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Is Uganda’s trade market reprisal on Kenya justified?

By Musinguzi Blanshe
Posted on Wednesday, 22 December 2021 11:08

Uganda's President Yoweri Museveni talks to Kenya's President Uhuru Kenyatta as they attend the signing a cease fire and power sharing agreement between South Sudan's President Salva Kiir and South Sudanese rebel leader Riek Machar in Khartoum
Uganda's President Yoweri Museveni talks to Kenya's President Uhuru Kenyatta as they attend the signing a cease fire and power sharing agreement between South Sudan's President Salva Kiir and South Sudanese rebel leader Riek Machar in Khartoum, Sudan August 5, 2018. REUTERS/Mohamed Nureldin Abdallah

Two years after Kenya banned Ugandan milk from entering its market, Uganda is saying enough is enough and that it will reciprocate. With the loss of the Rwandan market, which was closed in 2019, trade statistics reveal Uganda could be right to get tough on its partners.

On Monday, the Ugandan cabinet surprisingly agreed to ban agriculture products from Kenya. The list of products to be banned will be drafted by Agriculture Minister Frank Tumwebaze.

His counterpart from the East Africa affairs ministry, Rebecca Kadaga, who revealed the imminent ban on Tuesday last week said Kampala has lost its patience. “We have been very patient, we have behaved like gentle people, but this has gone on for too long,” she said. The retaliatory ban, Kadaga said, is meant to get Kenya to “understand what we [Ugandans] have been going through.”

The ban is a surprise because Uganda President Yoweri Kaguta Museveni, who always presents himself as a promoter of regional and continental integration, has never supported any retaliatory measure. It isn’t clear whether he chaired the cabinet meeting that passed the resolution. In March, when ministers and legislators were clamouring for retaliation after Kenya banned Ugandan maize, Museveni said: “The idea of retaliation is not good because it plays in the hands of those who want us [the East African Community] to break up.”

As a result of Museveni’s renowned softness, countries such as Tanzania and Kenya have played hardball with Uganda: ruthlessly banning Ugandan products and slowing down the negotiation process of removing the ban. For instance, Kenya claims that Uganda doesn’t produce sugar and milk it exports, as is required by the East African Community (EAC) rules of origin. Thus, Kenya is supposed to send a delegation that can verify its claim. What has irked Uganda is that Kenya has been delaying the verification visit.

New trade measures on retaliation will reduce trade further.

At times, however, Kenya has been honest when it says it’s protecting local dairy farmers from cheap milk that comes from Uganda. In 2017, Tanzania also slapped TSh200 ($0.8) tax on every litre of milk, making milk from Uganda more expensive. Tanzania has often slapped a ban on Uganda sugar and it plays the Kenyan trick of making Uganda wait for a long duration before it’s removed and reinstated again after a short spell. Even so, Kenya and Tanzania are always ruthless towards each other. For instance, when Kenya banned flights from Tanzania in August 2020 due to Covid-19, the latter reciprocated in no time.

Dr Isaac Shinyekwa, a regional trade analyst at the Economic Policy Research Center (EPRC), a think tank in Kampala, says Museveni should be commended for restraint against escalation of disputes when neighbors go against the regional bloc common market protocol. “What Uganda is doing is also not right, but we have reached a point where we don’t have any other option,” he says.

Trade deficit

Uganda, Kenya and Tanzania are founding members of the EAC. And  Uganda has a large trade deficit with them. At the end of 2020, Uganda’s deficit with Tanzania was $667m and $343m with Kenya, according to statistics from the Bank of Uganda. A decade ago, Uganda’s trade deficit with Tanzania was a paltry $13m and that of Kenya, which hasn’t skyrocketed, was $286m.

The three were later joined by Rwanda and Burundi, whose trade relations were flourishing until late 2019, when Rwandan President Paul Kagame closed his country’s borders with Uganda. Kagame accuses Uganda of harbouring dissidents plotting to destabilise his government. This has led to collapse of trade between the countries. Uganda had a $212m trade surplus with Rwanda in 2018, which ebbed to a trade deficit of $7m at the end of 2020.

There isn’t much trade between Uganda and Burundi. Uganda had a trade surplus of $24m with Burundi at the end of 2020. Uganda has its biggest market in the region in South Sudan – which was admitted to the bloc in 2016 – where it had a trade surplus of $268m in 2020. Its second biggest market in the region is the Democratic Republic of Congo (DRC) where it had a trade surplus of $260m. DRC isn’t a member of the regional bloc, but is awaiting admission when heads of the regional bloc meet before the end of this year.

Elimination of current trade barriers will restore investors’ confidence and predictability of the business environment in the EAC bloc.

Given the DRC’s market potential, Uganda is investing in construction of roads in eastern DRC to ease movement of goods. Early this month, DRC president Felix Antoine Tshisekedi permitted Uganda soldiers to cross into North Kivu province to hunt for Allied Democratic Forces (ADF) rebels, a deadly islamist linked rebel group that originates in Uganda but has had bases in DRC for more  than two decades. Both DRC and Uganda think that elimination of ADF will boost trade.

Weak dispute resolution mechanism

There is supposed to be a trade remedies committee that handles disputes within the EAC, but it has never been set up. Its absence leaves state to state engagements as the only leeway to dispute resolution and this hasn’t provided quick remedies. John Bosco Kalisa, executive director of the East Africa Business Council, says EAC partners states should enact policies that will pave the way for operationalisation of the much needed committee.

Kalisa says retaliations set back the progress and gains made in terms of intra-EAC trade. “Elimination of current trade barriers will restore investors’ confidence and predictability of the business environment in the EAC bloc,” he says. Kalisa warns that intra-EAC trade is currently low, at approximately 15%, partly caused by member states’ failure to fully open markets as envisaged in the treaty. “New trade measures on retaliation will reduce trade further,” he says.

Bottomline

Shinyekwa says the long lasting solution in resolving disputes between member states lies in coming to an understanding on some international trade nitty gritty. They include agreement on promoting voluntary export restraint, which requires a member state to stop exports when it knows they are detrimental to a nascent industry in another country.

Another strategy is substantial transformation of goods, which happens when a country imports local materials then transforms them into a product. Such a product, he says, should qualify to be manufactured from the country that has transformed the raw materials.

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