East African Community Regional Trade Policy Amidst the COVID-19 Crisis

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Zgovu, Evious Kingswell
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African Economic Research Consortium
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.