East African Community Regional Trade Policy Amidst the COVID-19 Crisis
Date
2021-10-08
Authors
Zgovu, Evious Kingswell
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
Since the COVID-19 pandemic started fanning out from Wuhan epicentre in China
in November 2019, governments around the world have worked tirelessly to find
the means to control its spread and the unprecedented negative economic effects.
International services trade, which has been a source of considerable global economic
prosperity in recent times, was the primary channel for cross-border transmission
through persons travelling for leisure and/or business or working in the international
transport and logistics sectors. Governments COVID-19 control measures including
national social and economic lockdowns, suspension/ban of international passenger
travel, and later stringent cross-border health certification requirements, inter alia,
virtually kneecapped cross-border trade and value chains at national, regional and
global levels.
The quest to find the way forward for the East Africa Community (EAC) regional
trade policy amidst the COVID-19 crisis led to the commission of this and other related
technical studies by the African Economic Research Consortium (AERC) under a Grant
Agreement with the Bill and Melinda Gates Foundation (BMGF) to implement the
project “Strengthening East African Community (EAC) Policy and Response to the
COVID-19”. This study was conducted offsite between November 2020 and April 2021.
Data used in the analysis was obtained from public (statistical offices) and private
sector sources in the EAC partner states, international data repositories, including
the World Bank, World Trade Organization (WTO), International Trade Centre (ITC),
International Monetary Fund (IMF), and others. Key trade trends are analyzed using
export and import monthly data (January 2019 to September 2020) augmented by
2015-2019 annual series on some key trade fundamentals for context. The main
findings that guide the way forward include the following:
• The EAC recorded dramatic trade and economic declines during March-May 2020
before posting tepid rebounds from June through August-September 2020 but
these were dampened by the effects of second and third waves of the virus driven
by more easily transmissible new variants first identified in the United Kingdom
in September 2020 and South Africa in December 2020. In fact, although the EAC
recorded a couple of impressive rebounds month-on-month within 2020 and
between 2019 and 2020, overall EAC trade has not had an effective trade recovery
that compensates over and above the losses experienced in 2020 vis-à-vis 2019 trade performance. EAC cumulative total trade of US$ 39.5 billion by September
2020 fell short of the US$ 40.6 billion recorded by September 2019.
• Both goods and services trade have been adversely affected but services,
in particular tourism and hospitality sectors, have been most impacted by
disappearance of big-spending international tourists and business travellers. Given
the significant importance of tourism in the EAC value chains and export trade
basket, the region has sustained significant adverse short-term and medium-term
impacts on output, employment and incomes.
• The pain of the COVID-19 crisis has been felt more acutely in the EAC and other
economies heavily reliant on the-now disintegrated global value chains. The crisis
reawakens the urgency for developing and maintaining strong domestic and regional
industrial clusters to meet local, regional and global export market demands. This is
not a call for empirically retrogressive inward-looking import-substitution regimes;
on the contrary, it calls for growing and supporting industries that can compete in
domestic markets (with imports) and regional and global markets.
• The burden of resolving the enormous negative impacts and challenges caused
by the COVID-19 crisis in the EAC is made heavier by the prevailing initial (pre COVID-19-crisis) internal economic structural and institutional weaknesses. The
majority of EAC partner states are least developed, with weak healthcare and
economic structures and systems with limited application of digital technology in
economic activities, thus have limited shock-absorption capacity. Institutionally,
despite progress on national trade policy management, customs modernization
and trade facilitation and regional integration, there remains many loose ends in
respect of regional harmonization and coordination of trade management and
facilitation. For instance, loose ends in regional harmonization of COVID-19 testing
and certification amplified the negative trade impacts by instigating some of the
longest cross-border cargo queues (more than 50 kilometres in some instances),
which raised trade costs and undermined the EAC’s trade competitiveness.
• The emergence of COVID-19 has re-emphasized the usefulness of digitalization for
facilitating economic activities, trade, among other things. The crisis has clearly
shown that the future is digital. E-commerce has blossomed in the EAC during the
COVID-19 crisis, albeit being dominated by mobile money transfers, concentrated
in urban centres, and involving more males than females, and consumer goods
than investment spending. Actually, e-commerce would have been greater but
for the undeveloped and uncoordinated supporting legal and market institutions,
telecommunication infrastructure deficiencies and generally low economic
purchasing power of the population.
• The EAC has considerable untapped export potential, which when combined with
the reduced export production due to the crisis gives the region a large platform
to rapidly expand trade over and above pre-COVID19-crisis levels, subject to the
partner states doing the right things at the right time in the right manner.