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The Evolution of East African Trade: Structure and Policies

This study examines the trade structure and policies of Kenya, Tanzania, and Uganda, and the role of East Africa in global trade. It also compares, the export structure of East Africa with some Asian and Latin American countries.

The role of the three East African countries in global trade is found to be minimal. The composition of exports shows that the East African countries' exports are dominated by unprocessed primary products, compared to Asian countries which export a higher proportion of manufactured products, and Latin American countries which export a relatively higher ratio of processed primary and manufactured goods. The findings of the paper are in line with Wood and Mayer (2001), who attribute the low ratio of processed primary goods to low skills and high land per worker ratio in African countries. Other factors explaining the poor performance of manufactured exports are high transactions costs, and high transport costs (Elbadawi, 1999; UNCTAD, 1999; Morrissey, 2000). Hence, the policy implications from the study are that in order to increase the ratio of processed primary goods and manufactured exports, it is important to invest in human capital, good roads, water and electricity, and to reduce the bureaucratic delays faced by investors.

In intra-regional trade, the finding is that the amount of trade between the East African countries is minimal, and Kenya dominates in East African trade. Tanzania and Uganda need to attract more investment in manufacturing. The last issue discussed is the implication of the developments in non-traditional exports to the export earnings of the three countries. It is argued that although the developments are good, the NTEs are mostly primary products whose prices projections are negative. The East African countries will thus continue to receive declining export earnings unless there is more investment in human capital.