Manufacturers in the region have been complaining of high cost of doing business in the region coupled with several impediments to accessing the wider regional market which have affected the sectorâs productivity and competitiveness.
Lillian Awinja, the East African Business Council chief executive, was recently in the country for the second EAC manufacturing summit. Business Timeâs Peterson Tumwebaze caught up with her to discuss these and other challenges affecting EAC manufacturers and the industrialisation drive in the region.
What is the role of the East Africa Business Council in driving industrialisation in the region?
EABC has a primary role of ensuring the creation of enabling policies that not only support the business sector to increase its competitiveness, but which are also conducive to enhancing opportunity for attractive returns to investment.
However, there are still challenges toward the full realisation of potential benefits and advantages presented by the EAC integration. It is these challenges that have seen the manufacturing sector developing at slow pace besides contributing minimally to regional GDP.
Several industries set up in the region operate at below capacity and one of the prevailing factors is the high cost of doing business in the bloc coupled with several barriers to accessing the wider regional market. We can do better as a region, but we (government, private sector and other stakeholders) need to take deliberate steps to improve the business environment.
How do you rate manufacturing sector in terms of contribution to regional GDP?
While the EAC region has been registering significant economic growth averaging over 6 per cent for years, the performance of the manufacturing sector is discouraging.
Apart from modest growth of the regional manufacturing sector of 4.7 per cent, its contribution to the regional GDP has continued to shrink to less than 10 per cent. Between 2000 and 2017, the contribution of manufacturing sector to GDP of individual EAC partner states, has been shrinking, except in Tanzania.
Some experts attribute the low industrialisation process in the region to the high cost of production that has scared off investors. What is your take on this view?
The EAC bloc, with a combined population of 160 million people and total GDP of over $150 billion offers a large market that should drive the growth of the manufacturing sector.
Though the region has registered some achievements in terms of improving the business environment, a lot remains to be done for EAC to unlock the full potential in the manufacturing sector as most member states move toward the middle income status.
However, for the region to become a middle income or industrial economy by year 2032, the manufacturing sector should be given the attention it deserves, particularly by ensuring a conducive environment for the manufacturing sector to continue to grow and become competitive on the continent and globally.
What are some of the interventions can that help bolster the regional manufacturing?
One of the key interventions EABC believes can help make the manufacturing sector a vehicle for economic transformation and drive growth is establishment of a regional local content policy. Such a policy is essential to boost domestic processing and consumption, which will in return help improve the sectorâs production capacity and competitiveness.
We applaud the Made-in-Uganda and Made-in-Rwanda campaigns by Uganda and Rwanda, through which citizens are being sensitised about the quality of goods made locally and the importance of buying and consuming domestic products.
It is under such campaigns that we can also carry out the Buy East Africa, Build East Africa drive. Under a regional local content policy, firms are expected to use or source a specified minimum amount of local goods and services from the EAC region, including labour and raw materials in their production process or service delivery.
The same policy will guide EAC partner states to prioritise affirmative action in public and private procurement to create demand for locally-manufactured products and services, as well as promoting technology-based business start-ups.
Additionally, the policy will guide EAC in mainstreaming local sourcing of goods and services at their national levels, as well as promotion of the consumption of local goods and services.
Generally, the regional local content policy will create an indigenous production platform focused on domestic value-addition and promotion of local industries, as well as to strengthen the linkages between large industries and small-and-medium enterprises (SMEs) and the services sector. This is important to support the SME sector growth through initiatives, like subcontracting.
This approach can also enable the region to overcome existing barriers by learning, adopting technologies and improved production processes through technology and knowledge transfer between big and small firms.
We are, therefore, confident that encouraging local content will help improve the balance of payments given the often high foreign currency drainage associated with the importation of goods and services for strategic industries.
The business community has been complaining about uniform application of EAC common external tariff. What is your view on this matter?
One of the key instruments of the EAC Customs Union is the EAC common external tariff as it reflects the uniform trade relations between EAC partner states and the rest of the world.
Though implementation of the customs union started 12 years ago, member countries are not uniformly applying the EAC common external tariff, thus creating an unleveled playing field and curtailing further industrialisation of the region.
As EAC policy-makers are carrying out a comprehensive review of the blocâs common external tariff, we urge them to make the exercise all-inclusive. Thereafter, we expect all EAC partner states to uniformly apply the agreed the policy and avoid their requests for âstay of applicationâ.
Manufacturers have been complaining about high cost of production in the EAC bloc. How big is this challenge?
One of the major problems hindering growth of the manufacturing sector is the high cost of doing business in the region.
There are many issues, including the cost and access to electricity; cost and procedures involved in cross-border trade; high taxes, as well as access to credit and regulatory issues.
To the business community, the time it takes to solve an issue is important and a key factor in the growth process. For this reason, the sector has failed to fully exploit its potential and attain sustainable growth, which has also made EAC products less competitive in the domestic market and international markets.
Remember, the EAC region still has one of the highest freight and transport costs that erode global competitiveness for its exports and imports.
Transport costs are about 60 per cent higher in East Africa compared to the US and Europe. According to studies, a 10 per cent decline (globally) in transport costs is likely to boost trade by 25 per cent. For Africa and East Africa, in particular, which generally have high transport charges, the growth in trade could be significant.
For the manufacturing sector, high transport charges from the key ports of entry - Mombasa and Dar es Salaam - means that raw materials are delivered at much higher charges, a situation that eventually raises the cost of production. We appreciate the efforts by partner states and hope that the construction of standard gauge railway will lower the cost of transportation across the region.
The region still imports a lot of products which has crippled the growth of local industries. What is EABC doing to address this challenge?
Tonnes of cheap imported substandard products are still entering the EAC market. This is against a backdrop of a marked decline in trade volumes among the EAC countries as the recent EAC Heads of State summit acknowledged. This is partly blamed on cheap imported products mainly from Asian countries flooding the EAC market. Some of these countries use their economic dominance to dump goods in East Africa.
Although cheap imports benefit consumers, in the long-run their effects on economic development are akin to those of dumping. The major effect of this is local manufacturing firms relocating to more attractive destinations, scaling down on their production or even shutting down completely as they have been shut out of the market by cheap and substandard imports.
We are, therefore, appealing to EAC governments to put in place mechanisms to contain importation of substandard products to support industries in the region and spur development as well as job-creation.
Initiatives that will create a conducive business environment are instrument to attracting more investment into the manufacturing sector and will allow the sector to play its critical role in the development of regional economy.
The private sector in the bloc promotes the principles of dialogue and consultations and, we will, therefore, continue to work with governments towards achieving the objectives of the EAC regional integration process.