How competitive is the EAC region?

The World Economic Forum (WEF) released its 2014 Global Competitiveness Report last week. Based on the findings in the detailed report, there is a lot EAC member countries need to do to make the region more competitive if it is to attract more Foreign Direct Investment (FDI).
Poor infrastructure like roads hinders development in the region. (File)
Poor infrastructure like roads hinders development in the region. (File)

The World Economic Forum (WEF) released its 2014 Global Competitiveness Report last week. Based on the findings in the detailed report, there is a lot EAC member countries need to do to make the region more competitive if it is to attract more Foreign Direct Investment (FDI).

According to the rankings, out of the 144 countries surveyed, Rwanda was ranked 62, Kenya 90, while Tanzania, Uganda and Burundi were ranked 121st, 122nd and 139th, respectively.

Economists have argued that for economic blocs such as EAC to prosper, they need an anchor economy among them; this is normally the strongest economy in the pack which then provides ‘leadership’ to others.

The European Union has Germany while the Brics have China. But who does EAC have? A closer look at the report shows the pros and cons of the five economies and their competiveness.

“Kenya’s overall competitiveness is held back by a number of factors that hinder its long-term economic growth, particularly in view of its transition toward middle-income status: secondary and tertiary enrollment rates are low; infrastructure— particularly telephony and electricity (114th)—does not meet the needs of Kenya as the largest East African economy,” notes the report.

More critically, the report points to Kenya’s recent insecurity woes describing the situation as ‘worrisome’ and a major threat to the region’s competitiveness.

Tanzania, the region’s second largest economy, is not any better. According to the report, high corruption and poor infrastructure render Tanzania uncompetitive and therefore unable to lead the rest.

“Corruption remains high in Tanzania and policymaking continues to be opaque while infrastructure is underdeveloped with poor roads and ports and an unreliable electricity supply,” says the report.

Burundi, Rwanda and Uganda are all small landlocked economies, whose hopes are dependent on Kenyan and Tanzanian ports that report describes as ‘poor’ hence limiting smooth trade.

The report makes Burundi appear like ‘the sick man’ of East Africa. By looking at the indicators where the country should be expected to score highly and boost the region’s general outlook, it gets, surprisingly condemned.

For instance, the report’s surveyors asked, “in your country, to what extent does organized crime (mafia-oriented racketeering) affect business?

Those who answered that question in Burundi told the researchers that mafia crime is a major business hindrance in the country. Consequently, Burundi is ranked 122nd globally making it appear that its mafia problem is bigger than the United States.

EAC score on major indicators

 According to the report, organised mafia-like crime in the EAC is highest in Kenya (125th globally) followed by Burundi (122) Uganda (108), Tanzania 77 and least in Rwanda which is ranked 9th globally.

But if organised crime is flourishing in those countries, it’s because of weak police forces that East Africans say can’t be relied on to maintain law and order.

Researchers asked respondents in East Africa, ‘to what extent can police services be relied upon to enforce law and order in your country?

The findings indicate that Burundi has the most unreliable police force ranked 142 globally followed by Tanzania’s at 108, Uganda 96, Kenya 86 while Rwanda has the most reliable police force in the region, ranked 21 ahead of USA whose police force is placed in 22nd position of the global rankings.

The consequences of weak and unreliable police forces, according to the report, have increased the cost of doing business in those countries because they give room to high rates of violent crime.

Kenya leads East Africa regarding the cost of violent crime to business in 129th position followed by Uganda 118, Burundi 115 and Tanzania in 88th position. Rwanda is ranked 6th globally, meaning violent crime and the country is safe place for investors.

Regarding the transparency of government policymaking, Rwanda is ranked 8th globally, Kenya 58th, Uganda 80, Tanzania 111 while Burundi pulls in at 131.

Terrorism is increasingly becoming a major threat to businesses in the EAC. Rwanda and Tanzania have the least terror threats ranked at 37th and 99th globally. Kenya is ranked worst at 135 followed by Uganda 131 and Burundi at 105.

Some governments in the region are also wasteful, according to the report which makes it impossible to place investments in critical areas such as infrastructure. Rwanda is the most prudent in public resources management followed by Kenya, Tanzania and Uganda.

However, when it comes to infrastructure, all partner states, including Rwanda, post generally poor results. For example when respondents were asked how they assess general infrastructure in their countries such as transport, telephony, and energy, the responses were unflattering.

Rankings on the quality of roads indicate that Rwanda has the best roads in the region with a global rank of 45th while Kenya’s are 59th. Burundi beats Uganda and Tanzania with a 101 rank compared to 105 and 112, respectively.

Sharing best practices

Does an uncompetitive East Africa hurt Rwanda’s competitiveness?

“Yes, it does,” says Hannington Namara, the chief executive officer the Private Sector Federation.

Namara says the whole idea of integration is to market the region as a single block but if members keep underperforming in reports of international scope such as the World Economic Forum’s global competitiveness index, it would negatively impact on the region’s capacity to attract investment.

“There’s nothing that Rwanda has done that other countries can’t do. If they could take Rwanda’s approach as an example then we could manage to reform together as a region,” Namara said.

However, a World Bank economist who declined to be quoted slightly disagrees with Namara.

“I think Rwanda doesn’t get hurt by uncompetitive neighbours ; [instead the country] can market itself as an individual economy, where investors can set base to tap into the wider region,” he said.

Where both Namara and the economist agree however, are the areas that EAC partners need to address in order to improve their competitiveness.

“Priority should be placed in investing in infrastructure and energy, because even Rwanda scores poorly here meaning the entire region must work together to fix these areas,” they conclude.

 

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