Monday, May 28, 2012
Friday, May 25, 2012
Wednesday, May 23, 2012
EAC: U.S. Counters with New Trade Pact
Kenya and other East Africa economies could witness a huge inflow of investment and development support as the US moves to counter the gains made by the EU and surging Asian nations such as China and India. The US said it is crafting a new incentive-laden trade and investment treaty for the East African Community (EAC), which it has identified as a potential hub to host its regional business interests.
The proposed treaty would mark a major shift in America’s engagement with the region, which at present is anchored on a simple Trade and Investment Agreement (TIFA) signed with the EAC in July 2008. The TIFA’s main role is to strengthen the US-EAC trade and investment relationship, expand and diversify bilateral trade, and improve the climate for business between the two blocs. The framework further seeks to bolster partnerships in initiatives such as the African Growth and Opportunity Act, the World Trade Organisation’s Doha Round of negotiations, trade facilitation and skills building.
The US, however, said it was now pursuing a full treaty with the EAC, just six months after China signed a TIFA with the EAC to promote commodity trade, tourism, investment, infrastructure development and training.
“It is great that other parties such as China are looking more to East Africa and that shows the region has huge potential,” said Mr Camunez US Assistant Secretary for Commerce. “We however cannot hide the fact that America is also interested in the region. ”China is particularly active in the construction and infrastructure development sector in East Africa and has since branched into other key economic areas such as manufacturing. “I’ve witnessed first-hand the skyrocketing level of investment that has come into Kenya from other parts of the world such as China, India, the Gulf region and elsewhere,” he said. “It’s easy to see why American exporters and investors simply must be more fully engaged.”
To claw back America’s influence in East Africa, President Barack Obama’s administration has taken on a fresh campaign to press for new trade and investment partnership with the bloc. “The proposal calls for the negotiation of a regional investment treaty, the creation of trade enhancing agreements in areas such as trade facilitation, and importantly the establishment of a new commercial dialogue that will facilitate engagement between public and private sectors,” the US official said. Mr Camunez said as part of the deal the US will press for good governance in key areas such as procurement and the adoption of asset protection and intellectual property rights enforcement policies. “We are hopeful that our proposed regional trade package will be accepted by Kenya and the greater EAC and we look forward to deepening our engagement here,” he said.
“Kenya is extremely well positioned to capitalise on this momentum. It holds great potential, enormous opportunity and extra ordinary promise and is a critical hub for American companies in Africa and it offers an important platform and hub for doing business in the continent,” Mr Camunez said.
Kenya hosts more than 60 US firms including giants like General Electric, IBM, Citi, Dow Chemicals, farm machinery maker John Deer, Google, Microsoft, Corn Products, General Motors East Africa and Coca-Cola. An audit by consultancy firm, Ernest & Young showed that the US was the highest source of new foreign direct investment into projects in Kenya between 2003 and last year.
This move by the US is not surprising. Apart from the EAC-China agreement, we should not forget the EAC EPA with the EU which was initialled, remains unsigned and is still yet to be concluded.
Wednesday, May 2, 2012
EAC Stockbrokers Adopt Compulsory Certification Training
Both the East African Securities Regulatory Authorities (EASRA) and the East African Stock Exchanges Association (EASEA) have agreed that professional Capital Market employees will be required to take a certification course, whose curriculum the two bodies have agreed on. The certification aims to standardise qualification requirements for key market activities in the EAC such as trading, asset management, and investment banking. Since certification is being implemented at a regional level, it should be standardised and ideally recognised globally, which allows a graduate to work anywhere. In this regard, the EAC Common Market Protocol under Part D on Free Movement of Persons and Labour, provides provisions on Harmonisation and Mutual Recognition of Academic and Professional Qualifications (Article 11) and hence an advantage of the certification training is that certified staff in the EAC can work in other EAC stock exchanges.
This is also important because the EAC Common Market Protocol (CMP) provides for the Free Movement of Capital in Part G Articles 24-28. Certification is therefore also important with regard to regional integration and capital account liberalisation. The CMP provisions provide for the elimination of Restrictions on the Free Movement of Of Capital which are reflected in Annex VI (Schedule on the Removal of Restrictions on the Free Movement of Capital). The Schedule contains commitments in equity and portfolio investments, bank transactions, repatriation of proceeds from sale of assets and other transfers and payments relating to investment flows.
Formal certification procedures will also help the market players to have a clear understanding of market regulations and the requisite qualifications to perform their responsibilities. It is acknowledged that a lack of properly qualified staff and fraudulent trading of customers’ shares was blamed for the collapse of Kenyan stock brokerage firms between 2007 and 2010.
Scheduled courses under the programme include fundamental securities, market participants training, officers and directors course. The certification course was agreed upon during an EASRA consultative meeting that was held in Bujumbura, Burundi, in March however, rules on frequency of training, examinations and those to be exempted based on other courses taken are yet to be finalised.
There are, however, other programmes in the region that have been running on a voluntary basis and without certification such as those run by the Securities Industry Training Institute, which is based in Kampala.
The most outstanding achievement in terms of EAC capital markets integration so far has been the cross listing initiative that has made it possible for seven, five and three companies to cross list from the NSE to the USE, DSE and RSE respectively. A road map for the integration of the EAC capital markets has also been developed to guide the integration process in the EAC capital markets industry in light of the EAC Common Market Protocol and in preparation for the proposed East African Monetary Union.
EAC Common Revenue Management Model
Traders have blamed payment of taxes at every border point for increased cost of doing business. Border delays and the absence of laws to settle disputes and promote integration have also been cited as hindrances to the opening up of trade in East Africa.
Well thats about to change.
The East African Community (EAC) 5 Heads of State have endorsed a revenue management model where tax will only be collected at the point of entry and imported goods transported to the final destination without stopping at national border points for customs charges or inspection.
This approach is similar to that used in the South African Customs Union.
The decision raises hope for a speedy formation of a regional customs authority that would handle the smooth flow of goods across borders — handing traders an opportunity to save up to 15 per cent in extra transit costs that come with delays.
“The Summit adopted in principle the destination model of clearance of goods where assessment and collection of revenue is at the first point of entry and revenues are remitted to the destination partner states subject to the fulfilment of key pre-conditions to be developed by the high level task force,” the heads of state said in a communiqué at the end of a recent regional summit in Arusha.
Though the EAC launched its customs union in January 2010, disagreement over collection and sharing of revenue has frustrated efforts to establish a regional customs authority, slowing down cross-border trade. “We hope the decision brings some change this time by ending the controversy that has been with us for three years now,” Peter Njenga, a logistics officer said.
Kenya has been particularly reluctant to adopt the model that would see the Kenya Revenue Authority (KRA) lose control of close to 35 per cent of its present annual collections. Some member states want the revenue be used to finance projects of common interest such as roads or power generation.
However, Kenya has further hardened its position as it would mean losing a large proportion of tax collection at a time when it faces huge budgetary challenges as it implements the new constitution.
In Nairobi, opposition to a regional customs authority has also come from the port of Mombasa, a key entry point, with Kenya Ports Authority maintaining that extending the facility’s function to include collecting customs revenues will further delay the discharge of cargo given the current levels of congestion.
The setting up of a common revenue authority for the EAC has also been delayed due to the fact that Burundi had not fully emerged from the ravages of a civil war and required time to set up sound national institutions to manage public finances. For instance in 2008, just one year after it joined EAC, Burundi became the only country in the region to ever report loss of revenue from free movement of goods under the customs union protocol.
This position has since changed with the Burundian President Pierre Nkurunziza recently saying the country is ready for higher stages of integration after hiring the services of Trade Mark East Africa (TMEA) to set up new revenue administration institution—Office Burundais des Recettes.
South Africa's Skills Shortage Dilemma
There is no doubt that the conundrum of an acute skills shortage alongside mass unemployment constitutes the most critical issue threatening the future of South Africa. This year the country has recorded a growth rate of 2.7% and the unemployment rate is about 33%, including those who have given up looking for work. Seventy percent of those unemployed are said to be under the age of 35. A woman leaving school in Limpopo stands a one in eight chance of ever getting a job.
The skills shortage and high unemployment interact with each other in a devastating way. It is insightful to note that SA’s key problem is how it is going to maintain the growth rate it needs to feed its growing population. SA won’t be able to use the method employed by the Southeast Asian ‘tigers’ of using cheap labour to undercut its export competitors while it grows its economy and expands its skills base, because its labour unions will prevent that.
One solution is to develop a skills-training model based on systems that have been used for years in Germany, Switzerland and several Scandinavian countries. This would involve not only vastly improving the education system but also integrating it with a system of apprenticeships.
The essence of the German education system is that it is channelled into different streams. There are three streams, actually, but for our purposes we need focus only on two — an academic and a vocational stream. Students should be given a choice, after passing, say, grade 9 or 10, whether they want to continue in the academic stream and go on to university, or learn a vocational skill through an apprenticeship programme.
Those who drop out of high school earlier should also have the opportunity of entering an apprenticeship course.
These apprenticeships should be wide-ranging, from becoming a skilled baker or hairdresser, to a motor mechanic, a construction worker or an electrician. A student deciding to enter an apprenticeship must find an employer who will take him or her on to train for the career the individual has chosen — which is usually three years.
During that time, the student will spend part of his time gaining practical on-the-job experience working for the employer, and part of it attending classes at a vocational school. The classes will focus mainly on the technical side of the job; the shop-floor work on the practical side. Running records have to be kept by both the employer and the vocational school instructors so that the training can be co-ordinated.
The apprentices are paid a small salary throughout the apprenticeship period, which usually goes up a little each year as their skills advance. At the end, they have to write an exam run by the Chamber of Commerce and Industry. When they pass that they are qualified as a skilled professional in the chosen work category — and receive a certificate testifying to that.
School-leavers in SA today have no craft certification of any sort, which makes getting that critical first-time job in the face of sceptical employers faced with labour regulation requirements cruelly difficult.
However salary is the thing that troubles the trade unions.
But the suggestion of how to get around this political problem is to enact a law establishing that the apprenticeship period falls under the Department of Education, not the Department of Labour.
The Congress of South African Trade Unions actually recognises the need for on-the-job training at lower pay, but it has become so entrenched in its commitment to the principle of "decent work" that it can’t lose face by backing off from it.
Classifying an apprenticeship as part of an individual’s education may be a way around that difficulty, because the labour regulations could remain unchanged and become applicable to the apprentice only after he has graduated from his apprenticeship.
A further advantage of the German system is that, after successfully completing a full apprenticeship course, a student can continue at the vocational school for another year or two to acquire higher certification as a "master" baker, mechanic or whatever, which rates as the equivalent of matric — thus opening the way to go to university and, beyond that, to a graduate school of business for an MBA.
SA's graduates would then be able to seek a job in management with the special advantage of knowing what life is like for workers on the shop floor and earning their respect in turn for having that knowledge.
Flexibility is the essence of any such system, so that German students from the academic stream can also switch to become apprentices after passing matric if they so wish, enabling them to follow the same route to a job in management.
SA is going to need skilled workers every bit as much as she needs to reduce the unemployment rate.
Original Article by Allister Sparks: Business Day
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