RWANDA OR THE REST OF THE EAC, WHO IS RIGHT?

This week the US followed through on a threat to suspend Rwanda’s duty free exports of textiles to its shores.

The suspension comes following a demand by the US earlier this year for the East African Community (EAC) to shelve imposing higher tariffs on second hand cloth imports. EAC countries had resolved to ban the importation of second clothes by 2019, starting by increasing taxes on their importation.

The EAC is a major second hand clothes market accounting for 13 percent of global imports of second hand clothes or about $274m (one trillion shillings) in 2015. So a halt to this trade would move global markets in the second hand clothes industry.

US lobby group Secondary Materials & Recycled Textiles Association (SMRTA) did not wait around to see what would happen, petitioned the office of the US trade representative. They argued that this ban would cost up to 45,000 jobs – a figure that has not been verified, and $124m in exports from the US.

Of course they did not mention that the reason the EAC was going down this path was a means to resuscitate the textile industry, which employed tens of thousands a few decades ago, as a means to climb out of poverty to the level of middle income economies.

"Uganda, Kenya and Tanzania capitulated and will not been banning second hand imports. Rwanda stuck to its guns and hence the suspension...

On a purely technical note the US is within its rights to demand that if it allows free access to its market they should expect the same. But if there was any genuine desire to uplift the EAC out of poverty then the current action paints another picture of what their “development” agenda is.

For development – the general improvement in the people’s welfare to happen two things must happen – Economic growth and improved household incomes.

Both have to happen because you can have economic growth without a general rise in household incomes, but it is near impossible to have an increase in people’s incomes without economic growth.

The mere building of roads, dams and railways can move the needle on economic growth. It is then how efficiently this infrastructure and the institutional capacity surrounding is employed to improve the business environment that creates jobs and therefore raise incomes.

"Viewed against this is Rwanda correct to stick to it guns? President Paul Kagame also argues that it’s a matter of dignity, how can Rwandans dress in the cast offs of other people? Or Kenya, Tanzania and Uganda showing greater pragmatism in forgoing internal markets for the promise of the huge US market?...

Kenya already exports $600m worth of textiles to the US annually, which is not a figure to thumb ones nose at especially for little economies like ours. Their local industries have been totally decimated by the second hand clothes market. They are probably calculating that if they can get a firm foothold in the US market they will be able to increase investment in their textile industry more than if they had tried to sate the local or regional markets.

Rwanda on the other hand is thinking that if it can protect its local market it can serve as a launching pad into export markets. Also that in the event of fall outs with the US or European markets their local market while not absorbing all the output of their industries would serve as a useful buffer, keeping the industry afloat as they wait for a change in relations. But given that its neighbours have done a U-turn on banning second hand clothes, Rwanda cannot count on its neighbours as market for its textiles and apparel.

It will be interesting to see how these two scenarios unfold in coming years.

That being said the US market is not one to pass up, its challenge is the volumes and strict timelines it demands of its suppliers. The Kenyan press recently reported that the textile exports to the US were beginning to slip because they clients were demanding increasingly shorter turnaround times from time of order to time of delivery.

"As a country if we are going to take maximal advantage of the Africa Growth Opportunities Act (AGOA) – since we have ceded out internal market to the second hand clothes industry, we need to check the whole value chain, from research into high yielding seeds, to farm practices, post-harvest handling and manufacturing to the logistics of getting it to US markets....

This is important because while second hand clothes trade will show up on GDP growth figures it will not create as many jobs as a well-oiled cotton to textile industry would, hence there will not be a significant increase in general income levels.

Economic growth is good, desirable even critical but wit will mean nothing to us if it does not show up in our wallets and purses.