which is enjoying generous surpluses in trade with South Sudan and Burundi, would probably earn more from those markets if they were more capable partners.
The current trade wars are a drag on what the region could achieve under a more open trade regime.
The perceived losses by individual member states are the result of a failure to fully open up regional trade. Rather than cheer on, that is the message the private sector should be sending to the region’s political leaders.