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Business
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Written by Moses Talemwa
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Sunday, 22 November 2009 17:02 |
It’s finally here. The East Africa Common Market Protocol, which appeared more like a distant mirage ten years ago, was signed by the region’s five heads of state in Arusha, Tanzania, last week, opening the way for the free movement of goods and persons within the region.
The signing moved the region closer to its dream of reviving a regional East African bloc, governed by the same political, economic and social ideologies, which was dismantled in 1977.
Reginald Mengi, the former Chairman of the East African Business Council, notes that; “The bottom line of all our efforts is to make East Africa more competitive, especially to reduce the costs of doing business for all of us.
East Africa has the potential of becoming an economic tiger and even rivaling the Far East.” The region has a Gross Domestic Product of about $60 billion with a population of about126 million people, according to official 2008 figures. The protocol is expected to be implemented in July 2010.
However, the signing of the East Africa Common Market pact also dashed frantic attempts by Uganda’s manufacturers to push for an extension of the Customs Union’s tax haven policy to strengthen their manufacturing industries. It’s a call that has not been heeded.
With the signing of the protocol, businesses are bound to start realigning their strategies with the changing economic landscape in the region, which is expected to usher in intense competition as companies scout for new market opportunities in the five countries.
Kenya, the region’s powerhouse with a Gross Domestic Product twice bigger than Uganda’s, is expected to benefit more. Manufacturers from the other countries are expected to change tact to try and match the Kenyan competition.
Part of this strategy is expected to see companies shift some of their production lines to areas with a conducive business environment, where such costs like a rickety infrastructure system is not a burden.
Bidco, one of Uganda’s largest producers of palm oil, has already moved some of its processing plants to neighbouring Kenya. The company will produce its palms in Uganda and have them processed at its Kenyan facilities before re-exporting vegetable oil back to Uganda and the rest of the region.
“It will be cheaper than establishing new factory premises in Uganda,” said a top official within the company who declined to be named due to the sensitivity of the issue.
Mukwano Industries, also a large palm oil producer, has also already started shifting part of its business lines to Tanzania. The company has built a plant in Dar-es-Salaam to produce oil, plastics and soap, mainly for the Tanzanian market. Other Ugandan companies like the Alam Group and Mehta industries have already put up steel processing plants in Mombasa.
While some of Uganda’s businesses move to other regions, a wider issue is expected to confront the region’s economies. Part of this is the tax regime, where countries like Uganda have been heavily dependent on import tax. Import tax accounts for half of the country’s tax revenue source.
The signing of the protocol means that goods from other countries will enter the country duty free. This means that Ugandan importers will be keener in bringing goods from Kenya than from outside the region, narrowing the tax base from import duty.
While Peter Malinga, the URA Commissioner for Customs, said that the goods from within the region will continue to attract other taxes like Value Added Tax, he could not attach a value to the amount of money the country will lose from the suspended import duty.
There is also the issue of cheaper goods coming to the market, which might not appear to be a problem in the short term but one which economies will have to grapple with in the long term. Kenyan companies like Nakumatt and Uchumi have already established base in Kampala, winning a sizeable retail market already.
Following the accession of the Common Market in July 2010, EAC countries are working towards the establishment of a Monetary Union by 2012 and ultimately a Political Federation of the East African States in 2015.
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