East Africa needs serious partner

The East African Community has needs but not the means; what the region needs therefore is to find a generous, rich and committed development partner to bankroll its budget said to top more than $100 billion over the next ten years. Among the region’s most pressing needs is the standard gauge railway, oil pipe line, a refinery and many others whose budget partner states can’t manage on their own. From Chinese, Russians, Americans and Europeans, East Africa has a wide array of partners from which to choose, but it must tread with caution because the problem with such relationships is that they’re never founded on level grounds. With billions of proven oil finds and gas, East Africa is surely rich but these riches are nothing without the supporting infrastructure to enable the extraction of these underground resources. The infrastructure and energy projects that the region is implementing are estimated to cost $100 billion over the next ten years as capital costs. Another $500 million in the next three to four years is needed for project preparation costs covering required studies, project packaging and promotions, and transaction advisory costs. But East Africa should not approach potential partners as a needy party looking for support but rather as a business partner looking to do business on equal footing. Unfortunately, economic liberation for the region could mean political liberation from the fangs of dependency on former colonial powers that currently look after the region in form of aid handouts. Not everyone will be willing to let go of the region, negotiations are going to be long, highly technical and complex for a region that’s only building capacity. If handled carelessly, poorly negotiated investment deals with prospecting investors could only end up hurting the region. Who can the region trust to do business with? That’s a tricky question because if the region plays arrogant and tough, the prospecting investors, whose decisions always have a certain level of home politics and foreign policy at play, might simply hold back to frustrate us. Matters regarding capital gain tax, profit repatriation, environment protection and corporate social responsibility to the communities involved are always going to be areas for a bone-of-contention. Actually, Uganda is already in international court involved in a dispute with Heritage Oil and Gas Ltd. The dispute arose after Heritage announced its intention to transfer its Ugandan petroleum assets to Italian firm ENI in December, 2010. But Uganda’s tax body demanded a 30 per cent cut ($434.9m) of the $1.5 billion deal in capital tax gain tax before the transaction was approved which the firm opposed. Heritage resisted the tax and the two parties ended up in nasty battle in a UK court. Fortunately, last week, Uganda won the first round of the battle when the Tax Appeals Tribunal ruled that the deal is taxable and ordered Heritage to effect payment of the $434.9 million) as assessed by Uganda’s tax body. Heritage will probably appeal the ruling or find some other legal rat-path (panya) to delay or even dodge the payment; that’s the nature of business the region is going into, there are no straight paths and the players are ruthless in their game. The Uganda Vs Heritage court scuffle is good experience for the region and should act as an eye opener as they prepare to play in the senior league of international business where sugar daddies ruthlessly demand for their favours in return for their investments. What governments in this region therefore need to do is to either equip their local experts with advanced negotiation skills or hire seasoned international advisors to avoid costly mistakes today’s deals. Ordinary East Africans have a lot of hope in these natural resources as they have been told they hold the key to better standards of living through creation of high income jobs and establishment of better services using the revenues from the resources. But these dreams depend on how our governments negotiate today. There’s pressure among the partners to find investors to undertake the region’s heavy infrastructural budget but these shouldn’t push them into letting down their guards. Good deals negotiated now will benefit the region but everyone shall pay the price if our governments are arm-twisted into signing badly negotiated deals.

Opinions

East Africa needs serious partner