What opportunities does regional collaboration offer for economic unions such as the East African Community (EAC)? The International Growth Centre (IGC) and GVCC researched this issue with respect to three industries the national governments in the region prioritized: dairy processing, maize (corn) and tourism.
Firm productivity in East Africa remains low, despite recent gains in poverty reduction and economic growth rates. This creates some uncertainty about whether gains will persist without substantial transformation in regional networks of production and trade. Within this context, the research primarily focused on Rwanda and Uganda, expanding the analysis where appropriate to capture regional dynamics.
Questions that guided the research were:
Cluster #1: How do the value chains differ in each country? What are the different products? How do end markets differ?
Cluster #2: Who are the relevant actors at the national and regional levels? How do lead firms govern the chain? How is production and trade coordinated across EAC countries?
Cluster #3: What are the most important barriers to upgrading? What are specific strategies the government can implement to help Rwanda and Uganda upgrade the capabilities of actors in the selected GVC?
Cluster #4: To what extent do regional value chains exist in the selected sectors? Where are opportunities for further regional integration?
Jack Daly served as Project Manager during the concluding stages of the work, while Andrew Guinn filled the role in its initial phases. Both traveled to Africa to conduct field research; Andrew and Gary visited Uganda and Rwanda while Jack went to South Africa to interview stakeholders in the EAC tourism industries at a travel trade fair.
There are both similarities that bind and discrepancies that distinguish each industry. In dairy processing and maize, Ugandan outputs in the production and aggregation segments of the chain are used by Kenyan processors. Rwanda represents its own node in these chains, with much of its dairy and maize consumed by one or two local domestic processors. European and North American consumers are primary drivers of demand for tourism, especially in Rwanda, which gives the chain a global scope.
Rwanda’s government has taken an active approach to orchestrating responses to challenges. At the firm level, this has often taken the form of Public-Private Partnerships (PPPs) to bolster the capabilities of local businesses. At a policy level, the government has focused on supply-side measures, with the Crop Intensification Program being one of the more prominent examples. Uganda’s government has been less likely to enter into partnerships to address bottlenecks, instead relying on the private sector or NGOs in many cases. The underdeveloped nature of its institutions has afforded elite actors a degree of power that in some cases constrains development across the sectors.
Productive capacity constraints are especially prominent. In dairy processing and maize, farmers lack finance and scale, and traders or collectors fail to communicate market signals. Human capital is a related challenge, with many producers unaware of EAC standards or the advantages associated with using higher quality inputs and production technologies. In tourism, many actors lack the marketing or hospitality skills required to link with global lead firms.
While there have been successes, the EAC is yet to fully leverage the potential of regional integration. In tourism, low domestic and regional demand ultimately impairs the development of local tour operators. The dairy and maize chains face pervasive capability constraints related to national systems of production and trade that are dominated by “informal” and unregulated smallholder actors. For these stakeholders, compliance with EAC standards either undermines competitiveness or yields benefits that are not adequately conveyed to both consumers and producers.
Nevertheless, there is potential for the further development of regional value chains. EAC countries can work together as a “regional block” to exploit the potential of each sector. Recent dynamics in the U.S. and EU dairy industries offer opportunities to attract further investment from global lead firms. The profile of the maize value chain — an extensive production system in Uganda and a developed processing system in Kenya with recent FDI by companies such as Cargill — offers the possibility for similar strategic slicing of value chain functions per the competitive capabilities across the region.
EAC countries can also pursue joint regional investment promotion strategies to ensure FDI provides an effective vehicle to develop capabilities. These could be specific areas related to innovation and product development, distribution and marketing, and national supply chain constraints in one or multiple countries. Addressing capabilities gaps is crucial to developing inclusive regional value chains in which local producers are linked and adequately compensated through integration in supply chains of the emerging lead regional firms.