WB 2013 Doing Business Report on the EAC

There has been a recognition that regional integration alone is not enough to spur growth. The EAC needs an investment climate—including a business regulatory environment—that is well suited to scaling up trade and investment and can act as a catalyst to modernize the regional economy. Despite the reform efforts of all 5 member economies, the EAC’s average ranking on the ease of doing business has remained fairly constant over the past 4 years, at around 117 and in fact comparing the 2010 Doing Business performance to 2013, the EAC has seemingly not registered much of an improvement. This is a clear indication that critical obstacles to entrepreneurial activity remain and that economies in other regions have picked up the pace in improving business regulation. Improving the investment climate in the EAC is therefore an essential ingredient for successful integration—the foundation for expanding business activity, boosting competitiveness, spurring growth and, ultimately, supporting human development.

The development of regional strategies and institutional frameworks that connect and streamline national reform programs is an indispensable condition for a well-functioning common market that can attract foreign investment. A lack of coordination among member countries and the implementation of “isolated” national reforms—which often focus on short-term gains and fail to consider the impact on the region—can hinder progress in fully implementing the common market. Conversely, continual exchange among different authorities across countries, the implementation of an agreed-on regional reform agenda and a focus on common goals and objectives create synergies and help the region as a whole to improve its investment climate.

Fostering economic growth by tapping the potential of the private sector is among the main objectives of the fourth EAC development strategy. In addition to increasing institutional coordination, other important steps to achieve this objective are better integrating small and medium-size enterprises into the financial sector and creating business-friendly administrative structures and tax regimes. Additional challenges are to ensure the availability of reliable data and statistics and to implement credible surveillance and enforcement mechanisms

The EAC economies have an average ranking on the ease of doing business of 117 (among 185 economies globally). But there is great variation among them—from Rwanda at 52 in the global ranking to Burundi at 159. This wide variation in business regulations is among the issues that the EAC needs to tackle to achieve the desired level of integration. While the regional average ranking is less than ideal, if a hypothetical EAC economy were to adopt the region’s best regulatory practices in each area measured by Doing Business, it would stand at 26 in the global ranking on the ease of doing business. Burundi was among the world’s most active economies in implementing regulatory reforms in 2011/12. It implemented policy changes in 4 areas measured by Doing Business: starting a business, dealing with construction permits, registering property and trading across borders.

One area where the EAC shows strong performance is business start-up. To start a business in the EAC requires only 8 procedures and 20 days on average. As such the EAC’s average ranking on the ease of starting a business is 84, higher than those of other regional blocs in Africa—104 for the Southern African Development Community (SADC), 110 for the Common Market for Eastern and Southern Africa (COMESA) and 127 for the Economic Community of West African States (ECOWAS)

The 2013 Doing Business Report on the EAC can be downloaded here.

EAC Industrialization Policy 2012-2032

The EAC Industrialization Policy and Strategy provides general contours of policy intentions and strategic areas of focus to guide EAC towards achieving the set goals and in particular, attaining industrialized economic status by 2032. The EAC Industrialization Policy is intended to address the challenges facing the region particularly, the need to build a more diversified regional economic structure. 

The formulation of the policy was accomplished through a comprehensive and inclusive process, based on analysis and wide consultations with stakeholders in the Partner States.  The policy is aligned to the relevant Articles of the Treaty in particular Article 79 and 80 which provide for regional co-operation in matters of industrial development as well as Article 44 of Common Market Protocol in which the Partner States undertake to adopt common principles to cooperate in Industrial Development in the region. 

The Partner States have set themselves ambitious targets to be met within the timeframe, of the policy as follows:

a)    Diversifying the manufacturing base and raising local value added content (LVAC) of resource based exports to  40% from the  currently estimated  value of  8.62 % by 2032;

b)    Strengthening national and regional institutional frameworks and capabilities for industrial policy design and implementation; and delivery of support services  to ensure  sustainable industrialization in  the region;

c)    Strengthening R&D, Technology and Innovation capabilities to facilitate structural transformation of the manufacturing sector and upgrading of production systems;

d)    Increasing the contribution of (i) intra regional manufacturing exports relative to total manufactured imports in to the region from the current  5% to about 25% by  2032

e) increasing the share of manufactured exports as a percentage of total merchandise exports to 60% from an average of 20%; and

f)    Transforming Micro Small and Medium Enterprises into viable and sustainable business entities capable of contributing up to 50% of manufacturing GDP from 20% base rate.

To address the industrialisation challenges, the following broad policy measures will be undertaken:

1. Promoting the Development of Strategic Regional Industries/Value Chains; and enhance Value Addition

2. Strengthening national and regional institutional capabilities for industrial policy design and management

3. Strengthening the capacity of industry support institutions (ISIs) to develop and sustain a competitive regional industrial sector

4. Strengthening the Business and Regulatory Environment

5. Enhancing access to financial and technical resources for Industrialization

6. Facilitating the development of, and access to appropriate industrial skills and know-how

7. Facilitating the Development of Micro, small and medium enterprises (MISMEs)

8. Strengthening Industrial Information Management and Dissemination Systems

9. Promoting equitable industrial development in the EAC region

10. Developing supporting infrastructure for industrialisation along selected economic corridors

11. Promoting regional collaboration and development of capability in industrial R&D, technology and innovation
12. Promoting sustainable Industrialisation and environment management
13. Expansion of trade and market access for manufactured products
14. Promoting Gender in industrial development.

To exploit the resource endowment in the region and enhance the region’s industrialisation levels, the EAC Industrialisation Policy has earmarked six strategic resource-based industries, in which the region has a comparative advantage and which will be developed to facilitate productive integration (PI) through industrial deepening, diversifying, specialisation and upgrading. The strategic regional industries to be promoted include:

1. Agro processing

2. Iron steel processing and other mineral processing

3. Chemicals (fertilizers and agro chemicals)

4. Pharmaceuticals

5. Energy

6. Oil and gas processing

See the Policy and related documents here.

Mobile Money Biggest Bank by Deposits

Customers’ cash deposits held by mobile phone companies in Kenya hit KSh226 billion as of December, making the telecoms firm Safaricom's MPESA money transfer service, Kenya’s biggest bank in terms of deposits.

The total deposits held in mobile money subscriber accounts by the country’s four mobile firms Safaricom, Airtel, Yu and Orange increased by 10 per cent between October and December, according to a report released by the communications regulator the Communications Commission of Kenya.

The amount surpassed the cash held by Kenya’s biggest commercial bank Kenya Commercial Bank, as measured by clients’ money whose total deposit is about Sh223 billion for its local operations.

“The mobile money transfer service continued to record tremendous growth during the period and the number of mobile money transfer subscribers grew by 9.4 per cent to 21.1 million up from 19.3 million recorded in the previous period.

Though the CCK report did not break down the amount held by each telecommunications firm, Safaricom’s M-Pesa is by far the biggest holder for the bulk of the deposits.

See full post here.

Postal Services Authority in Kenya Closes 56 Outlets

The Postal Corporation of Kenya (PCK) has shut down 56 outlets as increased Internet connectivity and widespread use of mobile phones has reduced demand for its services.

Data from the regulatory authority for the communications sector in Kenya, the Communications Commission of Kenya (CCK), shows that delivery of letters has fallen, with only 17.3 million sent in the quarter to December, compared to 19.7 million in the same period a year earlier.

This has forced PCK to reduce its outlets to 634 units in December, from 690, in response to the reduction in business that is compounded by the entry of private courier firms such as Roy Parcels, Nation Media Group, and security firm G4S.

“The postal market is on a downward trend as evidenced by the decline in postal traffic of local letters sent, and reduced number of postal outlets reported during the period,” said the CCK in a report.

The regulator said the Internet and other forms of communication like SMSs had overtaken snail mail.

The UN Central Product Classification classifies postal services into four main categories. Postal services related to: letters, parcels, counter services and other postal services which include mailbox rental services.

With regard to postal services pertaining to letters, during the period under review, communication via SMS increased significantly, an indication that the service could have consumed some of the traffic of local letters sent.

Mobile phone subscribers sent 3.6 billion short messages in the quarter, reflecting more than threefold growth on the one billion sent in a similar period a year earlier.

Increasing Internet use is hinged on the low cost of transactions, safety, and speed. As a result, instant massaging and e-mails have reduced the need for letter writing, denting PCK’s revenues further as more people turn to mobile phone-based platforms and computers to send money and information.

Internet penetration in the country stood at 41 per cent of the population in December (16.2 million users) from 22.7 per cent at the end of 2011.

International outgoing letters dropped to 1.9 million from 2.2 million, while incoming letters increased by 138 per cent to 191, 612.

The dwindling revenues have seen PCK turn to cost-cutting drives, including layoffs and selling of assets to remain afloat. The state owned firm, with an estimated 4,100 workers, is weighed down by millions of shillings in debt to pensioners and other creditors.

The CCK reckons that the corporation should diversify into financial services, especially agency banking, to reverse its fortunes.

“Deliberate measures such as national addressing system to facilitate delivery of letters to doorsteps, diversification into financial services and wireless Internet services across postal outlets, among others, could reverse this trend and revitalise the sector as happened in most developed countries,” added CCK. 

EALA Calls for Elimination of Work Permit Fees in the EAC

The East African Legislative Assembly (EALA) has passed a Motion for a Resolution advocating for the elimination of work permit fees for EAC citizens in the spirit of enhancing free movement of workers in line with the freedoms in the EAC Common Market Protocol.  

In this respect, the Assembly also commended the Republic of Kenya and Rwanda for taking the first steps in eliminating the work permit fees for the citizens of the EAC and urged the United Republic of Tanzania, the Republic of Burundi and the Republic of Uganda to emulate the same spirit.

Article 49 of the EAC Treaty establishes EALA as the legislative organ of the Community.  Like most legislatures EALA has as its core functions legislating, oversight and representation. Article 49 further states that EALA:

• Shall liaise with the National Assemblies of Partner States on matters relating to the Community;

• Shall debate and approve the budget of the Community;

• Shall consider annual reports on the activities of the Community, annual audit reports of the Audit Commission and any other reports referred to it by the Council;

• Shall discuss all matters pertaining to the Community and make recommendations to the Council as it may deem necessary for the implementation of the Treaty;

• May for purposes of carrying out its functions, establish any committee or committees for such purposes as it deems necessary;

• Shall recommend to the Council the appointment of the Clerk and other officers of the Assembly;

• Shall make its rules of procedure and those of its committees

The Resolution passed in the House notes that EAC citizens have been subjected to altered work permit fees in the region which are divided in to several classes catering for different professions.    The United Republic of Tanzania according to the Resolution has a total of 13 sub-classes, Uganda 9, while Rwanda and Burundi have 2 sub-classes each. 

The Resolution moved by Hon Bernard Mulengani and seconded by Hon Abubakar Zein Abubakar, takes cognisance of the fact that Article 76 of the Treaty for the establishment of the EAC recognises that within the Common Market Protocol (CMP), there shall be free movement of labour, goods, services, capital and the right of establishment.   Article 10 of the Common Market Protocol on its part, guarantees that the Partner States do provide for free movement of workers, who are citizens of the other Partner States within their territories.

Regulation 6 of the Free Movement of Workers Regulations in the EAC Common Market Protocol (CMP) states that a worker shall apply for a work permit from the competent authority within 15 days of entry into the territory of a Partner State provided they have a valid contract of employment for a period of more than 90 days.

According to the Resolution, the current fee charged to obtain work permits also vary.  In the United Republic of Tanzania, the fees range from USD 6 for peasants up to USD 3,000 for miners while in Uganda it ranges from USD 250 for missionaries up to USD 2500 for miners.   In Burundi, the fees range from USD 60 for students to USD 84 for regular workers.  The objective of the work permit is seen as a mode of earning revenue and taxes or regulation of free movement of workers.

In the Resolution thus, EALA urged the Council of Ministers to call for harmonisation of national laws in order to allow for free movement of labour and services.

Supporting the motion, Hon Abubakar Zein Abubakar said the move would create a sense of ‘East Africaness’ and would ensure ultimately, ‘Brand East Africa’ is realised.  He called for a sense of identity and mutual benefit amongst citizens and said abolishing work permits was a step in that direction.  Others noted the Motion as timely to take the integration to the next level that the region had continued to realise some benefits accruing from the Common Market Protocol and noted that the imaginary fears especially about loss of revenue and insecurity should be dispelled.  The legislator noted that today over 170 Kenyan companies had set up operations in Rwanda and the move was greatly benefiting Rwandans.   

Hon Maryam Ussi supported the motion with caution noting that there were still threats of terrorism around the borders.   ‘If international passports can be forged, then even the East African passports are subject to forgery’, the legislator remarked. On equality of jobs and provision of services, others noted that many citizens were still unable to work in the neighbouring Partner States and its was further noted that some Partner States were hiding behind bureaucracies to deny free movement noting that currently, work permit fees were also high. ‘I congratulate Kenya and Rwanda for the move to withdraw permit fees and also note that Kenya and Uganda are working on a similar bilateral move’, Hon Nakawuki said.  It was also noted that the issue of permits had been used as Non-Tariff Barriers and said the decision by Rwanda and Kenya to collaborate in the matter exemplified the Principle of Variable Geometry which applies in the integration model. 

Rising in support of the motion, Hon Abdullah Mwinyi however maintained that work permits were a monitoring instrument in absence of the identity cards.  ‘I request for a scientific analysis to see the amount of revenue raised by the citizens of the region arising from the work permits’ the Member noted.

In response, the Deputy Minister of EAC in the United Republic of Tanzania, Dr. Abdulla Sadaalla noted that harmonisation of the national laws was currently in progress and that United Republic of Tanzania had reviewed relevant laws, in alignment to the Common Market Protocol.’ I can confirm that we have finalised the review process and are now awaiting the process of ratification’, the Minister remarked.  Hon Leontine Nzeyimana, Minister of EAC in the Republic of Burundi pledged the Ministry would pursue the removal of the work permit fees with the authorities.

The Chair of the Council of Ministers, Hon Shem Bageine reiterated the need for all Partner States to fully implement the Common Market.  He lauded the Republics of Kenya and Rwanda for the bold move in abolishing permit fees.   Hon Bageine remarked that Republic of Uganda recently made the decision to abolish work permit fees for citizens in Uganda.   He noted that at the moment, it was necessary to abolish the work permit fees but eventually, once we federate, (Political Federation), then the work permits would be totally removed.   The Council of Ministers, Hon Bageine remarked, shall deliberate into the matter and make the necessary follow-up with regards to ensuring the full implementation of the Common Market Protocol.

EU-US Transatlantic Trade Negotiations

Last month, President of the US Barack Obama, European Commission President José Manuel Barroso and European Council President Herman Van Rompuy announced they were each starting the internal procedures necessary to launch negotiations on the much awaited trade agreement  The negotiations will be based on the work of the EU-US High Level Working Group on Jobs and Growth co-chaired by Commissioner De Gucht and United States Trade Representative Ron Kirk.

Background

The EU and the US make up 40% of global economic output and their bilateral economic relationship is already the world’s largest. The aim of the high-standard Transatlantic Trade and Investment Partnership is to liberalise trade and investment between the two blocs. According to a report released today by the European Commission (Reducing Transatlantic Barriers to Trade and Investment), the final agreement could see EU exports to the US rise by 28%, earning its exporters of goods and services an extra €187bn every year. Consumers will benefit too: on average, the agreement will offer an extra €545 in disposable income each year for a family of four living in the EU.

The European Union and the United States will have their eyes on more than just removing tariffs. Tariffs between them are already low (on average only 4%) so the main hurdles to trade lie 'behind the border' in regulations, non-tariff barriers and red tape. Estimates show that 80% of the overall potential wealth gains of a trade deal will come from cutting costs imposed by bureaucracy and regulations, as well as from liberalising trade in services and public procurement.

That's why the two trading giants will reinforce their regulatory cooperation, so to create similar regulations rather than have to try to adapt them at a later stage. The aim is to build a more integrated transatlantic marketplace, while respecting each side's right to regulate in a way that ensures the protection of health, safety and the environment at a level it considers appropriate. Both sides hope that by aligning their domestic standards, they will be able to set the benchmark for developing global rules. Such a move would be clearly beneficial to both EU and US exporters, but it would also strengthen the multilateral trading system.

Additional Information

Independent Study Outlines Benefits of EU-US Trade Agreement

India, China now Kenya's Top Import Trading Partners

The East African

India has overtaken the United Arab Emirates (UAE) to become Kenya’s top source of imported goods, newly released data show.

The world’s second most populous nation grew its exports to Kenya by 27.1 per cent to Sh174.6 billion in the first 11 months of last year or 15 per cent of Kenya’s total imports.

That growth allowed New Delhi to topple UAE from the top trading partner position it has occupied for the past two decades — helped by exports of petroleum products.

Official statistics show that the UAE’s share of Kenya’s total imports dropped to 11.9 per cent saddled by a 22 per cent drop in the value of its merchandise to Sh138.2 billion.

India’s stride to the top spot came on the back of big-ticket contracts in healthcare and energy sectors that were concluded in the past 12 months.

The Indian High Commission in Nairobi said Indian investors had intensified their search for business opportunities in Kenya and that the effort was bearing fruit.

“Kenya has become an important market for Indian firms and most have intensified their search for business opportunities with very positive results,” said Tanmaya Lal, the deputy High Commissioner at the Indian embassy.

Mr Lal said that geographical proximity has made it easier for Indian companies to export to Kenya while keeping prices close to what they charge at home.

The world’s most populous nation and its second largest economy China also grew its exports to Kenya by 16.4 per cent to Sh154.7 billion beating the UAE to the third position.

Chinese goods now account for 13.3 per cent of Kenya’s total imports, affirming the rise of Asia as an important trading partner for East Africa’s largest economy.

UAE has consistently featured as the top source of imports in Kenya in the past 10 years save for 2010 when China sold Sh120.6 billion worth of goods more than UAE’s Sh116 billion.

The relegation of UAE to the third trading spot has been linked to a decline in Kenya’s intake of petroleum products that form the bulk of Abu Dhabi’s exports.

Kenya’s imports of fuel and lubricants fell 5.3 per cent to Sh305.7 billion in the 11 months to November compared to Sh323 billion a year earlier.

The decline in the petroleum shipments – that accounts for a quarter of Kenya’s imports — also pulled down the value of total imports by 3.3 per cent to Sh1.19 trillion in the same period.

India and Kenya have tightened their economic ties in the past three years, paving the way for Delhi to sign major supply deals with Nairobi and deepen its export position.

New Tanzanian Mining Law Requires 50% Local Public Ownership

News From The East African

A new mining law, requiring foreign-owned companies to cede a 50 per cent stake to the public in Tanzania, is threatening to cripple the thriving $500 million Tanzanite gemstone business.  One company, TanzaniteOne, has rejected a demand by the government to relinquish half of its shares to the State Mining Corporation (Stamico), setting the stage for a major dispute.

TanzaniteOne, a multinational listed on the London Stock Exchange, said it could not dispossess its investors of their shares.  Instead, the firm, which extracts Tanzanite in the Mererani Hills, about 40 kilometres southeast of Arusha, offered to offload 20 per cent of its shares through an IPO at the Dar es Salaam Stock Exchange Executive chairman Ami Mpungwe said the firm’s shareholders comprised institutions like pension funds, whose interests could not be taken for granted. They could not be dispossessed of their shares through a “simple announcement.”  But Mr Mpungwe said the company was negotiating a solution with the State.

The new Mining Act of 2010, which became effective this year, requires foreign-owned companies to cede 50 per cent of their stake to the public or lose their mining permit.  The matter is urgent for TanzaniteOne, as its licence expired in August 2012 and the government is threatening not to renew it until the firm surrenders the 50 per cent shares.  Deputy Minister for Energy and Minerals Stephen Masele told The EastAfrican that the firm must relinquish the stake to Stamico as a precondition for renewing its operating licence.  “The company wants the state to buy the shares, but our position is that the firm ought to offload the stocks to Stamico free of charge or else lose the licence,” said Mr Masele.

The new law stipulates that gemstones will be exclusively mined by Tanzanian nationals, unless the mining requires heavy investments and sophisticated technology, where foreign investors will be allowed, but on condition they offload 50 per cent of their shares to the public.  Lusekelo Mwakalukwa TanzaniteOne corporate governance manager told The EastAfrican that the company has invested heavily in its designated mining block and has just started to realise profits.  He adds that the firm has also been paying revenue, including corporate taxes, royalties and other related income to the government.

Increased production

Bernard Olivier, chief executive officer of Richland Resources, which owns TanzaniteOne, says production at the   mine is still rising at a record 2.4 million carats in 2011 with decent grades.  The firm employs 650 people and has paid $26 million in tax over the past five years.C  ash costs per carat are rising too, however, from $1.41 a carat in 2005 to $3.69 in 2010. While the company made a $6 million profit in 2008, today that figure is less than $1 million. Mr Olivier says prices are still 20 per cent below those of 2008.

TanzaniteOne, operating in an eight square km block ‘C’ tanzanite site, planned to produce and export 2.5 million carats worth $24 million in 2012.  Records show that TanzaniteOne has invested over $100 million, but analysts say the company has provided marginal contributions to the communities surrounding its area of operation.  “I don’t see a significant impact of TanzaniteOne’s investment on nearby communities,” said Dr Gasper Mpehongwa, a lecturer in development studies at Tumaini University.  However, records show that TanzaniteOne provides over 2,000 villagers and 4,500 cattle with water at Neisinyai village in Mererani Hills.

Tanzania Establishes EAC Desk in all Districts

News The East African

Tanzania has established an East African Community desk in all its 142 districts, towns and municipal councils across the country to inform its citizens on the existing opportunities in the regional bloc. The desk will be manned by State officers and will have sufficient information about trade and investment policies, immigration, taxation and regulatory frameworks in each of the member country.

According to the country’s Minister for East African Co-operation Samuel Sitta, the decision was taken after the government learnt that the majority of citizens know little about the bloc. “Each council will have an EAC desk manned by competent people with crucial information on new developments in the regional bloc,” Mr Sitta said when he met members of the business community and local leaders at the Holili border town last week.

Mr Sitta said the campaign would be implemented by the government in collaboration with TradeMark East Africa (TMEA), a not for profit organisation.  The minister said each desk officer will have a laptop with all the necessary information that will meet the demand of opportunity seekers and queries raised by members of public on various aspects of EAC integration including education and banks.“The desks will also have newsletters, brochures and other documents with vital information on EAC,” he said.

Lack of information on available business opportunity in the region has seen farmers incur losses on gains, which could have been sold in countries experiencing food deficit. Farmers in the Southern Highland regions of Mbeya, Iringa, Njombe, Ruvuma and Rukwa often produce surplus food that could be sold to EAC countries. “Very few Tanzanians know about the EAC and its potential for doing business,” lamented Allan Nswila, a consultant at a forum organised recently in Arusha by EAC and members of the business community.

It was noted that few cross-border traders consult the East African Business Council on opportunities in the region.  Mr Sitta also met with his Kenyan counterpart Musa Sirma in Taveta town to address trade barriers between the two countries.  In Taveta, the two ministers also discussed how to implement the Common Market Protocol, and fast-track movement of goods.

The Mauritian Economic Miracle