Monday, November 26, 2012


Our nations are at their most productive when they are discussion economic issues.

Last week Uganda hosted the 16th Common market for East & Southern Africa (COMESA) summit.

COMESA came into existence in 1993, succeeding the Preferential Trade Area (PTA), as an attempt by member states to increase trade within the region that now stretches from Zimbabwe to Libya.

The region has a population of about 500 million and an economy of $700b a huge market by any measure.

However if the continent’s statistics are anything to go by – only a tenth of the continents trade is done with itself.

As most of the region’s exports are raw materials, this means that a lot of the value in processing, marketing, distribution and other intermediary services – as much as 90% of the value, is being captured off the continent.

As President Yoweri Museveni likes to say, we are donating jobs to the west.

The challenge is that the individual economies of the region are too small to sustain huge concerns, manufacturing or otherwise, while the barriers to trade between our own countries do not make it feasible to situate plants in one country and feed them from the region.

What a framework like COMESA can make happen is to create those exploitable economies of scale so that the huge investments needed to maximize the value of our natural resources can be situated on the continent.

Think about it if Uganda’s 100+ districts had border restrictions how difficult and therefore expensive it would be to move people, goods and services around the region.

The cattle keepers of the western Uganda can grow their herds to their hearts’ delight because they know that they can transport them to butchers in Mbarara on to Kampala and now to Southern Sudan, with little added expense beyond transport costs.

Now imagine how your costs would skyrocket to get our cow from Ntungamo to Kampala. The added costs, which would be loaded onto the final price, would not only depress consumer demand but would also discourage production. This would mean fewer cow herds, veterinary doctors, butchers, transporters and all along the value chain of the beef industry.

Similarly by retaining barriers to trade on the continent we are stifling production and the development of local industry.

The more immediate benefit is job creation but also associated industries will spring up and locally specific innovation will take root.

The analogy of the body and blood circulation maybe more apt.

Poor diet (policies) and inadequate exercise (poor implementation) causes the build up of cholesterol (artificial impediments) in our blood vessels. This restricts the flow of blood starving parts of the body of blood. When the buildup is too much then the engine of circulation the heart (producers) begins to overstrain and eventually gives up and the body dies.

To stick with the analogy, the whole body cannot be well if circulation is restricted to one part of the body.

But beyond administrative barriers there are such non-tariff barriers as poor infrastructure. It makes no sense for Kenya to have the finest four-lane highways crisscrossing it when Uganda’s roads are potholed and rutted.

At the beginning of this month African Development bank president Donald Kaberuka said it is estimated Africa needs to invest $100b a year on its roads to bring coverage to an acceptable level in the near future.

The scope of these projects are such that they can’t be done by individual states and a common market framework would make these investments much easier to make.

The point is that a large part of our poverty as nations and peoples is that we do not do enough trade among ourselves. We don’t trade among ourselves because we cling to artificial political boundaries imposed on us by historical accident. This inadequate trade also  provides little incentive for increased production, which means we continue to wallow in our poverty.

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