Undiscovered Opportunity in the East African Community
A version of this post originally appeared on FreeEnterprise.com in June 2013.
Soon after the BRICs (Brazil, Russia, India, and China) became useful shorthand for up-and-coming economies, some wanted to capitalize the “s” by adding South Africa. This became a reality when South Africa was asked to join the other members of the group in 2010.
South Africa is a fascinating story itself, but another interesting economics story is happening further north. The East African Community (EAC) containing Burundi, Kenya, Rwanda, Tanzania and Uganda, created a common market in 2010 that’s expected to be fully implemented by 2015. This economic union, rich in natural resources, has experienced sustained economic growth for some time. It’s willingness to undertake needed economic reforms to continue that growth make it an enticing opportunity for U.S. companies.
In the last few years, the EAC’s experiment in economic integration has been successful. Chairman of the East African Community Council of Ministers Shem Bageine recently announced that EAC economic growth will be faster than its neighbors in Sub-Sahara Africa (SSA):
Global prospects for 2013 have improved but the road to recovery in the advanced economies will remain a bumpy one. The Sub-Saharan Africa region's economic growth is projected to remain constant at 5.3 percent in 2013. In the EAC however, economic growth is projected to expand by 6.1 percent.
This news reinforces the trend of good relative economic growth. “During 2005–10, per capita income growth reached 3.7 percent a year in the EAC, compared to 3.2 percent for SSA as a whole, and almost quadruple the rate achieved in the previous 15-year period,” wrote economists Catherine McAuliffe, Sweta Saxena, and Masafumi Yabara in an International Monetary Fund white paper.
In sheer size, the EAC isn’t a big trading partner with the United States. According to the U.S. Trade Representative’s office, in 2009 U.S. companies exported $974 million in goods and services to the EAC while importing $384 million. The top exports were aircraft ($255 million), machinery ($122 million), and fertilizers ($120 million), while the top imports were woven apparel ($100 million), spices, coffee, and tea (mostly coffee) ($98 million), and knit apparel ($96 million).
Despite the amount of trade, there are opportunities for significant growth, not only in these industries, but in other areas such as improving the EAC’s infrastructure. For example, Tanzania Investment Center Executive Director Raymond Mbilinyi told Bloomberg, “We will invite private companies to invest in road construction, where they can recoup from a road toll.” U.S. companies could compete for these projects as well as make the machinery needed to construct them.
For the EAC to stay on its current growth path, it must continue reforming its economies. The World Bank’s Doing Business in the East African Community report noted on the EAC’s progress: “[I]n 2011/12, for the second year in a row, all 5 EAC economies implemented at least 1 institutional or regulatory reform making it easier to do business—9 reforms in total.” But it warned:
Despite the reform efforts of all 5 member economies, the EAC’s average ranking on the ease of doing business has remained fairly constant over the past 4 years, at around 117. This is a clear indication that critical obstacles to entrepreneurial activity remain and that economies in other regions have picked up the pace in improving business regulation.
Today the Presidents of the EAC countries visited the U.S. Chamber to discuss deepening trade ties with the United States.
Since it’s an area with a growing economy and the desire to sustain that growth through economic reforms, the EAC should be put on the radar as an up-and-coming place for American companies to do business.