The plans for a common market in the East African Community (EAC) are proceeding apace and should fall in place on Jan 1, 2010, the target date of implementation.
But Uganda’s traders are concerned that they will be unable to compete with traders from their country’s larger neighbour Kenya when the new common market starts.
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 relocated its shoe manufacturing plant from Uganda 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.