UGANDA: Business Wants to Put Brakes on New Common Market

• by Wambi Michael (kampala)
• Tuesday, September 29, 2009
• Inter Press Service

The EAC common market will be aimed at deepening and widening regional integration by allowing free movement of labour and capital and granting citizens the right to establish business across borders in Kenya, Uganda, Tanzania, Rwanda and Burundi.

Uganda’s private sector is worried that the EAC objective of regional integration on a win-win basis may not be achieved.

Gabriel Hatega, executive director of Uganda’s Private Sector Foundation, points to Uganda’s growing trade deficit as the customs union is set up and tariffs phased down on Kenyan goods exported to Uganda.

'This means that the cost of doing business in Uganda is so high that reducing tariffs from 10 to zero percent is much less than what would be the effective rate of protection.

'We in the private sector have noted with concern the relocation of value-adding elements of some industries to Kenya, only leaving the sale and distribution part of the value chain in Uganda,' he adds.

In the transition period, the EAC customs union recognised different levels of development and competitive ability. The transition period was aimed at helping the unequal partners in the EAC to improve their levels of competitiveness before the full customs union kicked off.

The member states were not only to conduct a gradual phase-down of tariffs but also to implement non-fiscal measures which would help the private sector in disadvantaged positions to improve their competitiveness.

The private sector in Uganda is concerned that with the commencement of the common market in 2010, the fiscal measures will cease to exist. Another worry is that asymmetric allowances accorded to selected industrial inputs and raw materials, which are cushioning the private sector, will end.

Hatega notes that, 'this situation may worsen Uganda’s position, as seen already by the relocation of industries from Uganda to Kenya because of the uncompetitive environment in Uganda'.

For example, Bata shoe Industries which had a manufacturing plant in Uganda has already relocated to Kenya. Some companies are also eyeing Tanzania.

The Private Sector Foundation carried out a survey on the cost of doing business in the original EAC member states of Uganda, Tanzania and Kenya. The study found that the cost of doing business in Uganda was higher than in Kenya and Tanzania.

'The average bank lending rates in Uganda is 19.4 percent, compared to 12.9 percent in Kenya and 16.4 percent in Tanzania’’, it was noted in the study.

On the transportation costs in Kenya, Tanzania and Uganda the study found that, 'Ugandans have to pay 3,900 dollars per wagon by rail transport for materials from Mombasa, compared to 600 dollars per wagon paid by Kenyan traders'.

The cost of transport by road is even higher with Ugandan traders paying 4,800 dollars per truck to transport raw materials from Mombasa to Kampala, compared to 780 dollars for their Kenyan counterparts.

In terms of the World Economic Forum’s global competitiveness ranking, Uganda is placed at 128, Kenya at 93 and Tanzania at 113.

Private Sector Foundation business consultant John Sempebwa believes that, with such rankings, Kenya and Tanzania could become the industrial heartland of the region, while Uganda, Rwanda and Burundi will host services.

Sempebwa tells IPS that Uganda has many infrastructural constraints which present a major impediment — which it shares with the other landlocked member states of Burundi and Rwanda.

Executive Director of the Uganda Manufacturers’ Association, Gideon Badagawa, tells IPS that Kenya and Tanzanian industries are more cushioned because they still have the advantage of having access to the ocean.

The Private Sector Foundation and the Uganda Manufacturers’ Association had previously asked for a five year grace period, ending this year, to help local industries come to the level of Kenyan and Tanzanian industries.

But Badagawa says the five years have not been enough to close the imbalances, some of which he said could only be resolved by government.

'Look at the dysfunctional railways; the roads are still in a poor state, even with some of the interventions that we had in the last budget; and electrical power is still very unreliable and expensive. So we may need more time to reach there.'

Uganda’s deputy prime minister and minister responsible for the EAC, Eriya Kategaya, has admitted that there are still infrastructure constraints in Uganda but argued that these could be handled internally without extending the implementation date of the common market.

'It’s true that there are issues but this should not derail the plans to have the common market. The private sector should be open to competition or else they will be swallowed up,' he said.

Silver Ojakol, a commissioner for external trade in the trade ministry, tells IPS that 'Ugandan industries should adjust and reposition themselves to gain from the expanded market under the common market.

'There are many areas where we have a comparative advantage, so calls for extensions will not work unless we prepare for competition.'

Juma Mwapachu, EAC secretary general, was in Kampala recently when he indicated that 90 percent of the negotiations for establishment of the EAC Common Market were complete and that the heads of states from the member countries will meet this November to agree on remaining issues ahead the January 2010 commencement date.

Tanzania’s President Jakaya Kikwete, while addressing members of the East African Legislative Assembly in Dar es Salaam, asked the Tanzanian Business Community to prepare for the common market come January 2010.

Tanzania has in the past been accused of adopting a slow pace regarding the integration process. But Jakaya warned Tanzanian businesspeople that, 'we are heading for major changes in business and trade and it is better to prepare ourselves to take advantage of the situation.

'Let me warn you that we should do away with the habit of thinking that we are not able to face others. We should stop belittling ourselves that we are not capable,' he added.

Similarly, Uganda’s President Yoweri Museveni told the country’s parliament that Uganda will benefit from the expanded market. He believes the common market and enlargement of the EAC will create more opportunities for trade.

'Today the trading bloc embraces a strong and large market of a combined population of 120 million people, has a large area of 1.8 million sq km with a combined GDP (gross domestic product) of 41 billion dollars,' he added.

However, the Uganda Manufacturers’ Association and the Private Sector Foundation complain that, unlike Kenya and Tanzania’s businesspeople, they have not been adequately been involved in the negotiations.

© Inter Press Service (2009) — All Rights ReservedOriginal source: Inter Press Service

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