Boosting manufacturing will strengthen East African economies

December 6, 2013

This past week media in East African region has been awash with economic battle between Kenya, Uganda and Rwanda joint infrastructure partnership dubbed the ‘coalition of the willing’ on one side and the ‘coalition of the isolated’ led by Burundi and Tanzania that now seems to involve Democratic Republic of Congo on the other side. However, whether the two coalitions fulfill their pledges or not, they must develop their domestic manufacturing sector to ward off the impacts of widespread competition from abroad and avoid becoming overly reliant on imports. All the six countries have trade deficits and imports by far outweighs their exports but none of them seem to bother beyond infrastructure projects like roads, railways and export expansion. East African governments have for a long time ignored the warning bells from a surge in the incremental capital to output ratio, an indicator that indicates the efficiency of economies. A lower ratio indicates higher output per capital. The average figure for the region stood at more than 15% of region’s gross domestic product in the first half of 2013, which should prompt the six governments to improve efficiency, boost infrastructure development in both urban and rural areas and logistics as well as relieve bureaucratic constraints.

In Tanzania where Panasonic, a global electronic giant recently announced plans to set up a plant there is enthusiasm for a rejuvenated manufacturing sector but the country is competing against more established regional neighbors like South Africa and Kenya as well as cheap imports from India, China, Malaysia and Thailand. The commitment from private investors in Kenya quite high while in Uganda the sector main focus is the newly discovered oil resources in western Uganda, which is troubling to see manufacturing being neglected. Unless imports and investment increases when East African companies are seeking more capital goods to support their expansion plans in manufacturing, in a region where patriotism can guarantee solid market the other imports like those of fast moving consumer goods will translate to over dependency with foreigner manufacturers. Forecasts predicts East African economies will expand by between 5% and 9% next year, depending on the regional integration and international business environment as well as the conclusion of Economic Partnership Agreement with EU that have stalled for a very long time.

Generally, East African economies are largely driven by domestic consumption, with a rising middle class and low borrowing costs spurring spending on private and commercial homes, cars and other goods. Central Banks in the region have kept their key policy interest rate at below 15% to maintain and support economic growth but commercial banks have failed to lower their rates citing volatility and high default rates as their main concern. Next year, forecasts expects inflation to reach 5% -10% while domestic consumption is expected to account for an average15-20 percentage points of region’s economic growth in 2014 and investment will account for between 10 to 15 percentage points, while exports are forecast to contribute 5 to 10 percentage points. The agony of the economic slowdown elsewhere has been felt in the region’s decline in exports this year, while at the same time imports have been increasing, resulting in a widening current account deficit and the trend is set to continue in 2014.Me think that every investment made for the development and training of human resources in East Africa has failed to yield economic benefits due to lack of governments support for local industries and manufacturers and some greedy business cartel that frustrate development of local brands for their selfish gains. Without thriving domestic manufacturers, the regional integration is a mission in futility.

Contador Harrison