The key drivers of trade
across the EAC
Dr Edward George
Head of Group Research, Ecobank
Nairobi, 14th May 2015
Ecobank’s pan-African footprint
Africa-Asia trade flows
2
Ecobank’s East African network
Africa-Asia trade flows
3
Section 1
EAC trade flows
The EAC is a leading commodity exporter
Exports
Uganda
Kenya
Rwanda
Main commodity exports,
US$ m, 2013
(each bar = US$1bn)
Burundi
Source: Intracen
Tea/Cof f ee/Cocoa
Gold
Horticultural goods
Tanzania
Crude & petroleum products
Tobacco/sugar/cotton
Mineral ores
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
5
The EAC is heavily dependent on imports
Imports
Uganda
Kenya
Rwanda
Main commodity exports,
US$ m, 2013
(each bar = US$2bn)
Burundi
Source: Intracen
Crude & petroleum products
Machinery & vehicles
Tanzania
Electronics
Iron, steel & plastics
Pharmaceuticals
Cereals
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
6
EAC is dependent on imports of petroleum products
Closure of KPRL refinery has ended all domestic output
EAC refined petroleum product imports, US$ millions
• EAC countries consumed 170,000b/d of
petroleum products in 2013, all of which
was imported at a cost of US$9.2bn.
5,000
4,000
3,000
• Tanzania and Kenya together accounted
for 80% of the region’s petroleum
product imports in 2009-13.
2,000
1,000
0
2009
2010
Tanzania
2011
Kenya
2012
2013
• This reflects the fact that other EAC
members are landlocked and source all
of their imports via Kenya and Tanzania.
Other EAC
• Numerous factors are driving up
demand, including rising urbanization
and the growth of middle income
earners in Kenya and Uganda.
46%
• The closure of Kenya’s refinery has
resulted in imports of crude oil falling
from US$1.4bn in 2012 to zero in 2014.
20%
34%
Source: Intracen.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
7
New refineries could radically change the picture
• Uganda and Kenya are expected to start
crude oil production by 2018.
• Together they are forecast to produce
200,000 b/d of crude oil by 2020,
providing feedstock for new refineries.
• Uganda’s US$4bn Kabaale refinery is
set to start operations in 2018, with
output rising from 30,000 b/d to 60,000
b/d by 2020.
• This refinery alone could meet a third of
the EAC’s petroleum product needs.
• The revival of the KPRL could increase
the region’s petroleum product output to
50% of consumption by 2020.
• Kenya also plans to have a refinery at
Isiolo along the LAPSSET corridor,
which could further reduce fuel imports.
Forecast EAC crude oil production, barrels/day millions
Kenya
Uganda
200
150
100
50
0
2017 2018 2019 2020 2021 2022 2023 2024 2025
Production at
Kabaale to turn
Uganda into
regional hub
EAC current
supply comes
f rom Mombasa
and Dar es
Salam ports
Future petroleum
products flow
Present
petroleum
products flow
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
8
East Africa is heavily dependent on cereal imports
East African cereal imports, US$ million, 2012
1,000
• East Africa imported US$1.3bn of
cereals in 2013.
• Wheat is the largest cereal import (2/3 of
the total), as the crop grows poorly in
tropical regions.
750
• Kenya is the leading maize importer,
reflecting its role as a flour milling hub.
500
• All of this maize is sourced in the region,
reflecting the strength of intra-regional
maize flows.
250
0
Wheat
Maize
Rice
Kenya
Ethiopia
Tanzania
Uganda
Rwanda
Burundi
• Rice imports are rising, reflecting the
grain’s growing importance as a staple
for the rapidly urbanising population.
Source: Intracen.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
9
East Africa runs a large sugar deficit
Sugar balance in East Africa, 2013/14, 000s tonnes
Production
Consumption
% share of African sugar production
Balance
900
11%
4%
700
43%
13%
500
300
29%
100
-100
Burundi
Ethiopia
Kenya
Rwanda
Tanzania
Uganda
Southern Africa
EAC
Other
North Africa
West Africa
-300
• East Africa produced 2mn tonnes of sugar in 2013/14, but consumed 2.3mn tonnes.
• The region’s annual deficit of 400,000 tonnes must be imported.
• Kenya & Tanzania run the largest deficits, and only Ethiopia & Uganda run tiny surpluses.
Sources: ISO; Ecobank Research.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
10
East Africa has Africa’s largest palm oil deficit
Africa’s palm oil balance, 000s tonnes, 2012
Balance
Consumption
% share of African consumption, 2012
Production
Nigeria
Kenya
South Africa
Tanzania
DRC
Cameroon
Ghana
Cote d'Ivoire
Angola
Others
Southern Africa
East Africa
Central Africa
15%
4%
4%
33%
5%
5%
6%
7%
12%
10%
West Africa
-1,000
-500
0
500
1,000
1,500
2,000
• East Africa produced just 20,000 tonnes in 2012, resulting in a deficit of 750,000 tonnes.
• Kenya must import its entire palm oil requirement of 450,000 tonnes.
• Tanzania has a deficit of 240,000 tonnes, and Ethiopia of 60,000 tonnes.
Sources: USDA; Ecobank Research.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
11
Section 2
The EAC’s trade partners
Asia has become the EAC’s key trade partner
Asia dominates imports, while exports are focused on Africa
Share of EAC imports, US$, 2013
Share of EAC exports, US$, 2013
India
China
21%
27%
EU
Other EAC
3%
15%
5%
5%
6%
13%
5%
South Africa
5%
Other Africa
20%
3%
3%
Japan
UAE
5%
15%
19%
6%
7%
Others
17%
Other EAC
EU
Other Africa
India
Zambia
DRC
USA
Sudan
China
Others
• Asian countries, led by India, China & Japan, account for half of all imports to the EAC.
• India is displacing China as the leading source of imports.
• Half of all exports are destined for African markets (20% of flows are to other EAC members).
• Zambia, the DRC & Sudan are key export partners, reflecting the EAC’s intra-regional links.
Sources: FAO, Ecobank Research.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
13
India is the leading supplier of petroleum products
Dubai & South-East Asia compete as a source for imports
Key source of EAC’s petroleum product imports, US$ millions
India
7,000
UAE
• India has overtaken the UAE as the key
supplier of petroleum products, with
imports worth US$6bn in 2014.
• Dubai has lost market share not just to
India, but also to traders in South-East
Asia, notably from Malaysia, South
Korea, China & Singapore.
6,000
5,000
• The closure of the KPRL refinery in 2013
has reduced the EAC’s refining capacity
to zero, ending all imports of crude oil.
4,000
3,000
• However, the region could in the future
see crude oil exports from Ethiopia,
South Sudan and Uganda via Kenya to
the Port of Lamu, for onward export to
Asia via the LAPSSET pipeline.
2,000
1,000
0
2010
2011
2012
2013
2014
Source: Intracen.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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Kenya dominates the EAC’s trade flows
But Uganda & Rwanda are the leading intra-regional traders
Share of EAC trade with world, US$, 2013
Share of EAC intra-regional trade, US$, 2013
Kenya
5%2%
4%
17%
16%
Tanzania
38%
43%
Uganda
Rwanda
25%
34%
Burundi
16%
• Kenya’s accounts for 43% of EAC trade with the world, and 38% of intra-EAC flows.
• Tanzania’s weak intra-regional trade reflects the level of commodity exports to the world market.
• Uganda and Rwanda’s landlocked status has driven the development of intra-regional flows.
Sources: Intracen, Ecobank Research.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
15
Informal trade is flourishing
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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Somali traders handle vast flows across East Africa
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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Section 4
Challenges for EAC trade
Overlapping trade blocks complicate trade
Trader play import duty arbitrage between different regimes
Trade blocks & bilateral trade agreements
Source: Ecobank Research.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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The costs of trade are high
East Africa is one of the lowest ranked regions in Sub-Saharan Africa
Cross-border trade indicators, 2013
Country
East Asia & Pacific
MENA
SSA
Tanzania
Kenya
Mozambique
Uganda
Rwanda
Ethiopia
Burundi
DRC
Zambia
Rank
137
153
161
161
164
168
169
175
177
Documents to Time to export Cost to export Documents to Time to import Cost to import
export (no.)
(days) (US$/container)
import (no.)
(days) (US$/container)
6.1
20.2
864.0
6.7
21.6
895.6
6.0
19.4
1,166.3
7.8
23.8
1,307.0
7.6
30.5
2,200.7
8.9
37.6
2,930.9
7.0
18.0
1,090.0
11.0
26.0
1,615.0
8.0
26.0
2,255.0
9.0
26.0
2,350.0
7.0
21.0
1,100.0
9.0
26.0
2,350.0
7.0
28.0
2,800.0
10.0
31.0
3,375.0
7.0
26.0
3,245.0
9.0
27.0
4,990.0
8.0
44.0
2,380.0
11.0
44.0
2,960.0
9.0
32.0
2,905.0
9.0
43.0
4,420.0
7.0
44.0
3,365.0
10.0
63.0
4,290.0
7.0
51.0
5,165.0
8.0
53.0
7,060.0
Source: World Bank.
• Tanzania & Mozambique have some of the lowest trading costs in the region.
• Kenya’s costs are only marginally better than Uganda, which is landlocked.
• Zambia & the DRC have some of the highest import/export costs in the world, owing to the
restricted access to their markets via road and rail.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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East Africa’s logistics infrastructure is underperforming
Tanzania & Kenya score marginally above the SSA average
Logistics performance index, 2014
Country
China
India
Brazil
Kenya
Rwanda
Ethiopia
Burundi
Zambia
Tanzania
Mozambique
Djibouti
DRC
Score
3.53
3.08
2.94
2.81
2.76
2.59
2.57
2.46
2.33
2.23
2.15
1.88
Customs Infrastructure
3.21
3.67
2.72
2.88
2.48
2.93
1.96
2.40
2.50
2.32
2.42
2.17
2.60
2.40
2.54
2.31
2.19
2.32
2.26
2.15
2.20
2.00
1.78
1.83
International
shipments
3.50
3.20
2.80
3.15
2.78
2.50
2.60
2.13
2.32
2.08
1.80
1.70
Logistics
competence
3.46
3.03
3.05
2.65
2.64
2.62
2.51
2.47
2.18
2.10
2.21
1.84
Tracking &
tracing
3.50
3.11
3.03
3.03
2.94
2.67
2.51
2.47
2.11
2.08
2.00
2.10
Timeliness
3.87
3.51
3.39
3.58
3.34
3.17
2.76
2.91
2.89
2.74
2.74
2.04
Source: World Bank.
• East Africa ranks well below the world’s developing regions, including China & India.
• Kenya’s score is on a par with Brazil, but only marginally above landlocked Rwanda.
• Tanzania is clearly underperforming, given its inbuilt advantages as a coastal country.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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Trade corridors will drive growth in intra-regional trade
LAPSSET project, proposed routes
• Long-standing trade routes exist from
Kenya & Tanzania into Uganda, South
Sudan, Zambia and into Central Africa
• The LAPSSET project aims to construct
a multi-sectoral trade network linking
Kenya with Ethiopia and South Sudan
• Project will include:
•
•
•
•
•
1,720km railway line
1,300 km oil pipeline
800km oil product pipeline
new highways and airports
oil refinery with 120,000 bpd capacity
Source: Black Rhino Group.
© Ecobank 2015 | Key drivers of trade across the EAC | Edward George | 14 May 2015
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Further expansion of the EAC is planned
Likely expansion of EAC over coming years
ERITREA
SUDAN
DJIBOUTI
• EAC has existed since the colonial era,
with Rwanda & Burundi joining in 2009
• The most likely expansion is to the
north, taking in South Sudan & Ethiopia
ETHIOPIA
SOUTH SUDAN
SOMALIA
DRC
• Membership for other periphery
countries is more problematic
• Tanzania has proposed inviting Malawi,
the DRC and Zambia to join, linking up
the East/Central African trade corridor
ZAMBIA
MALAWI
MOZAMBIQUE
• But all further integration efforts will be
secondary to greater goal of creating
African Free Trade Area (AFTA),
including SADC, COMESA & EAC
Source: Ecobank Research.
© Ecobank 2013 | Trade in the East African Community (EAC) | 16 May 2013
23
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