The East African region is facing a decline in intra-regional trade. Indeed, the region lost $1.8 billion in trade revenue from $5.4 billion in 2021 to $3.6 billion in 2022. According to Business Insider Africa, this is owing to member states of the East African Community regularly violating the Common Market Protocol.
The $1.8 billion lost in trade revenue was due to a number of factors, including trade barriers, poor infrastructure, lack of information, differing standards, and the ongoing political instability in some East African countries.
Indeed, there are a number of trade barriers that make it difficult to trade goods and services within East Africa. These include tariffs, quotas, and non-tariff barriers such as sanitary and phytosanitary measures.
Then, the poor state of infrastructure in East Africa makes it difficult and expensive to transport goods and services. This is a major disincentive to trade within the region. Moreover, businesses in East Africa often lack information about the opportunities for trade within the region. This makes it difficult for them to identify potential partners and to negotiate deals.
The different standards for goods and services in East Africa make it difficult to trade across borders. This is because businesses need to comply with different regulations in each country, which can be costly and time-consuming. And lastly, political instability in some East African countries makes it difficult to do business in the region. This is because businesses are often reluctant to invest in countries where there is a risk of violence or instability.
According to a recent regional trade analysis, authorities have agreed on important policies but postponed their implementation. As a result, members of the East African Community regularly violate the Common Market Protocol and work against integration goals by imposing non-tariff trade barriers (NTBs) and making recurrent requests for special tax treatment and exemptions.
As a matter of fact, sensitive goods are subject to a tariff that is greater than 35%. And the 35% levy on completed goods according to the EAC Secretariat, has the potential to increase intra-EAC trade by $18.9 million, create 6,781 jobs, and increase tax revenues for EA by 5.5%.
While this may sound good, there are several problems with tariffs in East Africa. First, they can increase the cost of goods for consumers. When tariffs are imposed on imported goods, the cost of those goods goes up. This is because the importer has to pay the tariff, and they pass that cost on to consumers in the form of higher prices.
Second, tariffs can make it more difficult for businesses to import the inputs they need. When tariffs are high, businesses may be reluctant to import goods because they know that the cost will be high. This can make it difficult for businesses to operate and can lead to higher prices for consumers.
Third, the loss in trade revenue is due to tariffs’ distortion of the trade cycle. When tariffs are imposed on imported goods, they make those goods more expensive than domestic goods. This can give domestic producers an unfair advantage and can lead to less trade overall.
The EAC shall embark on a series of market-oriented policies to improve trade in the region. Trade liberalization can lead to increased economic growth by allowing countries to specialize in the production of goods and services that they have a comparative advantage. This can lead to lower prices for consumers, increased incomes for producers, and more jobs.
Competition remains an important component of regional growth. East African businesses must become more efficient and innovative in order to sustain themselves and produce better products for consumers.
If the EAC wants to compensate for its loss in trade revenue, it must engage in trade liberalization to make the region more competitive.