East African Community and Poverty Alleviation in Uganda: Micro Simulations in a CGE Model

This ongoing study focuses on one aspect of globalization, namely, regional integration by focusing on the well being of one particular group, namely the poor. Gains and losses from regional integration are often unevenly distributed inside the country. Joining the East African Community regional integration involves removal of tariffs in the community and maintaining a common external tariff with the rest of the world and has poverty implication. EAC is a preferential trading area consisting of Uganda, Kenya and Tanzania. It aims at achieving deeper regional integration among the three member states with the establishment of a customs union, then a common market, a monetary union and eventually a political federation. All the member countries view regional integration as an essential element of their development strategy and an important ingredient in stimulating increased trade, investment and competition. The commodity composition of intraregional trade reveals that unlike trade with the rest of the world, food products and manufacturing products play an important role. Uganda exports, 64.5% and 34.6% to Kenya and Tanzania respectively are agricultural products and imports of 33.3% and 7.1% from Tanzania and Kenya respectively are manufactured goods in the year 2001. The pattern and trends in poverty are central in policy making and regional integration efforts. Regional integration efforts to increase economic growth require an understanding of the impact of regional integration on poverty and income distribution. Regional integration presents both risks and opportunities for participating countries in general and the poor in particular. However we know little about the impact of East Africa Community regional integration on poverty alleviation in Uganda. Regional integration is likely to bring in the short-run, shocks to Ugandan imports and exports prices. The impact of regional integration on income distribution and poverty is not very clear and is a subject of intense debate. Morrisey and Rudaheranwa (1998) provide a discussion of the major trade policy reforms in Uganda in the period 1987 to 1997.The liberalization of foreign exchange in 1990, and abolition of marketing boards particularly coffee in 1992, greatly improved the farm gate prices for coffee and boosted production, as farmers were able to receive a greater proportion of the world coffee prices. Given that small holder poor farmers grow coffee, the progress with liberalization of coffee had a direct positive effect on poverty (Appeleton, 2001). The removal of tariffs by East Africa Community member countries will have an impact on income distribution and poverty levels with respect to the composition, and volume of imports and exports to the East African Community member states. However, it is unknown if tariff reductions in the East African Community regional integration context will lead to lower or higher poverty levels in Uganda. It is also unknown what the relative effects of the increases will be in the different socioeconomic groups of Uganda. The overall objective of this ongoing study is to estimate the impact of EAC regional integration on poor households in Uganda. To achieve this objective we are being guided by these research questions; will regional integration be favorable or harmful to the poor? How will the exogenous shocks be transmitted to the poor and non poor households? Will the effects differ between different types of the poor? What alternative or accompanying policies could be used to ensure a more equitable distribution of the gains from regional integration? Two CGE analyses have been conducted in Uganda to analyze the effects of trade liberalization in Uganda. One study was by Brake (1998) and another by Mbabazi (2002) which focused mainly on analyzing production efficiency and reallocation effects. The two studies basically investigated tariffs reduction before 2000. Mbabazi study used nominal tariffs and in principle, these under estimates the true protection. In our ongoing study we are using effective tariffs and taking into account regional integration which involves complete removal of tariffs within the East African Community member countries while maintaining tariffs on the rest of the world. Our focus is on the effect of regional integration on poor food producing households in Uganda. The analysis of tracing down the impact of trade reforms particularly broad reforms of East African Community regional integration to the poor food producing household level in Uganda has not been emphasized or has been completely missed out. Yet the trade pattern between the member states is unique for instance it is dominated by food crops and simple manufactured goods trade that may have a strong impact on poor food producing households in Uganda. From the survey we note that no comprehensive assessment of the impacts of regional integration on poverty has been carried out in Uganda. This ongoing study attempts to fill this literature gap within the context of East Africa Community regional integration agenda. This ongoing study falls under the general equilibrium method, in particular in the CGE poverty literature. This ongoing study is tracing the impact of changes in food crops prices and manufactured products prices on household incomes. This ongoing study aims at using a CGE micro simulation model to run simulations that will indicate if there will be changes in the overall incidence levels of poverty and impact on household income distribution and poverty incidence in different socioeconomic groups of Uganda. To assess the potential effects of regional integration on poverty in Uganda, we follow the integrated micro simulation approach developed recently by Decaluwe et al. (1999), Cockburn (2001) and Cogneau and Robillard (2001).The CGE model we are using is based on a prototype developed by Blake (1998) for analysis of trade policies and applied for Uganda. The model is a Walrasian standard neoclassical static model with imperfect substititution between domestic and foreign goods and follows in the tradition of application of CGE models to developing countries(Dervis et al. 1982) and standard CGE modeling structures(Blake et al.1998).