Kenya reaps lion’s share from EAC economic integration
A motorcyclist and his passenger squeeze in between cars and trucks at the Malaba border on the Malaba/Tororo Road. EAC integration has paid off for Kenya with increased export volumes and expansion of local businesses to member countries. A common currency is the biggest bone of contention. TOM OTIENO
As far as expanding export markets goes, 2011 will be the year when Kenya’s involvement in regional economic integration has paid the highest dividends.
The East African Countries have steadily opened their borders to Kenyan firms, allowing them to expand their markets and areas of operation as key allies in the West limp from one form of economic crisis to the other.
This trend is captured by latest data of Kenya Revenue Authority (KRA) indicating that exports to Uganda – Kenya’s single largest trading partner – grew to Sh50.4 billion in the first 10 months of 2011 alone, a 42 per cent jump compared to 2011.
The UK, which for most of the 47 years of independence was Kenya’s main export destination, has retained its second slot, absorbing Sh33.9 billion worth of Kenya’s goods, a paltry 5 per cent growth over last year’s.
Going by a 14.9 per cent growth rate that has kept Tanzania in third place with Sh29.3 billion in the first ten months, it is only a matter of time before EU countries completely lose their lustre as key trading partners.
“Obviously, the rapid growth in exports to EAC indicates that firms prefer immediate to distant markets due to less cost involved,” said Mr Vimal Shah, CEO of Bidco Oil refineries, a manufacturer of a range of household products in all the five EAC countries.
The KRA figures indicate that despite their smaller sizes, Burundi and Rwanda are slowly influencing the direction of exports, with the latter even elbowing France and Germany to garner preferred export destination in 2011.
“This trend has developed slowly since governments started lowering barriers to trade a few years ago and I don’t think it has anything to do with the economic health of the euro zone,” Mr Shah said.
Kenya, which was the first EAC country to scrap import duty on goods from other partner states, has been riding on this growth in trade volumes to compensate for the eliminated tariffs. The customs collections hit Sh223.4 billion in 2010/11 financial year, up from Sh111 billion in 2004 (the year before the launch of EAC custom union).
Official data indicates that this trend may continue in the coming years after KRA reported Sh60.4 billion in the second quarter of 2011/12.
But for the integration which has an ambitious goal of giving the region a monetary union by next year and ultimately, a political federation, the positive assessment of its progress may as well end with improved export volumes. Most of the agreements reached at regional forum remain un-implemented. For the second time this year, the region’s Heads of State met in Bujumbura last month but failed to give a clear direction on the proposed single customs territory.
A single custom territory which was expected to be in place by July last year implies the establishment of a common revenue collecting body that will assume the role currently performed by custom departments of national revenue authorities.
“Once there’s a revenue sharing formula, the establishment of a regional custom authority will make it possible to disband internal borders and stop applying rules of origin on intra-regional trade,” Mr Peter Kiguta, director of trade and customs at EAC Secretariat told the Business Daily in an earlier interview.
When they met last month, however, the region’s heads of state postponed the date for making final decision on the regional tax collector to April 2012 and directed the council of ministers to prepare recommendations.
Also hanging as a paper agreement is the EAC common market protocol, launched in July last year to ease movement of persons and factors of production across national borders. The list of freedom it promises remain a distant reality as partner states are yet to amend national laws to reflect its provision.
Lately, however, it is the proposal to introduce a single currency for East Africa by the end of next year that has ruffled feathers. Top government technocrats have been negotiating how the five countries will balance an array of macro-economic indicators to make it possible for a regional central bank to apply policy instruments across national borders.
Among the macro-economic thresholds targeted before launching a monetary union, each country has to bring its inflation rate down to five per cent, raise GDP growth rate to seven per cent and peg national budgetary deficit to five per cent of GDP.
“The moment these indicators automatically fall to the desired level as a result of fiscal and monetary policies at national levels, this will be a sign that our level of convergence can support a single currency,” Barrack Ndegwa, an integration secretary at Kenya’s EAC ministry told the Business Daily in an earlier interview.
Deficit
Data gathered by EAC secretariat over the last five years indicate wide disparities in rates of inflation, growth and national budget deficit that may take several years to bridge.
Latest inflation figures from national agencies, for instance, show by end of November, Uganda had the highest rate of inflation at 29 per cent followed by Kenya’s 19.72, Tanzania’s 19.2, Burundi’s 16.4 per cent and Rwanda’s 7.39 per cent.
At their meeting last month, however, the heads of state adopted the report of the team of experts that details fears, concerns and challenges of ordinary citizens regarding the proposed political federation.
Among other things, the experts have faulted poor public participation in the EAC integration process, warning that it could derail the search for a political federation. Under the EAC treaty, the EAC can only have a federation if endorsed by majority of citizens in a referendum.
