EABW News Report,
When you’re stuck in the same boat but paddling in opposite directions, chances are the boat is going nowhere. This had been the situation with Rwanda and Uganda since February 2019 until recently when the common border was reopened.
Along with Burundi, Kenya, South Sudan, and Tanzania, both are members of the East African Community (EAC).
Also, both are signatories to the EAC Common Market Protocol that champions the free movement of goods, people, labour, services and capital across the region.
In light of moves to admit the Democratic Republic of Congo (DRC) as the seventh member of the EAC, the bickering between Rwanda and Uganda was verging on an embarrassment when measured against the EAC stated aims of stronger regional economic integration.
These are challenging times and it is no accident that the EAC is pivoting west after the implementation of the Africa Continental Free Trade Agreement in January 2021.
The DRC has a population of close to 90 million people and for starters annually imports $1.5 billion dollars in basic foodstuffs.
As sub-Sahara’s Africa fastest growing economic bloc, the Community is well placed to become a dominant player in eastern DRC’s consumer markets.
The problem, however, is the non-tariff barriers (NTBs) across the region increase the cost of doing business and a closed border is the ultimate NTB.
A couple of years ago, Vimal Shah CEO of Bidco Oil Refineries which has its headquarters in Kenya and a subsidiary in Uganda said, “The trade between EAC is still hampered by whether I’m Kenyan, Ugandan, Tanzanian, or a Rwandan.
We have not worn the EAC Scarf of one people and as the private sector, we are not happy with the progress. We can do better.”
Part of the reason that set off the Rwanda/Uganda standoff in the first place, was competition for business opportunities in eastern DRC.
For some Rwandans, it was upsetting to see Ugandan branded goods crossing their country destined for perhaps Goma when their own factories were much nearer.
According to The Observatory of Economic Complexity (OEC) by 2019, Rwanda’s annual exports to DRC had reached just over $370 million while Uganda’s topped $230 million.
Despite the show of brave faces and occasionally fist-thumping public statements, the closure of the common border was hurting on both sides.
Well-established supply chains were disrupted. Being landlocked countries and dependent on two bigger neighbours with coastlines, the three-year spat was bound to end at some point because the economic stakes for the whole region are much too high to be ignored.
Rusting buses parked at the formerly busy Kampala terminus of a Rwandan transport company reflected the widespread despair amongst business people.
Distributors of Ugandan products in Kigali have had to seek out new suppliers and take on higher transport costs.
Meanwhile, Ugandan manufacturers suffered considerable losses when the Rwandan market literally disappeared overnight.
Ugandan exports to Rwanda dropped sharply from $200 million in 2018 to nothing in 2020 while Rwanda exports to Uganda nose-dived from the $60 million recorded in 2019.
A non-conducive business environment does little to encourage private sector growth, let alone inspire new investments.
At the same time, trade is a leading source of tax revenues. In the wake of the Covid-19 pandemic, every single shilling counts.
It was also ironic that the East African Community’s (EAC) most open economies were caught up in a situation that made a mockery of their much-touted free-market credentials.
The stalemate could not go on. Rwanda and Uganda have more to gain by working together, particularly through joint-ventures or strategic business partnerships than suspiciously looking at each other over the common border.
So it came with much relief when during the last week of January, the Rwandan government announced the reopening of the Gatuna crossing point.
This was soon after President Yoweri Museveni’s son, Lt. Gen. Muhoozi Kainerugaba, was dispatched to Kigali for talks with President Paul Kagame.
The competition over who would blink first was finally over, but understandably no one wants to set off another rift by suggesting there are any winners.
If anything, the real winners are ordinary citizens who desperately want to get back to business or merely catch up with relatives and friends.
The Kenyans are also relieved. The Northern Corridor route is the shortest access to the DRC. Recently, Equity Group organised a trade mission with the view of attracting Kenyan investments to Kinshasa, Lubumbashi, Goma, and Mbuji Mayi.
In a bid to drum up throughput business, last November, a delegation from the Tanzania Ports Authority was in Katanga, south-eastern DRC, and the hub of the country’s rich mineral deposits notably cobalt.
The pandemic aside, the Rwanda-Uganda standoff has been a draining affair, but there are no guarantees it will not happen again.
For that reason alone, foreign investors will be cautious. These circumstances allow EAC business people to get in on the ground floor, having a better understanding of how to operate in an environment not too dissimilar to their own.
That said, Uganda-based Pearl Dairy Farms Limited is still reeling from the shock of being suddenly denied both the Kenyan and Rwandan sales outlets despite the Common Market protocols.
On the other hand, the DRC market is huge. It doesn’t make sense to think any one country can satisfy the growing demand, especially after the armed insurgents in eastern DRC are rounded up and dealt with.
This is something Uganda is helping to sort out in cooperation with DRC military forces. However, the Kinshasa government would not mind some Rwandan input to solidify the goodwill necessary to guarantee security which is a prerequisite of international trade.
Speaking in mid-January, DRC’s Deputy Prime Minister and Minister for Foreign Affairs, Christophe Lutundula Apala Pen’Apala, said their country has a big population that constitutes a big market for the EAC.
He said the DRC is also in dire need of investors and was therefore offering incentives for entrepreneurs who would like to invest in the country.
However, Pen’Apala conceded that DRC faces security challenges in the eastern part of the country and the Kinshasa government was also keen on tackling these challenges together with the EAC.
The reopening of the Rwanda-Uganda border is in some ways a relief valve. It squarely places the DRC as a major destination for EAC trade and investment while also easing the pressure in a situation where there is an excess of duplication of effort that has encouraged the use of NTBs.
Instead of frustrating the sales of each other’s products across the region, the EAC can now focus on how to compete with South Africa.
According to UNCTAD, 71% of DRC’s intra-Africa imports are sourced from South Africa and Zambia through the SADC protocols, of which by the way, Tanzania is also a member.
UNCTAD also says DRC’s trade with many African countries including Burkina Faso, Madagascar, Nigeria, Ethiopia, Benin, and Zimbabwe is more expensive than trade with non-African countries such as Russia, Switzerland, the UK, Brazil, India, France, Germany, Italy and China.
Fighting to gain footholds in the DRC market should force EAC policy-makers to rethink the need for some specialization; the fact that not all producers/manufacturers are up to the task.
EAC’s competitiveness will be only be enhanced if governments champion ever greater levels of efficiency instead of being caught up invested national interests that thrive on protectionism and discriminate use of NTBs.
Developing economies of scale across the Community is vital to winning business in DRC, because at the end of the day, for any consumer, price, and quality are what define their choices.