East Africa’s trade set for revamp with DRC entry

Former EAC and Regional Development CS Adan Mohamed, EAC Secretary-General Peter Mutuku Mathuki (C) and DRC Deputy Premier Christophe Lutundula Apala launch the sixth EAC development strategy. [Edward Kiplimo, Standard]

The Democratic Republic of Congo (DRC) is set to join the East African Community (EAC) in a move investors believe will revive fortunes for the regional trading bloc.

This comes on the back of several challenges that have beset the EAC including competition from cheap imports, infighting among member states and most recently, the Covid-19 pandemic that have slowed down trade and integration efforts.

Last month, the EAC Council of Ministers chaired by Mr Adan Mohamed, former Cabinet Secretary for EAC and Regional Development, recommended the admission of DRC to the economic bloc. 

“The council noted that negotiations with the DRC were concluded and a negotiation framework matrix was jointly adopted,” said a communique from the EAC secretariat.

“The ministers recommended to the Summit of the EAC Heads of State to consider admitting DRC into the community in accordance with Article 3 (3) of the Treaty.”

The entry of the second-largest country in Africa by land mass will grow the bloc’s 146 million consumer base to 236 million. This is an increase of more than 38 per cent in the regional market and the new opportunities will spur new and diverse investments.

DRC also boasts of vast agricultural land holdings, Africa’s largest rainforest as well as immense potential for hydroelectric energy production.

The election of President Felix Tshisekedi in 2018 in the country’s first peaceful transition of power in more than five decades ushered in a wave of economic reforms, with DRC announcing to investors it was now open for business.

A recent study by the German development agency GIZ in partnership with the EAC Secretariat and East African Business Council (EABC) indicated that DRC presents a lot of opportunities in sectors such as plastics and rubber, processed foods, textiles and leather.

According to the study, close to half (47 per cent) of the DRC imports are dominated by South Africa and China, even though most of them can be sourced within the EAC with relative ease. 

“In 2019, the DRC imported prepared foodstuff worth Sh58 billion, of which 33.3 per cent was supplied by Zambia that does not enjoy any geographical advantage over EAC states,” the study said.

“In this category, the most sought-after products were non-alcoholic beverages (Sh6.2 billion), raw cane sugar (Sh5.5 billion), food preparations (Sh4.2 billion) and sweet biscuits (Sh3.5 billion).”

Over the same period of time, the DRC imported Sh2.6 billion worth of textiles, with more than half supplied by China.

“As the largest exporter of textiles from the EAC to the DRC, Rwandan SMEs in this line of business ought to explore this category for both expansion and possible diversification,” said the EABC report.

EAC heads of state are expected to officially admit the DRC to the regional trading bloc at the next summit. Current member states are Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda.

The regional bloc is pushing to establish a common market, customs union, monetary and eventually a political federation.

Efforts are currently concentrated on strengthening the common market and customs union with partner states committing to harmonise their tax regimes and remove non-tariff barriers that drive up the cost of trade within the region.

According to the latest statistics, trade between member states has dipped in recent years due to the Covid-19 pandemic.

In 2020, exports from Kenya and Uganda fell 7.6 per cent and 1.7 per cent respectively between March and June 2020.

Imports of intermediate goods contracted by 25 per cent, 11.3 per cent and 22.9 per cent in Kenya, Uganda and Tanzania respectively within the same period of time.

The dwindling trade has been worsened by past tensions between member states that have in some cases culminated in trade wars.

In 2020, Kenya banned Ugandan poultry and dairy goods from entering the country and last year, Uganda retaliated by banning some raw and processed agricultural goods from Kenya.

DRC’s entry into the regional bloc presents a new opportunity for firms as well as member states to diversify their exports.

Kenyan investors have already led the region’s business leaders in making a beeline for the DRC in anticipation of the emerging business opportunities.

Data from Kenya National Bureau of Statistics indicates that Kenya’s exports to the DRC stood at Sh14.2 billion in 2020, a five per cent increase from Sh13.4 billion the previous year.

This was higher than exports to South Africa and Ethiopia combined. With DRC joining the EAC, Kenya will be looking to expand this trade volume.

In November 2021, a delegation of more than 250 Kenyan investors visited the DRC on the first DRC-Kenya trade mission supported by the governments of both countries, and facilitated by Equity Group.

The trade mission came months after the bank received final approval from the Central Bank of Congo to acquire a 77.5 per cent majority stake in Banque Commerciale du Congo.

Equity Group Chief Executive Mr James Mwangi said the lender had set aside Sh500 billion to finance firms and industries seeking to set up shop or expand into the DRC.

“We have set aside Sh500 billion, which is at the disposal of our investors,” Mr Mwangi told The Standard in an interview.

“This can come in short-term working capital, long-term loans, letters of credit and other trade financing instruments.”

KCB Group is also in talks to acquire a lender in DRC as part of its expansion into the region, with other top-tier lenders in Kenya expected to follow suit.

Kenya’s first-mover advantage into the DRC among EAC member states means the country can also play a pivotal role in realising the ambitions of the African Continental Free Trade Area (AfCFTA).

The treaty aims to establish Africa’s largest free trade area that will eliminate barriers for the more than 800 million consumers from Cape Town to Cairo.

Kenya was the second country to ratify the agreement and its strategic position geographically as well as being a communication, transport and investment hub for the region could reap indirect benefits for the bloc.

DRC has indicated that its membership in other blocs such as the Southern Africa Development Community will not impede its participation in the EAC.