East Africa’s ride to Middle Income status
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Global players have also taken note. No week goes by without a major international company announcing plans to expand its East African operations or to relocate there, often in Nairobi.
Regional integration is one way for the Kenyan train to reach the station sooner. Larger markets allow companies to reap economies of scale, produce a larger set of goods in greater quantities and thus increase variety and reduce cost for consumers. Already today, Kenyan firms are investing in Tanzania, Uganda and Rwanda, and these countries benefit from cheaper, higher quality products.
Much more could be done. Agriculture and transport are two areas where reforms are badly needed to improve intra-regional trade. East Africa could easily feed itself simply by allowing markets to work. While Kenya has a structural food deficit, Tanzania and Uganda typically have surpluses of basic food commodities. If these three countries traded with each other more effectively, Kenyans would pay less for food, especially maize, while Tanzanian and Ugandan farmers would earn more. Priority should be given to regional roads and corridors, as today it is costly, sometimes impossible, to move goods across the region.
The port of Mombasa is the gateway for most of East Africa’s products. Unfortunately, it is one of the worst performing ports in the world, and its closest competitor – the port of Dar es Salaam – is achieving even less. Today, Mombasa transacts in one year what Singapore handles in a week. A better functioning port would increase the flow of goods, reduce costs and attract industries, many of which are looking for a new home, as Asia is becoming more expensive. It would also favour the flow of goods transiting to and from landlocked countries (Rwanda and Uganda) and operate as a catalyst for the region.
Infrastructure which connects people and markets will be critical for East Africa to become one the world’s new emerging regions. One huge challenge remains the railways. The day when Kenyans will board a train to Kampala with perfect confidence that they will reach their destination comfortably, reliably and fast, is the day you will know that the region is firmly on the Middle Income track.
Wolfgang Fengler is a World Bank economist based in Nairobi.
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