Reforms needed to fully exploit EAC integration growth opportunities

Kenyan manufacturers can finally breathe a sigh of relief following the entry of the East African Community (EAC) into a full-fledged Customs Union.

And with this, the EAC region is headed towards a better and more vibrant economy as it advances towards a higher level of integration through the anticipated common market later in July.

If the notable success of the European Union is good proof of the benefits of integration, East Africa has every reason to work towards full integration.

In actual sense, the anticipated competition will stir businesses to greater heights while at the same time providing more jobs that are much needed.

The fact that manufacturers will now be able to move their goods freely between the five partner states without experiencing any import duties or cross boarder trade barriers is welcome for a sector which has been shrinking over the years.

That the region offers a market potential of at least 126 million people is an opportunity the private sector should aim to fully exploit in order to maximise on returns, create wealth and employment, and in the process develop countries within the region.

Kenya, which has the most diversified and robust manufacturing sector in the region is sure to gain most from the Customs Union, especially if the right strategies are put in place by both the government and private sector players.

As we embark on this journey, the Partner States administrations must ensure that they refrain from protectionist inclinations including the imposition of taxes and levies and instead guard their common commitment if they are to ensure the success of the Customs Union.

Another factor that might hinder the success of the Customs Union is the decision by any of the Partner States to grant duty exemptions outside the current customs regime, in the process jeopardising any positive impact of the Common External Tariffs.

A peaceful and secure environment is critical to the success of the Customs Union.

It must be remembered that when Kenya experienced post election violence after the 2007 polls, trade and business within the region suffered greatly.

This was because of Kenyan’s strategic location in the region.

We are aware that a lot of changes are expected during the transition period.

For instance, Kenyan manufacturers are concerned that the goods produced with industrial inputs/raw materials imported at zero duty under the EAC Duty Remission Scheme for the manufacture of goods may not be eligible for treatment as ‘exports’ when sold within the EAC region.

Since goods from Kenya and other member countries sold in the other Partner States will be considered as domestic sales because the entire region is considered one customs territory, certain reforms are necessary to make EAC one Customs region.

Additionally, if Kenya and the private sector are to reap real benefits from the Customs Union and regional trade, there is need for the governments to invest in more and better roads, railways and power stations which will help reduce the cost of doing business, currently a major hindrance to investment in Kenya.

The private sector both in Kenya and within the region has the potential to unlock and increase trade volumes within the East African region which currently stands at a mere 13 per cent.

This is a pale comparison to Europe which stands at 60 per cent and Asia at 40 per cent.

With the coming into effect of the EAC Customs Union, the trend of intra-EAC trade is likely to change but until correct measures are put in place, the movement of goods within the EAC Community will continue being constrained by cross border controls.

As mentioned earlier, the Customs Union and opening up of trade within the region is the only hope for the five East African nations whose development has been lagging for quite a while.

Maina is the CEO of the Kenya Association of Manufacturers.