EPZs and SEZs

The transformation of the policy, legal and regulatory framework of Export Processing Zones (EPZs) in Kenya will see them converted to Special Economic Zones (SEZs) and replicated in all 47 counties in the country. See more here.

The SEZ concept has evolved globally to include a wider range of economic activities with the aim of accelerating growth and development as opposed to only focusing on manufacturing for export. SEZs have been adopted in other countries such as China, Mauritius, Egypt and India and have widened the range of activities included in the economic zones to also accommodate companies with a domestic market orientation and those in the services industry. In Kenya the SEZ will widen the domestic market to include the EAC. 

The move from EPZ towards economic zones in Kenya will require the current EPZ Act to be amended. Further, there will be a need for the harmonization of the new Act with other government Acts and policies that may be hindering investment and effective investor facilitation in the zones.  A sound legal and regulatory framework is a necessary first step for a successful zone program, particularly one designed around private sector development and operations.

According to previous article found here on SEZs, China used a number of policies to ensure that technology transfer would take place domestically through the SEZ, through joint ventures between foreign investors and local firms and that strong domestic players would emerge. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China and the goverment can be applauded for a determined effort to capture and acquire domestic capabilities to build modern industries. 

According to the World Export Processing Zones Authority (WEPZA) zones have generally failed to have a catalytic effect in most African countries in part because they have been disconnected from wider economic strategies; they are often put in place and then left to operate on their own, with little effort to support domestic investment in the zones or to promote links, training, or upgrading. Unlocking the potential of zones appears to require clear strategic integration of the program as well as active government leadership to facilitate the positive impact of the zone.  According to the WEPZA, in Africa few, if any, appear to treat the zone programs as an important pillar of wider economic growth, industrialization, and trade strategy.

In addition, high-level, active government commitment to zone programs is a significant contributor to their success. This support must be consistent over the long term: The evidence from even the most successful zone programs suggests that it normally takes 5–10 years after zones launch (thus, possibly 15 years or more from when a project was first conceived) before a zone begins to show signs of success. In analyzing the East Asian successes with economic zones, the role of political leadership— in terms of both vision and active support along the path of planning, implementation, and operation—is clear. African zone programs have largely failed to secure this kind of consistent and active commitment from senior political leaders. 

 

In cclosing, successful programs such as those in Mauritius, Malaysia, and China use their zones as part of a group of instruments designed to promote wider economic policy reform, diversification, and upgrading. They also have strong governmental leadership.

For previous post on EPZs in Kenya see here

EAC Non Tariff Barriers

This is a useful statement by the H.E President Uhuru to EALA on removal of non tariff barriers (NTBs) in the EAC urging increased collaboration between EALA and the private sector.

EALA recently passed binding legislation on NTBs in the EAC, legislation which will need to be assented to by EAC Heads of State. Termed the East African Community Elimination of Non-Tariff Barriers Bill, 2015 ", it gives legal effect to Article 13 on the establishment of the East African Customs Union. The law uses the WTO categories of non tariff barriers as set out in its schedule. The Act shall take precedence over any other laws Partner States may enact affecting NTBs. The legislation can be found here.

Current Acts of the EAC Legislative Assembly can be found here.

Some thoughts on Brexit and EPA

Tanzania seems to be more or less backing out of the EAC EPA with the EU over the Brexit vote among other economic reasons. The UK as a state is a signatory to the EPA agreement in addition to the European community and other EU member states. Hence the EPA agreement is of a bilateral character in relation to the UK. However EPAs are also  mixed agreements concluded ‘of the one part’ by the EU and its Member States and, ‘of the other part’, the ACP signatory. In this regard the rolling over of EU FTA arrangements so that they continue to apply to the UK and the ACP signatory only after Brexit shouldn't be difficult for ACP signatories to negotiate with the UK. Some call it negotiating for EPA equivalence with the UK. This kind of “rolling over” of treaty obligations is a familiar process in international law and shouldn't be a bottleneck for Tanzania or the ACP Member States in the short to medium term. However it may involve and allow for renegotiation of at least some of the EPA provisions.

See previous EPA post below.

Tanzanian MPs Vote Against the EAC EPA and Suit Filed at EACJ

Tanzanian MPs have voted against the country signing the EAC Economic Partnership Agreement. Tanzania’s reluctance to endorse the EPA, after 10 years of negotiations, is based on three issues — chinese driven industrialization policy and revenue losses in the 2016/17 national budget.  Tanzania is also concerned by Britain’s decision to quit the EU, saying Britain is its main trading partner and it makes no sense to enter into a deal with the European bloc without London. 

Apparently President Magufuli could still ignore the MPs’ advice and push for the signing of the EPA. Will see what happens.

Meanwhile a Tanzanian national has filed a civil suit with the East African Court of Justice (EACJ) to stop the EAC and remaining members  states of the EAC Burundi, Ugandan and South Sudan from signing the EPA. (Rwanda and Kenya have already signed). The EACJ's major responsibility is to ensure the adherence to law in the interpretation and application of and compliance with the EAC Treaty. Article 30 of the EAC Treaty allows the court to have reference to civil suits by natural and legal persons. The suit filed in October 2017 says that further signature will allow ratification and regional application of the agreement, which will most likely undermine industrialization policies and tariff regimes and displace EAC products from the market.

See more here.

EAC 2050 Vision

The EAC has recently concluded an EAC 2050 Vision document. The Pillars of Vision 2050 contain five chapters, each of which is a pillar on which the Vision 2050 stands. These pillars are integral to the very idea of long-term transformation, value addition and growth the overarching theme that runs through the vision, needed for accelerating the momentum for sustained growth over the long term. 

The 5 pillars are:

(a) Infrastructure development; 

(b) Industrialization; 

(c) Agriculture, food security and rural economy; 

(d) natural resource and environment management; and finally 

(e) tourism, trade and services development.

The presidents of the six countries of the East African Community have approved the regional Vision. The Heads of State committed themselves to implement the EAC vision and ensure that by 2050, the EAC will have been transformed into an upper-middle income region within a secure and politically united East Africa based on the principles of inclusiveness and accountability. The Heads of State also committed themselves to implement the vision and ensure that by 2050, the EAC will have been transformed into an upper-middle income region within a secure and politically united East Africa based on the principles of inclusiveness and accountability. 

Vision 2050 primarily focuses on initiatives that will create gainful employment and must, therefore, aim to accommodate the development pillars and enablers that would create jobs to absorb the expected expansion of workforce in the next decades. 

The implementation of Vision 2050 will be based on periodic concentration with marked segments consisting of phases of five years and addressing specific aspects of the Vision.

The EAC vision is a way of harmonizing and consolidating the visions of Partners States as well as the EAC institutions and bringing into focus the interests of the combined population of the community and alignment with the AU Agenda 2063 as well as the 2030 Sustainable Development Goals in the United Nations.

For the African Union Agenda 2063 which is both a vision and an action plan. It articulates an approach on how the continent should effectively learn from the lessons of the past, build on the progress now underway and strategically exploit all possible opportunities available in the immediate and medium term, so as to ensure positive socioeconomic transformation within the next 50 years.

Proposed Levy on Imports to Finance EAC Secretariat

From Business Daily. See more here.

The cost of imported goods looks set to rise as the East Africa Heads of State agreed on a new import levy to finance secretariat operations which have long been hit by unreliable donations and member subscriptions.

The Heads of State on Wednesday called for the conclusion of a more sustainable financing plan for the EAC budget.

The summit directed the council to finalise the work on the modalities required to establish a sustainable financing mechanism for the East African Community based on various options, including a hybrid of a levy and equal contribution with a commitment to increase the budget, that encompasses the principles of equity, solidarity and equality, and submit a report to the next summit for consideration.

EAC Treaty Articles 132:4 and 133 state that the EAC budget shall be funded by equal contributions by the Partner States and receipts from regional and international donations and any other sources as may be determined by the Council. Other resources shall include grants, donations, funds for projects and programmes, technical assistance and income earned from activities undertaken by the Community. 

The region’s council of ministers has previously proposed that member states should consider levying one per cent import duty on goods from non-member states.

The push for a new levy could come with pain for consumers in Kenya and other EAC countries where most of essential goods attract value added tax (VAT) after governments scrapped previous exemptions. 

Consumers in Kenya are already subjected to the recently introduced 1.5 per cent railway development levy (RDL) and the 2.5 per cent import declaration fee charged by the Kenya Revenue Authority (KRA). 

The additional one per cent levy would push up the prices for imports — including inputs for making essential commodities. 

Kenya in 2014 unsuccessfully tried to impose the RDL on all imports passing through the port of Mombasa. 

The KRA was forced to review the RDL collections after regional traders filed a complaint with the EAC Council of Ministers citing breaches to the regional common market protocol. 

A regional lobby group, the East African Business Council (EABC), argued that the 1.5 per cent levy imposed on imports was inconsistent with the EAC Customs Union Protocol, because it is a charge of equivalent effect that partner states agreed to remove. 

The customs union protocol enables goods produced within the region to be sold across the borders without duty while imports from non-EAC states are subjected to a three-band common external tariff structure. 

Raw materials attract no duty, intermediate goods are charged at 10 per cent while finished products are allowed into the region at 25 per cent tariff. 

Kenyan traders further said the RDL, which KRA imposed on top of other levies such as the 2.5 per cent import declaration fee, was tilting the competition landscape in the shared market in favour of their neighbours. 

KRA gave in to the pressure in early March 2014 and ordered all its officers to stop imposing levy on goods entering Kenya from the other four member states of the EAC.

South Sudan Admitted as Member of the EAC

At the 17th Ordinary Summit of the Heads of State of the EAC on March 2nd 2016, South Sudan was admitted as a member of the East African Community and the Treaty of Accession was signed with the Republic of South Sudan. Earlier South Sudan's membership application was put on hold after the technical team cited poor market economy structures, weak governance institutions and insecurity. It is not immediately clear whether South Sudan comes in as an observer or a full member. Articles 3.3 and 3.4 of the EAC Treaty on membership do not specify the stages of new membership into the community but instead specify that the conditions of entry are:

The EAC Partner States may, upon such terms and in such manner as they may determine, together negotiate with any foreign country the granting of member ship to, or association of that country with, the Community or its participation in any of the activities of the Community. 

The matters to be taken into account by the Partner States in considering the application by a foreign country to become a member of, be associated with, or participate in any of the activities of the Community, shall include that foreign country’s: 

(a) acceptance of the Community as set out in this Treaty; 

(b) adherence to universally acceptable principles of good governance, democracy, the rule of law, observance of human rights and social justice; 

(c) potential contribution to the strengthening of integration within the East African region; 

(d) geographical proximity to and inter -dependence between it and the Partner States; 

(e) establishment and maintenance of a market driven economy; and 

(f) social and economic policies being compatible with those of the Community. 

The granting of observer status to a country is the prerogative of the summit. 

South Sudan applied to join the EAC in 2011 following the gaining of her independence before she conducted any impact assessment studies. The EAC is now a customs union and is working on forming a monetary union. It is questionable if South Sudan is adequately stable and has the institutional capacity to function adequately in a dynamic regional economic bloc like the EAC. 

See more here and other resources on EAC's accession here.

EAC Launches E-Passport for International Travel

The East African Community (EAC) Heads of State have announced the internationalization of the EAC passport and launching of the electronic-East African passport for the region’s citizens by January 2017.

The e-passport which will apparently phase-out the national passports, will allow citizens of Tanzania, Kenya, Rwanda, Uganda and Burundi to travel across the regional and the passport will also allow international travel.

The new digitized passport replaces the old EAC travel document, which was restricted for travel within the five member states. The e-passport will ease movement within and outside the community, fulfilling the mandates of the EAC Treaty Article 104:3 and the Common Market Protocol on the free movement of people Article 8. The EAC e-passport is expected to have additional security features to protect against identity theft and data skimming. The e-passport will also have an electronic chip that holds the same information in bio metric form that is printed on the passport’s bio data page, including the holder’s name, date of birth, passport number and what the holder does for a living, among other things. It will also contain a bio metric identifier, a digital photograph of the holder and security features to prevent unauthorized reading or scanning, which will in turn reduce cases of forgery.

The African Development Bank has also just launched the first Africa Visa Openness Index, report which shows how Africa remains largely closed off to African travelers. On average Africans need visas to travel to 55% of other African countries, can get visas on arrival in only 25% of other countries and don’t need a visa to travel to just 20% of other countries on the continent.

The report highlights regional and geographical differences. Currently, 75% of countries in the top 20 most visa-open countries on the continent are in West Africa or East Africa. Already citizens from Kenya, Rwanda and Uganda can use national identity cards to travel in these states without the use of passports.

Tripartite FTA COMESA-EAC-SADC Launched

The Tripartite FTA has been launched and encompasses 26 Member/Partner States from the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC), with a combined population of 625 million people and a Gross Domestic Product (GDP) of USD 1.2 trillion, will account for half of the membership of the African Union and 58% of the continent’s GDP.

The Tripartite FTA popularly known as the Grand Free Trade Area, is the largest economic bloc on the continent and the launching pad for the establishment of the Continental Free Trade Area (CFTA) according to the Abuja Treaty by 2017. This might be accomplished possibly by the Tripartite FTA negotiating with ECOWAS. 

The Tripartite FTA offers significant opportunities for business and investment within the Tripartite and will act as a magnet for attracting foreign direct investment into the Tripartite region. The business community, in particular, will benefit from an improved and harmonized trade regime which reduces the cost of doing business as a result of elimination of overlapping trade regimes due to multiple memberships. 

The launching of the Tripartite Free Trade Area is the first phase of implementing a developmental regional integration strategy that places high priority on infrastructure development, industrialization and free movement of business persons. Integration under the Tripartite is a developmental process with infrastructure development, industrial development and market integration as three critical, interdependent pillars. The second phase of negotiations, should address liberalization in services, movement of people, investment, as well as competition policy and intellectual property rights, and is yet to be undertaken.

For full copies of documents check here

Tanzania's Labour Laws and the EAC

According to sources, the Association of Tanzania Employers (ATE) has disagreed with President Jakaya Kikwete’s position on closing the labour market to other East African nationals. ATE executive director Aggrey Mlimuka said freely allowing skills to flow in will expand the economy, which in turn will create more jobs.

Delivering a speech to the National Assembly recently, President Kikwete said Tanzania’s stand against opening up its labour market in accordance to the East African Common Market Protocol is among the reasons why the country is being sidelined by other member states. The EAC Common Market Protocol was adopted and signed on November 20, 2009, by member Heads of State, and entered into force on July 1, 2010, officially allowing for free movement of labour. Recent World Bank findings show that East Africa would benefit greatly from free trans-border flows of labour, as they would allow for a more efficient allocation of skills that are relatively scarce in some partner states as well as provide employment to idle skill resources in others.

Mr Mlimuka said it was wrong for Tanzania to close the labour market wholesale. He suggested that Tanzania review its laws to allow foreigners to work in the country and complement the weak local labour force. He said Tanzania could stipulate that the foreign worker have a local person understudying them during the contractual period. That way, the local labour force would become competitive across the region. 

It is important to note that the cost of a work permit in Tanzania is $2,000, Zanzibar $150, Burundi charges 30 per cent of the salary; in Kenya, Rwanda and Uganda the permits are issued free of charge to East African nationals.

According to other sources, an ongoing crackdown on EAC immigrants in Tanzania is fueling fresh doubts about the country’s commitment to the East African Community as Tanzania and its partners within the bloc continue to pull in different directions on regional integration.

According to a study titled An Assessment of the Implementation of the EAC Common Market Protocol Commitments on the Free Movement of Workers commissioned by the East African Business Council (EABC) and the East African Employers’ Organisation, Tanzania’s work permit regulations emphasize immigration control measures instead of work related requirements. According to ATE, the cost of work permits and the complicated procedure for their approval are the biggest impediments to free movement of workers into Tanzania. The EABC study reveals that East Africa is facing a middle-level skills vacuum. In Tanzania, for example, middle-level professionals account for only 12 per cent of the total number of professionals in engineering and just six per cent in accounting. According to the Study, "the figures for accounting seem particularly low if compared with Kenya, where accounting technicians exceed the number of qualified accountants by a factor of four. In Tanzania, qualified accountants exceed accounting technicians by a factor of 16,” the research reveals. This means that in Tanzania, for every 16 qualified accountants there is only one accounting technician, the opposite of the normal pyramidal labour structure in a modern economy. In addition, according to the Study, there is a shortage of mid-level skills in most of the EAC.

Last month, the Tanzanian government said it would not waive work permit fees for East Africans seeking jobs in the country until some of the laws to do with immigration, capital flows and security have been assessed and revised.

Regional Approach to the Integration of Logistics Services in the EAC

Article I wrote for EABC in 2013 republished here.

The five East African Community (EAC) countries vary in their degree of integration into world markets, global supply chains and application of global best practices in trade logistics. The 2012 publication Trade in the Global Economy, compares the Logistics PerformanceIndex (LPI) of 155 countries and is measurement of the logistics efficiency of an economy. The performance of the EAC Partner States is poor overall, and not surprisingly it varies widely between the landlocked and transit countries. Tanzania for instance scores the highest LPI in the EAC region with a rank of 88 out of 155 countries, followed by Kenya at 122, Rwanda at 139 and Burundi at 155. Landlocked economies are geographically disadvantaged and restricted with regard to transit and logistical transport conditions outside their borders and hence faced with longer transit times and higher transit and transport costs. Recent studies show that importing into a landlocked country typically takes a week longer than its coastal neighbors while freight costs alone can be up to 40 per cent of export values for landlocked developing countries. The higher costs are caused by inadequate transit transport inter-modal connections, poor regulation and service and to address these concerns, the EAC region could benefit from a regional approach to streamline the logistics services sector and consolidate the broad range of logistics institutions, private sector, and relevant stakeholders into a single cross-border transport, logistics system and platform.

African economies generally have the highest trade logistics costs in the world and the EAC is not an exception to this trend. In a recent study, a set of estimates for Kenya, Tanzania and Uganda places the average cost of trade logistics services at the equivalent of a tax of between 25 and 40 percent on value added, which is rather alarming. For this reason, overall performance of the logistics sector in the EAC can impact negatively on the regions trade competitiveness, trade expansion, export diversification, ability to attract foreign direct investments, and invigorate economic growth. While infrastructure is an important and costly constraint, institutions, the regulatory environment and regional cooperation are equally vital for efficient logistics services and the consolidation of the EAC customs union and common market. 

Logistics services encompass streamlined door-to-door multimodal transport services from a logistics chain perspective and they determine the cost of getting goods from point of supplier to point of buyer. These services include services auxiliary to all modes of transport such as maritime, road, air, rail and pipeline services, freight and include other relevant services such as courier, cargo and freight services, customs broker services, testing services, warehousing, distribution, information and communication management and some aspects of financial services. Logistics services have become an increasingly large obstacle to Africa’s trade performance because of a profound change in the nature of international trade that has taken place in the last quarter century: the explosion of “trade in tasks.” In some manufacturing activities, a production process can be decomposed into a series of steps or tasks and since transport and coordination costs have fallen in many parts of the world, it has become efficient to produce different steps in the process in different countries. Even though African enterprises could compete with Chinese and Indian firms in factory floor costs in some product lines such as garments and other simple manufactured goods, overall African producers might be unable to compete given that the cost and efficiency of logistics services in the continent is a major supply side constraint 

Reforms are underway in the EAC region, to consolidate the customs union through various separate interventions, including harmonization of policies and regulations, modernization of transport and border management institutions, the NTB monitoring mechanism, standards and testing and investment in infrastructure. The 2012 World Bank Doing Business Report indicates that all 5 EAC economies implemented 11 combined regulatory reforms in trade facilitation, in areas such as the electronic submission of documents, risk management systems for inspections and joint border cooperation. While this is commendable, rather than individually address interlinked trade logistics issues, the EAC Partner States could jointly consider a comprehensive program on trade logistics services to address the weakest links in the macro-supply chain and thereby stimulate cooperation between public and private players. A legal instrument similar to the Logistics Protocol found in the ASEAN region, could provide a cross-sectoral platform for regulatory cooperation and dialogue among government, business, and civil society. An EAC logistics sectoral protocol would also consolidate the cross-cutting objectives of the Common Market as enshrined in Part B of the Protocol on the Establishment of the Common Market Protocol. A useful place to start would be a road-map for the integration of the logistics services sector through a framework for private public consultative dialogue, progressive liberalization and trade facilitation, in order to support the enhancement of EAC competitiveness and creation of an integrated trade logistics environment. 

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.

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.

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 the world's 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.

EAC: U.S. Counters with New Trade Pact

By Business Daily

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.

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