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Sunday, 18 July 2010 13:25

Every Business Wins With the Common Market

By Arthur Baguma

KAMPALA, Uganda, July 18, 2010, (The New Vision) JULY 1, 2010 marked the inception of the East African Common Market. It will facilitate free movement of persons, goods, services, right of residence and establishment. Faustine Kananura Mbundu, the Chairperson of East African Business Council (EABC), speaks on the salient issues in the protocol.

 

Q: There is concern that the business community in member states is not prepared to embrace the common market. Is this allegation true?

A: It could be true to a certain extent. The main reason being lack of knowledge about what the common market has to offer the business community in terms of challenges and opportunities and how businesses should respond to them. This would make any company uneasy.

As the East African Business Council, we are trying to address this challenge from two fronts: We are carrying out a series of private sector-focused common market sensitisation workshops and we are in the process of preparing a Common Market Business Guide that clearly addresses the issues raised by the business community.

Related to this, of course, will be the fear of competition - our economies are at different stages of growth and have different strengths - there is fear that the larger economies will swallow the small ones. That is why it is most important that the implication on businesses is properly analysed and the information passed on to the business community and policy makers.

 

Q: What does the operationalisation of the common market mean for the business community?

A: This means they will be able to move their goods and services within the partner states with fewer restrictions. It also implies stiffer competition, not only in goods, but also in services. Businesses have to take deliberate efforts to improve their efficiency to remain competitive.

On the policy side, this also means more predictability, depending, of course, on how quickly the actual implementation of the protocol takes place. Including identifying and addressing all national legislation that may be in contravention of the provisions of the protocol.

 

Q: Poor infrastructure remains a big challenge. How has this affected the cost of doing business in the region and how can it be addressed?

A: Indeed poor infrastructure has contributed to the increased cost of doing business in the region and this affects our competitiveness; both in terms of local companies competing with imports from more efficient producers and local exporters competing for markets.

East Africa has one of the most expensive transport costs in the world, estimated at 48% as a share of value of export for a country like Rwanda that is landlocked compared to 9% for developed countries.

Seventeen per cent for Zambia, also landlocked and similar to Rwanda in distance to the port. This is partly because the region is heavily dependent on road transport.

We need to develop the railway system, which has been recognised globally as the most reliable and efficient means of transport, especially for moving cargo.

Air transport in the region remains prohibitively expensive, with travel to some EAC destinations costing as much (sometimes more) as international flights and taking equally long. What the council recommends is the continued liberalisation of the EAC airspace in line with Yamoussoukro Decision (YD) of 1999; enhance competition in air transport services in order to bring down the cost of travel and freight.

Further, EAC governments should consider negotiating Bilateral Air Service Agreements (BASAs) with other regions/countries as a region as opposed to each partner state negotiating alone, thereby using our combined bargaining power.

In relation to power, the region is characterised by low quality of power supply systems, with a high dependency on large-scale hydroelectric plants leading to power-rationing as a result of dry spells and erratic rainfalls.

The price of electricity/production in East Africa is 5-10 times higher than our competitors such as Egypt or South Africa. EAC governments must come together to utilise the available power resources in the region, as community projects, including the exploiting the methane gas on Lake Kivu, using the gas in Tanzania for energy, geothermal energy and coal in Kenya and the newly discovered oil in Uganda.

In terms of 24-hour border operation, I must commend all the five partner states for their effort in this area. What remains is for the complementary industries to start operating 24 hours - ports, clearing & forwarding, standards bureau, banks, among others, as no service along the transit route operates in isolation.

 

Q: What is the East African Business Council doing to empower the business community in member states?

A: The EABC's intervention is on two levels - highlighting to policy makers all issues that contribute to a poor trade and investment environment and to increased costs of doing business; with suggestions on how these can be addressed.

On the other hand, we work towards addressing impediments at the firm level, especially in terms of information necessary for businesses to carry out their operation. This includes information on the integration process including producing business guides, linkage for members through the East Africa Business Directory and through various platforms like conferences.

 

Q: What measures have you put in place to promote medium and small-scale businesses which form the biggest part of the private sector?

A: We have had some networking programmes specifically for the SMEs, including a trade mission to Sweden in 2007 to which we sponsored 25 SMEs. We also ensure that SMEs do not fail to attend locally hosted businesses forums due to lack of financing, by sponsoring some of them.

 

Q: What is biggest advantage of investing in East Africa?

A: It is difficult to select any single advantage because the EAC is an emerging economy with high growth potential. Among the many attractions is the integration process characterised by a market of over 126 million people offering investors the second largest single market in Africa.

This is complemented by market access through Kenya, Uganda, Rwanda and Burundi, to the COMESA market of 385 million consumers and, through Tanzania, to the SADC market of 215 million for export products. All the EAC partner states also have preferential access to the EU market and qualify under AGOA for access to the US market for a variety of products. There is also the resource base: many parts of the EAC offer soil and climate conditions ideal for a variety of agricultural products, including tea, coffee and horticulture.

In tourism, all the partner states have enviable natural resources, from the mountain gorillas in Rwanda and Uganda, the wildebeests of Serengeti and Maasai Mara. In addition, the region has a 2,000km-long distance coastline and two major ports.

In energy there is oil in Uganda, methane gas in Rwanda, geothermal energy in Kenya and gas in Tanzania. Other opportunities are in mining, manufacturing and infrastructure and services.

 

Q: Accessing credit by businesses to expand and grow is still a challenge. Those who can access them, loans have exorbitant interest rates. What is the East African Business Council doing in this regard?

A: Until 2010, EABC has not had a targeted focus on the issue of access to credit, except in underlining the need to make credit more accessible and cheaper, especially to SMEs. We have now started working towards a financial cluster that will highlight the various impediments to doing business related to the sector, including the issue of access and affordability of credit.

 

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