Archives for posts with tag: Uganda

Last week I wrote a blog post titled “Africa is rising, employment is not” reporting some figures from a new paper by John C. Anyanwu  on the African Statistical Journal. I briefly mentioned in the post that employment stats are not very reliable in Africa because of informality of the labour market. But I kept it a bit vague and some readers put me on the spot: if the data is garbage, why are you blogging about it?

Good question. The reality is that I knew that the data was “not very reliable”, but I didn’t  look in-depth into the issue -so I’ll try to do this now. Look at these national-level definitions taken from the ILO laborista database:

In Kenya, employment data is taken from this question in the national census: 

What was X mainly doing during the last seven days preceding the census night? 1) worked for pay or profit; 2) on leave/sick leave; 3) working on family holding; 4) no work; 5) seeking work; 6) student; 7) retired; 8) disabled; 9) home makers; 10) other

A person is considered employed if over the last week she/he worked “most of the time” for wages, salary, commission, tips, contract or payment in kind

 In Uganda, stats are based on a labour-force survey. You are considered employed if

a) performed “some work” for pay or profit during the reference week; b) were temporarily absent from work during the reference week because of illness or leave, but were definitely going to return; and c) were engaged in production of goods for on use. “Some work” is defined as 1 hour or more during the reference week.

I checked the definitions for a few other countries and they looked rather similar – they tend to include all kinds of casual labour in their employment stats. In Uganda it was quite extreme, if you worked for 1 or 2 hours the week before the interview, you are considered “employed”. When we talk about the importance of “job creation” for development, random casual jobs for one or two hours a week is definitely not what we are talking about. The problem is that when we look at the general graph, it is difficult to make sense of the differences between some countries.

Source: Anyanwu (2013)

Source: Anyanwu (2013)

I’m not an expert of labour markets in each of these countries. But how realistic is it that Burkina Faso, Ethiopia and Central African Republic have relatively high employment rates, while Egypt, Algeria and South Africa are relatively low? Initially I thought that high employment rates could be an indicator of large informal sectors. But that seems like a partial explanation – the reality is that employment statistics are fundamentally unreliable and country-level comparisons cannot be accurate.

A recent paper by Fox and Pimhidzai looks at the problem more in-depth for Africa and particularly for Uganda. Excerpts from the abstract:

 A cursory review of employment data for low-income Sub-Saharan African countries shows both large gaps and improbable variation within countries over time and among countries, suggesting that low quality data are routinely reported by national statistics offices. Unfortunately, policies are formed and projects developed and implemented on the basis of these statistics. Therefore, errors of measurement could be having profound implications on the strategic priorities and policies of a country… [The paper] finds that estimates of employment outcomes are unreliable if the questionnaire did not use screening questions, as labor force participation will be underestimated. Likewise, surveys that use a seven-day recall period underestimate or potentially misrepresent employment outcomes, owing to seasonality and multiple jobs. […] The paper concludes that there is a knowledge gap about employment outcomes in Sub-Saharan Africa that will continue unless collection techniques improve.

So the lesson of the day is “to always be suspicious about employment stats in Africa”, especially cross-country comparisons. Thanks to  @RachelStrohm and @RowanEmslie among others for questioning the issue.

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There is an old joke in East Africa that the EAC (East African Community) will succeed only when Tanzanians learn English, Ugandans learn Swahili, and Kenyans learn manners. Fortunately language barriers and old stereotypes are not the main drivers of the current policy agenda. The priority is instead to speed-up economic integration and establish (actually, “re-establish”) a common currency –the East African Shilling – across the 5 EAC countries: Kenya, Uganda, Tanzania, Rwanda and Burundi. Is this is a good idea?

Let’s start with a little theory first –a primer on economic integration as I studied in my undergrads. Look at the figure below (source)

Stages of economic integration

Theory says that there are 5 steps to economic integration: you start with free trade area, which abolishes partially or completely the custom tariffs between member countries. In the second step, a Custom Union is formed when member countries agree to uniform external tariffs towards third countries. The common market adds the free movement of the factors of production, including services, capital and labor. In the fourth step, the economic union introduces a common currency as well as common monetary, fiscal and budgetary policy. Usually this is complemented by the harmonization of tax and welfare policies. Finally, the very last step is the full political integration with the establishment of a common government.

Where is the EAC?

The EAC established a customs union in 2005, a common market in 2010 and now it aims at the fourth step with the establishment of an economic union. I must admit that I am excited about the idea but also very worried. Here’s a list of my concerns:

First, the EAC is only half way through to the third step (common market), and it is jumping already into the fourth (economic union). The truth that everybody knows is that free movement of capital and labour is far from being achieved. Labour cannot move freely because of long-standing legal and regulatory barriers. Goods cannot move freely as well, especially because non-tariff barriers are still a huge burden. Just a silly example, I’ve learnt from personal experience that many bus companies ship packages from Uganda to Kenya, but not the other way around. Reason? I was told it was “a problem at the border with Uganda”. Who knows what that means…

Second, you cannot create a common currency without creating common fiscal and budgetary policies. The EAC governments seem aware of this issue, and in fact they proposed the establishment of an “East African Financial Services Authority”, “East African Surveillance and Enforcement Commission” and the “East African Statistics Bureau”. This all sounds wonderful, but the real issue is whether national governments are willing to give up sovereignty over such important matters. Let me borrow some sentences from an article on Columbia Communique:

Is the wish for closer relationships a good thing? Absolutely. Does it have to be achieved as fast as possible and through the handcuffs of a currency union? Absolutely not. Not only will this process take many years, it will also require full commitment. They can’t have their cake (the currency union) and eat it too (maintain sovereignty in all areas).

Currently the EAC countries have very different import-export mixes, making them vulnerable to changes in world goods prices to different degrees. Without strong fiscal centralization including a counter-cyclical mandate and no adjustment mechanisms such as inflation or devaluation, a currency union can have devastating effects on countries hit hard by an external shock.

My last point is that the EAC has to learn from the experience in the EU: a monetary union must be able to deal with both periods of economic growth as well as periods of crisis and recession. How will the EAC act in case of fiscal mismanagement? What will it do if a country enters a period of financial and economic crisis? Will the regional powerhouse (Kenya) step in and help the “periphery”?  I know that using these terms is quite a stretch in the EAC context. But the region cannot ignore the experiences in other parts of the world. And more importantly, the EAC cannot ignore that it already failed in forming a monetary union in the past – neglecting its own history would be the worst of the mistakes.

Just like I did last year, this morning I played around with data on imports and exports from the Kenya Bureau of Statistics. Understanding the trends of international trade in Kenya is extremely important – as I have said a hundred times in this blog, the imbalance between imports and exports is one of the major weaknesses of the Kenyan economy and one of the root causes for macroeconomic volatility. So, what is Kenya exporting to the outside world? What are the major export destinations?  How about imports?  Are they still growing faster than the exports?

Let me say in advance that here I am showing some basic figures. If you want to know more about imports and exports for specific commodities (tea, fruits, flowers, etc) in specific months you can find very detailed data here. So, let’s  take a look at imports first  (Click on the images to enlarge).

Kenya - Major origin of imports in 2011-2012

Kenya - Imports by broad economic category

The two graphs show two very interesting trends. First, India has officially outgrown China and the UAE as the major importer to Kenya. The value of imports from the UAE has decreased because the Kenyan Shilling has gained strength and therefore its oil bill has gone down significantly. When it comes to China and India, I would like to see an analysis of the political economy behind these trends.   Which African countries are “going Indian” and why? And is this trend relevant only for trade or also in terms of foreign direct investments? A recent article on The Star explained the trend in these terms:

Analysts say India has managed to clinch the lion’s share of Kenya’s import volumes because of, among others, the prevailing cordial foreign policy between the two countries since Kenya gained independence, relatively cheaper goods, quality, and proximity of its ports to Kenya.

The main imports from India include textiles, petroleum products obtained from bituminous minerals (other than crude), medical equipment and drugs, pharmaceuticals, flat-rolled iron and non-alloy steel products, electrical goods, food-processing machinery, special purpose motor vehicles and trucks among others.

“There are quite a number of factors why Kenya is importing more from India. For instance, you will realise that many products on sale in Kenyan retail stores – such as textiles (garments) – come from India. They are cheaper and as we know, Kenyan consumers are sensitive to price, making these a top choice,” said Tiberius Barasa, the executive director of the Centre for Policy Research, a governance and public policy analysis think-tank.

If you know of any paper on this issue please leave it in the comment section.

The second trend is that imports in the broad economic categories have gone up substantially between 2011 and 2012, but we cannot say the same about exports, which remained stagnant over the two-years period. What I find more worrying is that exports to the East African region have decreased (look at Uganda and Tanzania) or increased slightly (Rwanda).

The East African has an interesting analysis on the stagnation of Kenyan exports over the last decade. At the regional level, Kenya is growing as a major importer, but definitely not as an exporter:

Kenya’s standing as East Africa’s trade giant is under threat from neighbouring nations with fresh data showing the growth rate of its exports to the region has been declining over the past eight years.

…The study shows that Kenya’s contribution to total intra-EAC exports declined from 78.3 per cent in 2005 to 57.2 per cent in 2010, although its contribution to total intra-EAC trade increased from 7.5 per cent in 2005 to 16.7 per cent in 2010 on the back of increased imports.

Comparatively, Tanzania and Uganda’s contributions to total intra-EAC trade increased sharply from 6.6 and 4.2 per cent in 2005 to 20.67 and 19.2 per cent respectively in 2010, taking up the share that Kenya lost. On imports, however, Tanzania and Uganda have lost ground.

Tanzania’s contribution to intra-EAC imports declined from 22.4 per cent in 2005 to 18.9 in 2010 while Uganda’s dipped from 70.1 per cent in 2005 to 36.9 per cent in 2010.

Kenya - Exports by broad economic category in 2012

Kenya - major export destinations in 2011-2012

The Port of Dar Es Salaam, the second largest in East Africa after Mombasa, is one of the least efficient on the planet, hindering trade and economic expansion not just for Tanzania but also for neighboring landlocked countries. The cumulative delays at anchorage and dwell time can exceed 20 days, while international standards are around 3-4 days. In addition, official and non-official payments are high and prevalent.

Here’s Jack Morisset with Moret and Regolo in a World Bank Policy Note.

Today, about 90 percent of Tanzanian trade transits through the Port of Dar es Salaam. This port is also a hub for the international trade of East African landlocked countries such as Zambia, Uganda, DRC, Rwanda and Burundi with the rest of the world. But to what extent is the port of Dar Es Salaam efficient in moving goods in and out the country?

The performance of the Port of Dar es Salaam has varied over time. As a result of privatization in the 1990s, the port became one of the most efficient in Sub-Saharan Africa, but its performance deteriorated gradually up to mid-2000s and efficiency is now low despite renewed efforts of the port authorities to implement reforms

Is the Port of Mombasa much better? Here’s a nice comparison:

Indicators

Waiting time at anchorage

Cargo dwell time

Cost/price for shipping companies

Cost/price for shippers

Total cost

Days

Days

UDS per TEU

UDS per TEU

USD per Ton

Dar Es Salaam

Export

None

6

118.2

263.0

29.9

Import

10

10

118.2

366.8

38.1

Import transit

10

17

118.2

320.0

34.4

Mombasa

Export

0

4

128.9

150.0

21.9

Import

0

4

128.9

150.0

21.9

Import transit

0

9

128.9

150.0

20.5

 More here