East Africa

Taking advantage of the prospects that the DRC presents to the EAC

On March 29, 2022, the Democratic Republic of Congo, the largest country in Sub-Saharan Africa, joined Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda as the EAC’s seventh member state.

This development has a number of benefits, including better intra-trade, connectivity, trade and investment, continental market, and tourism potential, to name a few.

The Democratic Republic of Congo possesses a diverse portfolio of precious metals, including cobalt, gold, diamonds, aluminum, copper, and other minerals, as well as other natural resources that will benefit its EAC partners.

The global price of the raw minerals produced in the DRC is at an all-time high.

The desire for green locomotive energy is the largest driving as the globe strives to go green. Currently, the DRC produces 70% of coltan and cobalt, as well as having the finest copper quality in the world, accounting for 30% of global supply.

Copper is utilized in the assembly of electric cars and the infrastructure of most renewable energy sources, whereas cobalt is employed in the creation of batteries.

The Democratic Republic of Congo, on the other hand, suffers from a never-ending conflict. It has even been labeled a “difficult child” (Luke and Vicent, 2022).

Despite its wealth, it remains one of Africa’s poorest and least developed nations[JM1]. Natural resources in Congo appear to be more of a curse than a blessing, as they have undoubtedly brought more harm than good.

Since 1998, the country has been ravaged by a never-ending conflict that has claimed the lives of over five million people, driven millions more to starvation and exposed them to diseases, and resulted in human rights violations, including the rape of millions of women and girls.

DR Congo’s accession to the EAC, however, is expected to increase trade in Eastern Africa. With a population of 90 million people, the DRC’s admission to the EAC could be a game-changer in a region where intra-trade has been hampered by the Covid-19 pandemic.

The new EAC now has a combined market economy of 285 million people and $275 billion in GDP (World Bank, 2020).

The DRC, which now stretches from the Indian Ocean to the Atlantic, has the potential to link the Indian Ocean to the Atlantic Trade Corridor and open the Indian Ocean to the Atlantic Trade Corridor, as well as to Central Africa, North Africa, and other continental sub-regions.

The Northern Corridor is expected to see more cargo shift to the Central Corridor. Truckers are debating which route to take to transport supplies to the huge DRC.

To reduce trade time and costs, the DRC must integrate the EAC’s trade infrastructure, intermodal connectivity, one-stop border posts, and systems. Items and services will travel more freely with decreased tariffs on goods and the abolition of trading restrictions among partner states.

Manufacturers in the EAC will gain from economies of scale as a result of a wider market, making them more efficient and competitive.

The entrance of the Democratic Republic of Congo marks a turning point in the bloc’s transition into Africa’s most appealing trade and investment destination.

According to the East African Business Council, EAC exports to the DRC have increased by 13.5 percent on average over the last seven years, bringing the total to 13.5 percent by 2020.

Imported products into the DRC totaled $7.4 billion in 2018, compared to $855.4 million in exports. As a result of this achievement, trade between the DRC and its five EAC partner states is expected to skyrocket.

According to the Economic Policy Research Centre (2021), DRC’s membership in the EAC could boost Rwanda’s exports by USD 81 million, Uganda’s by USD 60 million, Tanzania’s by USD 50 million, Kenya’s by USD 42 million, and Burundi’s by USD 42 million (USD 6 million).

The favorable trade benefits are attributed to trade creation (owing to increased EAC exports to DRC originating from non-EAC countries) rather than trade diversion.

In terms of trade growth shares, it is anticipated that free trade with the DRC will increase present trade with Uganda by 30%, Rwanda by 24%, Tanzania by 34%, Kenya by 29%, and Burundi by 33%. (EPRC, 2021).

Agro-processing, metal goods (primarily iron and steel), and mineral ores industries are among the primary economic sectors/industries that stand to benefit from DRC membership.

The Democratic Republic of the Congo, along with Tanzania, is a member of the Southern African Development Community (SADC), and its admission to the EAC improves the EAC-SADC bridge, as well as bilateral negotiations for a Grand Free Trade Area between the EAC, SADC, and COMESA.

Individual EAC countries had already inked bilateral agreements with Kinshasa prior to its entrance. Uganda and Rwanda, for example, are now building three roads into eastern DRC to facilitate commerce and investment between the two countries.

Uganda, behind Rwanda, is the region’s second-largest exporter to Congo. Cement, cooking oil, rice, sugar, and tubes & pipes are the most common items sold in Uganda.

It also exports food, and traders expect that Congo would provide a market for things like food, liquor, textiles, and plastics. Overall, DR Congo’s admission to the EAC necessitates strategic investments in these vital commodities, as well as the removal of Non-Trade Barriers (NTBs) such as poor infrastructure and insecurity in portions of the country.

To this purpose, the Ugandan government continues to expand Uganda Development Bank’s (UDB) capital base in order to provide inexpensive medium to long-term credit to SMEs and large-scale firms, especially export-oriented producers.

This is critical for Uganda’s export trade in the region and beyond, as the country seeks to capitalize on the prospects that the Democratic Republic of Congo presents to the EAC.

Currently, UDB provides SMEs and large-scale enterprises with concessional loans, as well as business advisory and project preparation services, primarily in primary agriculture, agroindustrialization, and manufacturing, among other industries, with the goal of producing for local, regional, and international markets.

Export trade loans enable export-oriented investment and trade activities, while business counseling services help entrepreneurs and traders become more professional and lower the risk of default[JM6].

Projects sponsored by the UDB export trade provide jobs, contribute to GDP, tax income, and, most crucially, generate foreign exchange earnings to improve Uganda’s trade balance. According to the Bank of Uganda’s latest statistics, Uganda’s trade balance improved by 9% in February 2022, from a deficit of US$271.3 million in January 2022 to a deficit of US$247.7 million in February 2022.

UDB should deliberately extend the export promotion financing model to Ugandan companies operating in DRC and other countries in the region and beyond as regional export trade opportunities grow.

Kenyan businesses, for example, have expressed an interest in expanding their investment in the DRC, and last year, Equity Group, an East African commercial banking group, sponsored a two-week trade mission as part of their announcement of plans to fund Kenyan businesses establishing or expanding in the country.

The export income will rise as a result of this comprehensive method of supporting export-oriented manufacturers and export of Uganda’s products, resulting in a substantial impact on the trade balance, sustainable development, poverty alleviation, and enhancement of Ugandans’ quality of life.

 

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