Thursday, July 1, 2010

East African common market begins

REUTERS

A common market for the East African Community (EAC) trade bloc kicked off on Thursday, opening up the borders of Uganda, Kenya, Tanzania, Rwanda and Burundi to labour and capital to citizens of all member states.

Here are some facts about the EAC bloc:

* The EAC was first set up in 1967 but collapsed a decade later because of political and economic disagreements between original member states Kenya, Uganda and Tanzania.

* A treaty to revive the bloc was signed by heads of state of the three nations in 1999, setting the stage for Rwanda and Burundi to join the Arusha, Tanzania-headquartered bloc in 2006.

* EAC has a population of 126 million people and a GDP of $75 billion.

* The ultimate goal of the bloc is to have a common currency in 2012 and turn into a political federation in 2015.

* There is agreement at the leadership level throughout the bloc that a wider market will increase the region's ability to attract investments, nurture economic growth and reduce poverty.

* The three major economies have diverse strengths. Kenya has a fairly advanced economy, Tanzania has plenty of fertile land and other natural resources such as timber and gold, while Uganda discovered huge oil deposits in 2006.

* Infrastructure, like roads and railways, is a common challenge for all the states. Governments have been allocating increased funding to the sector.

* Member states will have to make several changes to their national laws to allow full implementation of the common market in areas such as immigration, labour and customs.

* Kenyan firms like Kenya Airways (KQNA.NR: Quote) have cross-listed their shares on the Kampala and Dar es Salaam bourses. Kenya Commercial Bank (KCB.NR: Quote) has operations around the region.

* Kenya is among the top 10 sources of foreign direct investment to Uganda with 27 licensed investment projects worth $158 million.

* In Tanzania, Kenya is the second biggest investor with 270 companies operating there providing more than 100,000 jobs.

* Only Rwanda and Kenya have a bilateral agreement allowing their citizens to work in any of the two countries without a work permit. Similar agreements are required among all members.

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By Sarah McGregor
June 30 (Bloomberg) -- The five-nation East African Community will declare a common market tomorrow, leading to the creation of a free trade zone over the next few years and ultimately enabling them to forge a political federation.

Kenya, Tanzania, Uganda, Rwanda and Burundi, now in a customs union, will probably take as many as five years to enact the legislation and regulations required to put the common market protocols into effect, said Amos Kimunya, Kenya’s trade minister, in a speech broadcast on Nairobi-based NTV today.

“What is happening on the first of July is official recognition,” he said. “I believe by 2015 all the barriers will be collapsed and East Africans will be able to move freely.”

The common market protocol, signed on Nov. 20 by all EAC heads of state, will expand the bloc’s five-year-old customs union to enable the free movement of people, capital and services and abolish import duties. The EAC encompasses 126.6 million people with a combined gross domestic product of $73 billion and aims to adopt a shared currency by 2012.

The bloc was founded by Kenya, Uganda and Tanzania in 1999, to boost regional trade after a previous decade-long free trade effort failed in 1977. Rwanda and Burundi joined in 2007.

Mixed Success

A customs union that began Jan. 1, 2005, was the EAC’s first concrete step to strengthen trade ties. It established a common external tariff, an identical tax applied to a list of imports from outside the bloc, and allowed duty-free regional trade with the exception of Kenya, the largest economy.

The accord’s success has been mixed. Intra-regional trade, as a proportion of the bloc’s total trade, fell to 8.4 percent in 2008 from 11 percent in 2005, according to data compiled by the Kenya Association of Manufacturers.

The region’s poor roads, cumbersome customs procedures and unreliable energy supplies are impediments to cross-border trade that can’t be solved overnight, Christopher Onyango, a trade analyst with the Kenya Institute for Public Policy Research and Analysis, said by e-mail.

There has also been disagreement over adjustments to the common external tariff to protect nascent industry, Onyango said. “The concern is that such benefits appear to have triggered an increasing trend by partner states to abuse the provisions,” he said. “This is likely to distort fair trade.”

July 1 is the day that the “serious work” starts, EAC Secretary General Juma Mwapachu said, according to an e-mailed statement on June 24. Remaining tasks include the five nations agreeing to remove restrictions in the aviation industry and the elimination of work permits for job-seekers within the bloc, he said. Tanzania must also relax foreign exchange rules to allow citizens to invest in the capital markets of partner countries.

“Come July the hard part begins,” Peter Kiuluku, Executive Director of the Arusha, Tanzania-based Trade Policy Training Centre in Africa, said in an e-mailed response to questions. “There are no short cuts to fast track a complex process. Expect pace setters and laggards.”