US-ITC Report says East Africa can flourish with Flowers, Fish and Tourism

The six-month study, which was concluded in April this year, was commissioned to examine the factors affecting trade patterns in 12 select industries that were seen to have experienced significant changes in exports from Sub-Saharan African countries in the past five years.

The 12 industries selected for study were: Nuts (principally cashews), cocoa butter and paste, cut flowers, fish (prepared and preserved), acyclic alcohols, flat-rolled steel, petroleum gases (principally liquefied natural gas), textiles and apparel (principally apparel), unwrought aluminium, wood veneer, financial services and travel or tourism services.

According to a 214-page report titled ‘Sub-Saharan Africa: Factors Affecting Trade Patterns of Selected Industries’, Kenya enjoys a comparative advantage in five of the six sectors in which the East African economies can compete favourably at the international level - making it the most grounded exporter in the region. Kenya's Achilles' heel is, surprisingly, the financial services sector.

Uganda comes second with a comparative advantage in three (cut flowers, tourism and financial services) of the six sectors, while Tanzania is third, enjoying a comparative advantage in only tourism and flat-rolled steel. Rwanda is fourth with tourism being the only sector where it can make substantial gains against competitors on the global market.

According to the study's findings, while increased demand was the predominant factor affecting export growth in the selected industries in the 2001-05 period, a number of government policies and initiatives related to investment, infrastructure, trade agreements and regional integration also contributed significantly.

Kenya has a special mention in the report as a case study of how favourable government policies can influence the growth of exports in a specific sector. The report notes that the Kenyan government attributes early growth of the floriculture sector in the 1990s in part to the liberal macroeconomic policy environment and government encouragement of foreign investment and international trade.

"The Kenyan government's National Export Strategy focuses on certain priority sectors, including horticulture, which includes cut flowers," says the report, further explaining that the government's main role in encouraging the floriculture industry has been to provide infrastructure development, incentives and support services.

The report further notes that the investment and business environment in Kenya has been enhanced through the trade liberalization measures adopted by the government. These policies have made Kenya's cut flower industry the world's second largest after Colombia, having leapfrogged Ecuador and the Netherlands, which were ahead of it in 2000.

Kenya by far is the largest producer of cut flowers in sub-Saharan Africa, followed by Uganda although Uganda seems to be way far off compared to the export earnings of  Kenya.

On the whole, total sub-Saharan cut flower exports rose steadily between 2001 and 2005 - increasing by 65 per cent over that period as other countries in East and Southern Africa attempted to replicate Kenya's success in floriculture. This was at least 20 per cent higher than the global exports growth rate of 41 per cent, which saw the total global earnings rise from $1.7 billion in 2001 to more than $2.4 billion in 2005.

Within the East African region, Kenya and Ethiopia are the only countries that are said to have a comparative advantage in the apparel sector, with Lesotho, Botswana, Swaziland, and Madagascar being the only others within the whole sub-Saharan African region.

However, even these six countries have not fared that well collectively. While total global apparel exports increased by 31 per cent from $159.5 billion in 2001 to $209.3 billion in 2005, sub-Saharan African apparel exports increased by 13 per cent from $2.2 billion in 2001 to $2.8 billion in 2004 before declining to $2.4 billion in 2005.

While Uganda's apparel industry received recognition from the US study, its financial services sector - which grew from $1 million in 2002 to $45.8 million in 2004 - is highlighted as an area where the country now has a definite comparative advantage globally.

According to the report, the factors that determine a country's ability to sustain its textile industry on the global market include trade agreements and programmes, strengths of regional trade blocs, government programmes and policies as well as supply-side factors such as availability of labour and the historical presence of a textile and apparel industry.

Released on: 11 September 2007
Resource: www.allafrica.com