Mpesa Security Risk

According to the Ministry of Finance a technology disaster affecting Mpesa mobile transfer systems is now classified as a potential threat to the Kenyan economy (classified as a fiscal risk) causing loss of revenue- excise and corporate tax by firms running the systems. Mpesa represents a form of branch-less banking which was facilitated through a "special" license from regulators, despite concerns by regulators about non-branch banking in the interface between technology and the banking sector. This adds to the current state of financial insecurity.  Safaricom has apparently put in place several security systems to guard against such threats of disruption which could impact the Kenyan economy.

M-pesa plays a critical role in the Kenyan economy, a contribution that stands at a GDP of over 40%. For instance some Sh 2.8 trillion was transacted through mobile money last year, making it a crucial source of excise tax revenue for the government.  Other materials on Mpesa can be found on this site.

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.

Renegotiation of NAFTA, TPP and future of US EU Trade Negotiations

Some of you may recall that President Obama's campaign called for the renegotiation of NAFTA particularly on labor and environmental issues. That was done and apparently the 12 member Trans-Pacific Partnership (TPP) represents a renegotiation of NAFTA by holding Mexico to fully enforceable labor provisions. In addition Mexico is also developing parallel labor reforms, including to better protect collective bargaining and reform its system for administering labor justice. TPP has been a signature economic objective of Democratic President Barack Obama.

However President elect Donald Trump has also called for the renegotiation of NAFTA including the scrapping of the (TPP) agreement and imposition of tariffs on China, blaming all for taking away U.S. jobs.  Some have asked ask why not renegotiate the TPP instead of NAFTA? 

Meanwhile Canadian Prime Minister Justin Trudeau has said that he is willing to reopen NAFTA while Mexico has indicated that discussion of NAFTA is OK but not renegotiation.  NAFTA was concluded in 1994 and is a well established agreement that requires member states to give 6 months notice to withdraw. If President elect Donald Trump is to keep his word, Trump’s administration will invoke the president’s unilateral trade retaliation authority as leverage to resolve problems created through negotiated settlements.

Another trade deal likely to take a backseat is the Trans Atlantic Trade and Investment Partnership between the U.S and European Union. Admittedly, negotiations are slow and were made more complicated after the UK this past summer voted to leave the EU. Given Trump’s criticism of free trade agreements, at a minimum there is likely to be a long pause for reflection before the new Administration decides to endorse negotiation of this mega-deal.

For more on Donald Trump's trade views see here.  His vision is "Negotiate fair trade deals that create American jobs, increase American wages, and reduce America's trade deficit.|"

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.

Export Processing Zones in Kenya

Kenya’s Export Processing Zones (EPZs) have failed to meet expectations on wealth and job creation, the World Bank (WB) says in a new report as the government prepares to reform the model which has lagged behind what Asian and Latin American countries offered.

Incentives provided through export processing zones and special economic zones should be compatible with World Trade Organization specifically the Subsidies and Countervailing Measures Agreement including timelines on export promotion instruments; otherwise host countries may face retaliatory actions by importing countries.

According to the Kenya Export Processing Zones Act Article 9 replicated below these are the regulations that apply to EPZs in Kenya.

Subject to subsection (1) and without prejudice to any other written law, the export processing zone enterprises, export processing zone developers and the export processing zone operators shall be granted the following exemptions—

(a) exemption from registration under the Value Added Tax Act;

(b) exemption from the payment of excise duties as specified in the Customs and Excise Act (Cap. 472);

(c) exemption from the payment of income tax as specified in the Income Tax Act (Cap. 470) for the first ten years from the date of first sale as an export processing zone enterprise, except that the income tax rate shall be limited to twenty-five percent for the ten years following the expiry of the exemption granted under this paragraph;

(d) exemption from the payment of withholding tax on dividends and other payments made to non-residents during the period that the export processing zone enterprise is exempted from payment of income tax under paragraph (c);

(e) exemption from stamp duties on the execution of any instruments relating to the business activities of an export processing zone enterprise;

(f) exemption from quotas or other restrictions or prohibitions on import or export trade with the exception of trade in firearms, military equipment or other illegal goods;

(g) exemption from exchange controls on payments for—

(i) receipts of export processing zone exports;

(ii) payments for raw materials, intermediate goods, tools, and spares, supplies, construction equipment and construction materials, capital equipment, office equipment, repatriation of royalties, management fees, technology transfer fees, profits, dividends, advertising expenses, inspection fees for quality control, debt service and any other legitimate business expenses; and

(iii) capital transactions, except on capital funds raised form Kenya residents subject to exchange control in which case remittance of dividends, profits, debt service and any other returns to such capital invested shall be subject to the Exchange Control Act (Cap. 113);

(h) exemptions from rent or tenancy controls; and

(i) any other exemptions as may be granted by the Minister for the time being responsible for finance by notice in the Gazette.

See related article here on the Kenyan experience on EPZs.

Meanwhile Mauritius can be considered one of the most successful stories in the context of the African continent on EPZs. In the past Mauritius has grown on average by 6 per cent, relying on several growth engines which include export processing zone (EPZ), the sugar sector, tourism and the emerging financial services sector. The EPZ can be credited with diversifying the Mauritian economy from the traditional sugar sector and leading to the industrialization of the country.

Positioning Services Reforms and Negotiations for Development

This is dated but I thought I should post it here for my records. Positioning Services Reforms and Negotiations for Development presented in Nairobi Kenya.

A Positive Agenda for Trade Facilitation Negotiations in Africa

This paper I wrote is a little dated but the concision is still useful given the conclusion of the WTO Trade Facilitation negotiations. The paper can be assessed here.

Trade facilitation is definitely a potential source of growth promotion in Africa and African countries need to continue focus on an integrated and coherent approach. Progress achieved in such a broad approach does not, however, necessarily mean multilateral binding. It is important to provide adequate policy flexibility in the rules to enable countries commit according to own priorities and capabilities. Members should be allowed to pre-commit, with the option of linking pre-commitments to effectiveness of capacity building efforts. A multilaterally agreed monitoring framework will be necessary. Such a review needs to monitor and evaluate the commitments made, the implementation capacity and the availability of technical and financial assistance. Experience with ongoing trade facilitation programme suggests that the cost of ambitious multilateral agreement on trade facilitation will be high and certainly beyond the capability of African countries. 

There is, therefore, a need for trade facilitation fund to cater for necessary adjustment costs arising from the expected new commitments in the final WTO trade facilitation agreements. The next steps for adequate participation of Africa in these negotiations would be to document the situation in a selected group of countries that have made relatively good progress in these areas and that could provide “best practice” examples. These case could be used to design a comprehensive programme that a typical African country would have to undertake in order to comply to a multilateral agreement on trade facilitation with elements in proposals being tabled are to become binding. Additionally, submissions to the negotiating group on trade facilitation can be made specifically to address concerns of African countries and present possible positions following the needs assessment exercise.

See other comments I have made on trade facilitation here.

India Files WTO Challenge Against US Visa Fee Increases

India has has filed a dispute against the US under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) which constitutes Annex 2 of the WTO Agreement and has requested consultations with the US.

According to the dispute, under the Consolidated Appropriations Act of 2016, Washington increased fees for L-1 type visas by US$4500 and for H-1B type visas by US$4000 for companies with 50 or more employees in the US, if more than 50 percent of their employees are non-immigrants employed on such visas. It was signed into law by President Barack Obama in December 2015, with the measures in place through September 2025.

H1B is work permit for temporary specialty workers while L1 visas are issued for intra-company transfers that allows companies to relocate qualified employees to US offices.

India claims that these measures, along with earlier fee increases between August 2010 and September 2015, appear to violate the US’ commitments under its Schedule of Specific Commitments under the WTO’s General Agreement on Trade in Services (GATS) – the set of global rules involving services trade- along with being inconsistent with other GATS provisions. 

India claims that the visa fee increases: 

appear to: (i) be inconsistent with the terms, limitations and conditions agreed to and specified by the United States in its Schedule of Specific Commitments under the GATS, (ii) accord to juridical persons of India having a commercial presence in the United States treatment that is less favorable than that accorded to juridical persons of the United States engaged in providing like services in sectors such as the Computer and Related Services sector with respect to which the United States has taken commitments in its Schedule of Specific Commitments, and (iii) affect the movement of natural persons seeking to supply services in a manner that is inconsistent with the United States' commitments in its Schedule of Specific Commitments. These measures also appear to nullify or impair the benefits accruing to India directly and indirectly under the GATS. 

In its complaint, India said that the current measures (of visa fee hike) result in less favorable treatment for Indian companies with commercial presence in the US in comparison to US companies engaged in providing like services and according to the GATS Schedule. 

This violates the principle of ‘national treatment’ embedded in multilateral trade rules, which lays down that foreign companies will be treated on a par with local firms. 

The Government of India is of the view that these and comparable measures, taken by the United States are not in conformity with at least the following provisions of the GATS: Articles XVI, XVII, XX, and paragraphs 3 and 4 of the GATS Annex on Movement of Natural Persons Supplying Services. These measures also appear to be inconsistent with Articles III:3, IV:1 and VI:1 of the GAT 

Furthermore, New Delhi is also claiming that recent US changes to its numerical commitment for H-1B visas – specifically due to modifications Washington has made under FTAs with Singapore and Chile – also are inconsistent with its GATS schedule. 

According to the consultations request, the US included under its horizontal commitments regarding mode 4 – that involving the movement of natural persons – that it would permit up to 65,000 people annually on a worldwide basis under the category of fashion models and specialty occupations. 

Under the two FTAs mentioned above, these “numerical commitments” have allegedly been changed. According to India, US homeland security officials must now set country-specific limits for both countries, with these numbers taken away from the global total of 65,000 receiving H-1B visas.