High costs killing EAC business

A delegation of top East African Community officials recently visited the country and discussed advantages of Rwanda’s joining the regional bloc. They also touched issues making doing business in the region not attractive. Mansur Kakimba writes. Trade opportunities and challenges that Rwanda is bound to encounter now that the country is a full member to the EAC were addressed on October 6th when a delegation from the EAC economic bloc visited the Private Sector federation (PSF) headquarters at Gikondo, Kicukiro District in KigaliLed by Eriya Kategaya, the chairperson of the EAC council of ministers, the delegation met the federation senior staff, some board members and managers of top Rwandan private companies. State minister for regional cooperation Rosemary Museminari accompanied the delegation. Emmanuel Hategeka, the Secretary General of PSF while briefing the delegates on private sector’s position on joining the East African Community said the businessmen are upbeat about benefits and opportunities that come with it. He said businesses are thus optimistic about a bigger EAC market (of over 100 million people), bigger than the small Rwandan market. “Rwanda could not afford to confine herself to a small (about 9 million people). As the federation [PSF], we are hopeful that integration will breed new business partnerships in areas of ICT, tourism among others,” Hategeka said. He urged businessmen to observe quality of their products and services in order to be competitive in EAC. “Rwandan businessmen are not worried about competition that comes with integration,” he said. On Rwanda’s competitiveness in the economic bloc, he said the country’s zero tolerance to corruption and strategic location—at the heart of EAC; Burundi, Uganda and Tanzania and in proximity to a large DR Congo is an advantage making the country more viable in the region. However, Hategeka told the delegates that Rwanda is hopeful that EAC will provide sustainable solutions to hindrances to trade in the region. He highlighted disparities in the tax regimes, lack of free movement of factors of production and a host of Non Tariff Barriers (NTBs) along the Northern and Central Corridors. He said NTBs escalate cost of doing business in the region. Illustrating his point, the Secretary General said it is cheaper, easier and faster “to transport commodities from Singapore to Mombassa than to any of the much nearer destinations in EAC member states”. He attributed this to NTBs like poor roads, poor port facilities, en-route delays, disparities in revenue declaration systems, poor border facilitation among others. The recently released World Bank “Doing Business in 2007” report indicates that it takes 95 days to import in most countries of Sub Saharan Africa whereas it takes 60 days to export. The PSF SG said this is ridiculous, attributing it to NTBs entirely. Kategaya said the EAC Business Council, to which PSF is already accredited, is there to address such challenges. The minister said national monitoring committee on NTBs would be formed among EAC member states, emphasising that they meet every after three months to review the progress on the matter. Taxes The EAC delegate in charge of customs union, Karanja said all member states will have to harmonise their tax structures to three-bands. That, in EAC, raw materials are zero-rated, intermediate goods are charged only 10 per cent whereas import duty on sensitive goods like maize, rice and textiles are charged 25 per cent to protect local industries. In his observation, trade in EAC is only liberalised up to 80 per cent. “In EAC, we plan for a fully fledged Free Trade Area (FTA) by 2009,” he said. Private sector weak Kategaya noted that member states’ private sectors are still weak. “As private sector, you need to put more pressure on us (governments).” He said EAC is working on modalities on how to encourage interconnectivity of power (electricity) among member states to address the problem of lack of enough cheap power in the region. On NTBs, he said “they are unpredictable, thus a bit hard to fight”. But he emphasized that plans to invest in rail transport extension to Rwanda and Burundi will go along way to partly solve most NTBs. He assured that the next council of ministers meeting will address NTBs. He urged Kenyan and Tanzania governments to invest more in port facilities, for they (ports) are key in serving landlocked EAC member states. He said EAC secretariat is working on making the region an investment destination in various areas like ICT and tourism. Cross border trade Businessmen also had opportunity to express their feelings about EAC. Janet Nkubana, Managing Director of Gahaya Links urged the bloc to address the challenge of rigidness of most member states to cross-border trade for small essential commodities. “Cross-border trade for SMEs should be more flexible to encourage private sector growth, otherwise this will compromise increase in trade volumes. Trade across borders will then be left to only big importers,” she warned. Integration slow The Managing Director of Bralirwa Door Plantenga expressed dissatisfaction on slow pace the issues of integration (EAC) are handled, yet to businessmen time is money, thus time lost is revenue lost. Double taxation The chief executive officer MTN Rwanda Themba Khumalo said, with the advent of one-network strategy among telecommunication companies in EAC, they have started availing airtime to their clients in other countries. But Khumalo’s concern, and what he termed double taxation, is when sales revenues in those countries are again taxed “yet they are already taxed in home countries”. Rwandan businessmen also expressed to EAC delegates lack of free movement of factors of production especially capital investments and labour, which put Rwanda, a country that is faced with capacity challenges, in a lesser competitive position. In response, Kategaya said EAC advocates for free transfer of capital investments and repatriation of profits, but was quick to add that negotiations on free movement of persons (labour) will be part of negotiations of the common EAC market in near future. Ends