Nine interesting things that came out of the first EAC Industrial Competitiveness Report

The East African Community hopes to increase the export of manufactured goods both within and outside the region. This, according to the EAC Industrialisation Strategy 2012-2032, will contribute to sustainable wealth creation, improved incomes and higher standards of living for the community.

The recently released 2017 East African Community Industrial Competitiveness Report reflects on this strategy, focusing on the manufacturing sector of the five partner states.

1. Burundi’s industrial sector is more high-tech than the rest
While political crisis has slowed Burundi’s growth (it is the only one to have registered a decline in the period), the small country outperforms its neighbours in the production of medium and high tech products. In the 15-year period, Burundi increased its share of medium to high tech products from 4% to 40%. This is mostly due to its fast-developing chemicals and plastic sector, which is the main contributor to the region’s medium and high-tech industry.

Based on industry classification, medium and high-tech refers to more developed products. They generally bring in more money and create better opportunities for innovation. But the share of these export products remains low, growing at an average of 1 percent per annum between 2010 and 2014.

2. Regional GDP grew at an average rate of 5.8% per annum between 2000 and 2015.

The EAC’s gross domestic product was slightly higher than the average GDP of sub-Saharan Africa during the same period and much higher than the global average of 2.9%. The service sector had the largest share, growing at 6.1% annually since 2000 while agriculture grew at 3.4%.

Manufacturing value added performance dropped to 4.6% per annum from 4.7% in the period 2000-2015, compared to 5.3% per annum between 2005 and 2010. Since 2010, the region has grown slower than the Sub-Saharan Africa average of 5.5% per annum.

3. We might not make our 2032 manufacturing value added targets
Based on current growth, the region might not attain the targets it set out in the EAC Industrialisation Strategy 2012-2032. According to the strategy, expected long-term outcomes include manufacturing value added contributing 25% of GDP and reaching $258 per capita by 2032.

But projections from current growth rate show that the region will only attain MVA per capita growth of about $87 in 2032. To achieve $258, according to thte report, average annual MVA per capita growth must be kept as high as 8.1% for the next sixteen years; a feat few economies have achieved.

4. Kenya has the highest manufacturing value; Tanzania is growing fastest
No surprises here: the report says Kenya had the highest manufacturing value added in the region at $5.4bn in 2015. The second highest was Tanzania at $3billion, then Uganda at $2.1 billion, Rwanda at $402 million and Burundi at $204 million.

Tanzania grew fastest at 7.7% per annum, then Rwanda at 6.9%, Uganda at 5.7% and Kenya at 3.4%. Burundi declined at 1.2%.

5. Regional slowdown in manufactured export growth is largely due to decrease in three exports
Three of the top ten exported manufactured goods in 2010 have had major drop: base metals (manganese ore/concentrate), heavy petroleum, and base metal waste (specifically copper waste and scrap). The global price of manganese ore has been decreasing rapidly, but the largest hit came from a lack of diversification of export markets.

Both exports of manganese ore/concentrates and copper waste and scrap were largely destined to one country only, which stopped exports from EAC by 2014. The manganese ore/concentrates were mainly exported to China (65% in 2010) and declined at an annual rate of -74% since 2010. Copper waste and scrap were sold almost exclusively to Switzerland (93%), and this trade completely vanished by 2014.

6. DRC takes everything else and gives us some palm oil
The Democratic Republic of Congo is the single largest market for the EAC region, providing a market for a third of manufactured export products from the region. It absorbs about 60% of Burundi’s manufactured goods, 17% of Rwanda’s, 7% of Kenya’s, 11% of Tanzania’s and 15% of Uganda’s.

The country might potentially grow as a supplier of palm oil to the region. The second most important import in the region after petroleum is fixed vegetable oils, of which 97% of EAC’s demand for edible oil is sourced from palm oil. In the region, only Kenya and Uganda export palm oil, but they are supplying less while DRC is slowly increasing its market share.

The DRC has a long way to go, as the biggest suppliers are Malaysia and Indonesia who are major global producers, but it is a potential competitor.

7. Uganda’s ability to export manufactured goods is only a third of its capacity to produce
The EAC countries are catering predominantly to their domestic markets, and are not entering the manufactured export business. Uganda’s biggest exports include food and beverages, cotton products, wood and paper, metals and construction materials.

This has opened the market to other players given the demand in the region. Chinese and Indian imported manufactured products gained over 50% of the EAC market in 2014. The report says that while intra-regional exports grew at 2% annually between 2010 and 2014, Chinese and Indian manufactured exports expanded by 29% and 27% respectively, per annum. India mostly exports heavy petroleum (65% in 2014) and medicaments (6%); China is selling a wide range of manufactured goods from footwear to telecommunications equipment, wearing apparel, engineering plants and more.

8. Rwanda exports exclusively manufactured products, and is making a good buck
The textile industry presents a large market both globally and within the EAC region. While other countries had reduced earnings from cotton and its products in 2014, Rwanda’s earnings grew exponentially because the country was exporting exclusively manufactured cotton products. It is the only economy that is showing significant progress in the sector.

Tanzania is the leading exporter of cotton products in the region, followed by Uganda and Kenya. Kenya is trying a similar strategy as Rwanda, exporting manufactured products but Uganda and Burundi are struggling to provide manufactured products.

9. Burundi exports less leather in volume, but most of its exports are higher value
The leather industry, like the apparel, is one of the fastest growing industries globally. There is a large market for leather products like shoes, suitcases and bags within the region, the continent and globally. However, while the partner states increased tax on raw hides and skin to 40-80% export duty, many countries like Uganda are still exporting minimally processed leather products (raw skin and hides and tanned/crust wet).

Kenya is the largest exporter of leather products, followed by Uganda. However, Burundi which exports less in volume has 81 percent of its exports more processed than the other EAC states.