WB 2013 Doing Business Report on the EAC

The World Bank Doing Business is a tool that measures regulations that enhance business activity and those that constrain it and it also measures regulatory quality and efficiency.

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.

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.

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.

Related information can be found on Business Day

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.

Article From Business Daily 

National Treatment and Kenya's Land Reform Following the New Constitution

Kenya has over time proved to be the preferred investment point in the East African region due to its strategic location and free market economy which places no significant restriction on the movement of foreign currency in and out of the market.  However there is one important change to the investment environment since the promulgation of the new Constitution of Kenya (the 'Constitution') found in Chapter Five Part 1 on Land and Environment.

The Constitution was brought into law on August 27 2010 and inter alia sets the reform agenda for better governance. In general the new Constitution will lead to the creation of new institutions that will promote good governance and in turn boost investor confidence. 

However, in one aspect, the Constitution contains articles that now limit the period that a foreigner may hold land to 99 years (Article 65 (1). This includes any company which has any element of foreign shareholding.  The Constitution also provides that any interest in land that is currently held by foreigners which is in excess of 99 years will have the term reduced to 99 years and freehold land will be converted to 99 years leasehold interest (Article 65(2)). Investors have indicated to Government that limiting the interest period to 99 years will not be conducive to foreign investors looking to invest in Kenya. There is also no provision for compensation to foreigners in the Constitution. The Constitution gives Parliament a time frame of eighteen months for the enactment of legislation relating to land and it will be interesting to see the impact the legislation will have on the business environment.

In the WTO Trade in Services context, Kenya made horizontal commitments in the Uruguay Round on market access in Mode 3 requiring that for commercial presence investors should establish their business locally.  There are however no horizontal limitations on national treatment to which limitations on foreign ownership of land would be reflected. In the sectors where Kenya has undertaken specific commitments, Telecommunications services, Financial services (including banking and insurance), Tourism & Travel related services and Transport services (air and road), mode 3 national treatment commitments are in some cases left unbound. However in the hotels and restaurants category, arguably a sub sector to which land is a determinant, Kenya has completely liberalised mode 3 both in the WTO GATs context and the EAC Common Market Services Schedule (Annex V).

Additionally, in the EAC Common Market Protocol, Article 13 on the Right of Establishment and Article 14 on the Right of Residence are relevant to the land question.  To the extent that they relate to access to and use of land premises, these provisions are subject to Article 15 which provides that land issues shall be governed by the national policies and laws of Partner States. Hence even in the common market, one could say that national treatment has not been extended to the land issue especially as it relates to establishment (investment).