Tuesday February 25 2014

EAC scorecard pokes holes in Common market

Trucks loaded with goods wait

Trucks loaded with goods wait clearance at Malaba border post. The East African Community scorecard found that member states introduced new restrictions, hurting integration. Photo by Stephen Wandera  Trucks loaded with goods wait clearance


No East African member state has fully lived to the commitment of the Common Market Protocol to ease doing business but they have instead introduced new restrictions.

The East African Common Market Scorecard 2014 developed by the World Bank and the EAC, for more than 18 months, tracked progress in compliance with commitments to removing obstacles to the free movement of capital, services and goods.

The Common Market, the second stage of the regional integration, was introduced to build economies of scale, accelerate competitiveness and bring the region closer to achieving its dream as a single investment destination.

Experts appreciate that since 2005 when the region entered into the Customs Union, the first stage of the integration, there has seen strong growth in intra-regional trade, rising steadily from Shs4 trillion ($1.6 billion) to Shs8.8 trillion ($3.6 billion) as of 2010.

Also, total intra-EAC trade has grown from 7.5 per cent in 2005 to 11.5 per cent in 2011.
“However, this is far from the true potential of the EAC which boasts of a 140 million people market,” Ms Catherine Masinde, the World Bank’s head of investment climate in East and Southern Africa, notes.

Ms Masinde adds that close to Shs55.7 trillion ($22.7 billion) in inter-regional trade was lost to other regional trading blocs such as Southern African Development Community and Common Market for East and Central Africa between 2005 and 2012.

Furthermore, Tanzania trades more with other regional blocs standing at Shs24.6 trillion ($10 billion) with SADC, Kenya’s trade with Comesa comes second at Shs21 trillion ($8.6 billion) followed by Uganda with Comesa at Shs8 trillion ($3.4 billion).

Rwanda’s trade with Comesa and Burundi’s trade with both Comesa and Economic Community of Central African States stands at $452 million and $224 million, respectively.

She said: “This happened because a large number of measures agreed in the common market protocol are not observed by partner states.”

Only two of the mandated protocols were found to be in application across all the five partner states; and 63 non-conforming measures found in the legal framework for services alone.
“... Our capital markets have grown over the last few years to $35.5 billion [Shs84.6 trillion] as of end of January 2014. However, this is still far lower than the Johannesburg stock exchange which is far higher in terms of market capitalisation,” Ms Masinde said.

Experts say if executed well, the Common Market can expand opportunities for the private sector and uplift the living standards of its people in a way that no partner state can do on its own.
Reacting to the results of the score card, EAC Secretary General Ambassador Dr Richard Sezibera, said: “The score card will foster peer learning in the region.”

He emphasised that the score card is not about pinpointing what state is not meeting the integration mark but is geared towards strengthening the regional market, grow the private sector and deliver benefits to consumers.

The score card identifies at least 63 non-conforming measures in the trade of services and 51 non-tariff barriers affecting trade in goods, while in capital, only two of the 20 operations covered by the Common Market Protocol are free of restrictions in all of the EAC partner states.

Mr Alfred K’Ombudo, the World Bank’s Scorecard lead author, says laws and regulations of the EAC partner states still present barriers to increased cross-border trade and foreign direct investment into the region.

“Services, 67 per cent of identified measures negatively affect foreign direct investment, while barrier to movement of goods also affect investment; many investors start as traders, then gain confidence in a country’s markets and move production there. But without such confidence, such investment will not happen,” Mr K’Ombudo added.

The report mentions that progress has been slow, and some partner states have instead introduced new measures despite their obligations under the EAC Common Market Protocol.
“Since the protocol came into force in 2010, Rwanda, Tanzania and Uganda have introduced at least 10 restrictions on the movement of capital,” Mr K’Ombudo notes.

In services, several new restrictions have been introduced or carried over from older laws since the protocol was signed. The identified restrictions affect more than just market entry; many of the restrictions on the movement of capital, service and goods inhabit or make entry into the market unduly expensive.

But several forms of discrimination persist after entering the market; such as different fees for transactions and government services, ceiling on the value of transactions.