Wednesday August 16 2017

Local manufacturers struggling to make it in EAC market

Ms Prudence Ukkonika, the proprietor of Bella

Ms Prudence Ukkonika, the proprietor of Bella Wine, displays her products made in Uganda. She wants government to support local producers in accessing regional markets. PHOTO BY RACHEL MABALA 

By Ismail Musa Ladu

Statistics portraying increase in trade between Uganda and other East Africa Community (EAC) countries are not telling the whole story, Daily Monitor has learnt.
According to ministry of Trade statistics, Uganda’s exports to EAC have slightly increased from $642.2 million (about Shs2.3 trillion) in 2014 to $711.3 million (about Shs2.5 trillion) in 2016.
Imports, however, have reduced from $684.6 million (about Shs2.4 trillion) in 2014 to $530 million (about Shs1.9 trillion) in 2016.

Uganda mainly exports coffee, tea and spices. Others include: animal or vegetable fats and oils, tobacco and manufactured tobacco substitutes, iron and steel and cereals.
She imports lime and cement, plastering materials, iron and steel, plastics, mineral fuels, mineral oils and products of their distillation; bituminous substances, beverages, spirits and vinegar.

Technical restriction
If it were not for unnecessary restrictions, including misinterpretation of rules governing regional trade by some EAC member countries, trade and policy analysts believe the country’s export volumes could have been higher than what the statistics show.
A study commissioned by the Southern and Eastern Africa Trade Information and Negotiations Institute-Uganda (SEATINI-U) indicates pitfalls in implementing the EAC Common Market Protocol. This is bad news since it has a bearing on how partner states conduct business among each other.
According to sector players, selective application of the common market protocol is already taking a toll on businesses here, particularly exporters.

It should be noted that the motivation for the common market is compelling. With more than 150 million people and a combined Gross Domestic Product (GDP) of $146 billion, a single EAC market presents unprecedented opportunities for private sector players.

According to the SEATINI study, the Common Market hasn’t been easy in terms of harmonisation of rules, regulations and standards despite being in force for nearly seven years now.
Its intentions of maintaining a liberal stance towards the free movement of goods and services across borders is constrained by regulation on rules of origin, with Uganda being the biggest victim thus far.
During the unveiling of the study titled: Pitfalls in the Implementation of the EAC Common Market Protocol, recently, it emerged that the private sector in Uganda is struggling to move their goods, services and capital around the EAC member states, due to the controversial application of rules and regulations intended to improve trade in the region.

Rules of origin
In contention is the rule of origin which has been used to bar some of the country’s top manufacturers from accessing some potential EAC markets.
According to World Trade Organisation, rules of origin are the criteria needed to determine the source of a product.
They are also important for implementing other trade policy measures, including trade preferences, quotas, anti-dumping measures and countervailing duties—tax— to prevent dumping or counter export subsidies.
Goods imported from outside the EAC are subjected to Common External Tariffs (CET) since they do not meet rules of origin criteria.

The challenge for partner states is to assess the origin of imports to ensure that only imports that meet the criteria of ‘made in the EAC’ as set out in the rules of origin, are accorded preferential treatment.
Since partner states are also members of other trading blocs, rules of origin are necessary to prevent goods from outside the region from being accorded similar preferential treatment to locally produced goods.
The problem, however, is provisions of Article 14 of the Customs Union Protocol that requires that there is uniformity among partner states in the treatment of goods. But this is not being applied to the fullest.

A case in point is the selective application of the rules of origin by Rwanda on sunflower oils, a locally manufactured product by Mukwano Group of Companies.
Rwanda claimed Mukwano does not have sufficient capacity to refine sunflower oil and export to the region. For that, its oil should not qualify for the rule of origin.
It took three years to solve this matter and by that time the manufacturer had made a loss of 3,600metric tonnes, thanks to Rwanda’s cantankerous stance.

There was also loss of re- exports to DRC through Rwanda. The situation further provided an opportunity for competitors to take the market away from the Ugandan manufacturers.
This is just one such scenario involving a big local manufacturer although it is a tell-tale sign of the kind of predicament the country’s private sector is grappling with when moving goods and services particularly to Rwanda, Kenya and Tanzania.

It emerged later that the issue resulted from haphazard implementation of rules of origin.
This was made uglier by lack of harmonised data collection, poor tracking and monitoring system as well inadequate tracking regarding production of commodities at the domestic level.
The studies conducted revealed that the level of awareness and understanding of procedures involved and the cumbersome verification processes resulted into Mukwano Industries being subjected to the unwarranted treatment, let alone losses it incurred.

The farmers producing the raw materials for the company were not spared either. At peak of the situation, it is said the company was considering reviewing its contract with the farmers as the toll was becoming evident.
According to trade and consultant Dr Paul Bagabo, a situation like this requires political involvement because it affects competition and sovereignty between the countries.

Pertinent voices
According to Dr Bagabo, Uganda does not appear to support businesses enough in situations like these the same way other member states, particularly Rwanda, Kenya and Tanzania do.
Presenting the findings of the study, he said: “The government support to manufacturing sector and businesses in general is not as much as what other EAC countries are rendering to their businesses. Yet technical issues can easily turn political but we are not seeing government being very keen as is the case in Rwanda and Kenya.”
The Secretary General of the Uganda National Chamber of Commerce and Industries (UNCCI), Mr Ezra Rubanda, in his submission at the unveiling of the study, said Uganda’s imports, citing sweets, have at some point had difficulties accessing the Rwandan market.

Uganda Manufacturers’ Association policy analyst Godfrey Ssali says the region must harness the spirit of Pan Africanism or achieve the much spoken-about industrialisation.
Mr Ssali also didn’t have kind words for the rule of origin, which he castigated as a hindrance to business in the EAC.
He said the rigidity by some states when applying the rule of origin will wrongly impact on EAC industrialisation and in essence, the integration as well.
He said when some EAC hoard commodities, they prefer to import from other countries rather than sourcing from within the region.

Rules of origin

Rules of Origin are the criteria used to establish and authenticate the national origin of a product. They are used to determine whether imported products will receive most-favoured nation treatment or preferential treatment, depending on the territorial provenance of the goods. The origin of imported products is also necessary for the application of trade policymeasures, quantitative restrictions, anti-dumping and countervailing duties among others.

Way forward

Mr Martin Luther Munu, a research analyst as well as trade and regional Integration specialist with the Economic Policy Research Centre (EPRC), when interviewed said as long as the rule of origin is not simplified further in interpretation and application, such scenarios will keep recurring.
He also noted that EAC member states tend to be hard on each other yet they go easy on countries outside the community, something he described as an irony.
The proprietor of Bella Wine, Ms Prudence Ukkonika is of the view that accessing Rwanda market is no mean feat, calling for government support if local producers are to make it in the regional market such as Rwanda where she said her products are loved.

Mr Bagabo shares Ms Ukkonika sentiments, saying government must help the private sector succeed in the regional markets not only by talking about fixing infrastructures but ensuring that rules that restrict trade is gotten rid of and its application must be fairly applied across.
Mr Rubanda and Mr Ssali advocates for a standby team of stakeholder to solve issues restraining EAC trade as and when it crops up before it gets out of hand.

Speaking for the ministry of trade, Mr Francis Kuluo, said non-tariff barriers (NTBs) are hidden in the rules of origin. He said until the rule of origin, particularly chapter 15 is unpacked, private sector will continue to be held hostage in a similar fashion.
He said going forward collaboration in the form of public-private partnership could be the answer here.