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The COVID-19 pandemic has significantly impacted negatively on East Africa Community (EAC) economies
In April, the World Bank predicted that the impact of the pandemic will lead to a decline of EAC economies growth from 2.4% in 2019 to between – 2.1% and -5.1% in 2020. The report indicated that the EAC region is expected to have output losses of between $37 billion to $79 billion due to reduction in household and business spending, disruption to supply chains for key inputs and a decline in tourism.
Measures taken to contain the spread of the pandemic such as; closure of airports, borders, imposition of curfews, social/physical distancing, lock-downs and some businesses have further fuelled the impact of the pandemic to EAC economies .
Apart from the health sector, other important economic sectors in the EAC such as transport & distribution, trade, manufacturing, agriculture, tourism, construction, education and air travel, were hit hard by the pandemic.
It is critical for the EAC to re-think and implement policies geared to strengthening regional value chains in the EAC region. This as 51% of EAC exports and 53% of imports are destined and interlinked to countries highly impacted by Covid-19. For instance, the EAC region imports over 90% of its pharmaceutical supplies.
Tourism is ranked as the largest single export earner for the region, contributing an average of 18.8 % to EAC total exports. The EAC Partner States are expected to lose upwards of $5.4 billion of tourist local spending for the year 2020, under scenarios of protracted closures of seaports and airports. Declining demand of travel into the region has also resulted in revenue losses for airlines in the EAC region. The pandemic has also seen about 6.2 Million foreign tourists fail to travel to their preferred EAC destinations. The trickle-down effects have been felt across affiliated industries and the rest of the economy. Across the region the COVID-19 impact on tourism has led to a significant decline in Safari expeditions, cut-back in operations in the hospitality industry including closure of hotels and recreational centres, loss of revenue for East African airlines and loss of jobs for thousands employed by the sector.
The breadth and scale on the impact of COVID-19 on the sector and directly affiliated industries has also resulted in the cancellation of meetings, conferencing & exhibitions which increase the region’s revenue.The East African Business Council successfully pushed for re-opening of regional skies to boost regional trade, tourism and hospitality sectors.
Manufacturing plays a critical role in employment creation and government revenue collection and contributes an average of 9.7% to the EAC GDP.
COVID-19 has disrupted sourcing of raw materials, intermediate and capital goods needed by manufacturers in the EAC region. The pandemic has also created opportunities for some industries which have focused on repurposing their production lines to manufacture essential items such as face masks, sanitizers and personal protective equipment (PPE). In order to cushion industries in the region against the negative impact of COVID-19 pandemic, the EAC Partner States need to push for Buy East African Build East Africa (BEABEA) and provide support to key industries such as textiles, leather, pharmaceuticals and agro-processing to expand capacity and establishment of new industries to manufacture goods mostly imported outside outside the region.
Agriculture and agro-processing contributes between 24% and 44% of GDP of the EAC Partner States and accounts for the livelihood of about 80% of the region’s population. Supply chain disruption due to travel restrictions has affected the exports of perishables such as flowers, fruits and vegetables. Disruption of food supply, production, farm inputs, price fluctuations, restrictions of import and exports as well as shortages of labour supply has also heavily affected the region. The EAC region has already felt the impact of COVID-19 pandemic on the horticultural sub-sector whereby fresh produces such as flowers, fruits and vegetables are finding it very difficult to access international markets due to travel and import restriction.
The impact of COVID-19 coupled with outbreak of desert locust in the region are also likely to escalate food insecurity in the region. There is likelihood that the next season’s agricultural production will be hampered by disruption to the trade and distribution of inputs such fertilizer, pesticides, and labour. The EAC Partner States should, with considerable ingenuity, consider liberalization of their airspaces to reduce inefficiencies and costs especially for cargo carries. This is vital to enhance consolidation and increase capacity for horticultural exports from the EAC region to international markets.
An EABC Survey on the impact of COVID-19 on business and investment in the EAC region, April 2020, shows that the transport and logistics sector experienced reduced cash flow by 75%, due to a reduction in the movement of people and cargo, as a result of lockdowns and curfews. Land locked countries in the region have been more exposed to disruptions.
Instituted measures at global and EAC levels to contain the spread of the COVID-19 have not only disrupted supply chain but created serious hurdles in the movement of cargo, service suppliers and people across EAC borders. The COVID-19 pandemic has increased Non-Tariff Barriers (NTBs) along the Northern and Central Corridors due to the imposition of travel restrictions, lockdowns and curfews. The slower clearance of cargo at sea ports has also negatively impacted maritime transport industry as many ships are anchored offshore and continue to incur daily costs associated with cargo and ship insurance, labour, and overhead costs.
The EAC has permitted free movement of cargo across borders during this COVID-19 pandemic however, lack of mutual recognition of COVID-19 test certificates, testing equipment & reagents and low number of trade facilitation agencies staff at the borders has resulted in trucks snarl-ups impacting the growth of intra-EAC trade.
Formulate policies to promote economic recovery
Implementation of an EAC coordinated approach and policies on facilitating the free movement of cargo, across EAC borders, is vital towards the economic recovery of the region.
Intra-Africa trade accounted for less than 15 percent in 2018, with Europe, United States and China accounting for 54, 6 and 14 percent of Africa’s trade with the rest of the world (AfDB,2020). By April, 2020 Africa’s imports fell by 21% while exports dropped by 36% because of overreliance on external trade and export of primary commodities. The commencement of the African Continental Free Trade area (AfCFTA) on 1st January 2020, is expected to open up a market of $1.27 billion consumers. EAC is one of the fastest integrating Regional Economic Communities (RECs) in Africa. The quick economic recovery of the bloc is important for the actualization of the AfCFTA.
In 2018, total EAC imports from the world stood at $38.3 billion, while exports stood at $14.0 billion. COVID-19 could significantly reduce Foreign Direct Investment (FDI) inflows to East Africa, as investors postpone investment decisions.
Undertaking cost-benefit analysis and involvement of the private sector in the negotiations of international agreements is vital to reposition and enhance the competitiveness of the EAC bloc. The EAC region should negotiate international agreements as a bloc to enhance mutual trust and preserve common policy in the field of external trade.
The diversified development of East Africa requires cooperation with China
China remains Africa’s largest trading partner with trade volumes increasing by 14.1 percent year on year to above $170 billion in 2019 (Ministry of Commerce, China). A new East Africa – China partnership should look at repurposing business models to the new emerging opportunities such as; e-commerce, biotechnology, cybersecurity, digital technology, telemedicine, pharmaceutical among others. China’s infrastructural promotion in the bloc is also necessary to provide basic platforms for economic growth and transformation. East Africa is also counting on China’s support , as the continent moves towards starting to trade under the African Continental Free Trade Area(AfCFTA) on 1st January 2021.
There are some clear initiatives that China and Africa have designed that will promote and drive this relationship. These initiatives include the Belt and Road Initiative, Forum on China–Africa Cooperation (FOCAC) and the China International Import Expo (CIIE), which aims at opening the Chinese market to imports from Africa.
Trade expos and initiatives in East Africa create an opportunity for the region to tap into the Chinese imports market for agricultural and manufactured goods. Engagements such as the CIIE initiative should be encouraged as they have in the past opened markets for African exports . This has in turn helped in increasing the aggregate trade, lowering the trade imbalance, transferring technology and increasing the balance of payments, thus fueling the continent’s economic growth.
Attracting China to invest and set up industries to manufacture highly imported products in the EAC region such as petroleum, edible oil, medicaments and motor vehicle industries can reduce the trade deficit. This will also create employment for East Africans and address future challenges on supply disruption caused by pandemics or economic shocks.
Increased demand of health expenses along with falling tax revenues, reduction in export earnings and pending debt payments has limited the fiscal and policy space options for EAC governments to respond to shocks.
China’s assistance in providing debt relief to East African countries, can offer great relief with funds saved chanelled to mitigate the impact of the pandemic and invest in the recovery plan.
Strengthening innovation, diversification, value addition, regional content & supply value chains and investing in the health sector is imperative for East Africa’s economic resilience, competitiveness and growth.
The author is the Executive Director/CEO East African Business Council (EABC)
Source: China Investment Magazine
