Industry projects EAC-powered export boom

• Unilever’s Blue Band spread now selling duty-free in Dar and Kampala

Economic analysts and the government expect manufacturers to record tremendous growth this year as the East African Community (EAC) customs union becomes fully operational.

The free movement of labour and services is also expected to be another source of growth when the EAC Common Market opens in July.

When the EAC Customs Union started on January 1, 2005, goods from Kenya were charged duty when entering Uganda and Tanzania under a progressive tariff reduction programme.

However, imports entering Kenya from other member countries were allowed in duty-free.

This arrangement came to an end on January 1, allowing Kenyan goods to enter Uganda and Tanzania free of duty.

Bidco Oil Refineries, which manufactures its products in Kenya and sells them in East Africa, said the dismantling of tariffs on Kenyan-made goods to zero had lessened the burden on manufacturers.

“For goods to Tanzania we were paying five per cent, to Uganda it was two per cent, but beginning January 1, 2010 goods are entering these countries at zero duty,” Bidco managing director Vimal Shah said. “That has helped us a lot.”

Unilever East and Southern Africa managing director David Mureithi said that at the start of the customs union in 2005 the company’s Blue Band margerine shipped to Tanzania was charged 25 per cent duty although this was gradually reduced to 15 per cent in 2007 and then zero in January 2010.

A 10 percent duty was applied to the same product in Uganda in 2005, then eight per cent in 2006. The duty dropped to zero last month.

“So for the first time all the goods manufactured within EAC are traded duty-free giving access to a market of 126.6 million people,” Mr Mureithi told the Sunday Nation.

The entry of Rwanda and Burundi in July 2007 and the subsequent commencement of implementation of the customs union in July 2009 has bolstered the EAC market and further unleashed the opportunities of the expanded market to the people of EAC, he said.

With the establishment of the common market slated to commence in July, which would allow freedom of movement of the factors of productions such as capital and labour, local businesses are expected build on the EAC customs union.

Central Bank governor Njuguna Ndung’u recently said that progress towards the adoption of the EAC common market protocol would bolster trade.

“This development will have major implications in enhancing manufacturing activities, expansion of Kenyan banks to the region and employment,” he said in a statement last week.

British American Asset Managers expects the manufacturing sector, which was hit by low demand due to the recession, high transport costs as well as power and water shortfalls of last year, to record significant growth this year partly due to the EAC’s common market.

The free movement of goods is a fundamental pillar of a customs union. The establishment of the common market should build on a fully functioning Customs Union devoid of any impediments likely to deviate the process, said EAC customs director Kenneth, Bagamuhunda.

One of the barriers is the re-occurrence of non-tariff barriers that manifest themselves in the form of administrative and legislative measures coupled with infrastructure bottlenecks to the movement of goods, he says in a report reviewing five years of the customs union.

Mr Mureithi said that key challenges remaining are the removal of some non-tariff barriers such as the difficulty of getting foreign trucks through Tanzania and the slight differences in quality standards between some of the EAC countries.

“Free movement of labour and services is also a key step remaining to fully exploit the potential of the East African market,” he said.

The Kenya Association of Manufacturers says there are plans among partner states to harmonise regulations that would affect implementation of the EAC Common Market Protocol signed by heads of state in November 2009.

The protocol would lift restrictions imposed earlier on cross-border movement of workers in East Africa.

The EAC Common Market Protocol allows free movement of citizens of the five partner states to work within the region and provides for non-discrimination with regard to employment, remuneration and other conditions of work and employment.

No visa needed

Mr Shah said that although the common market protocol is expected to begin July 1, Rwanda has already started implementing it.

“It is happening in Rwanda because you don’t need a visa or work permit to go work in Rwanda if you are a Kenyan,” he said. “I expect this to be replicated in other countries because there is political will to fully implement the common market protocol.”

From 2005 to 2008 intra-EAC trade has risen by 49 per cent. A conspicuous positive performance has been registered by Tanzania and Uganda whose export growth to the region has more than doubled since 2005.

Similarly Kenya has continued to register increases in total trade with the other partner states that stood at 25 per cent in 2008.