Not yet Customs Union

As the Customs Union Protocol enters its sixth month in operation, the business community in Kenya, Uganda and Tanzania are at variance with their governments over whether it has managed to change the business climate in the region for the better.
The Business Climate Index Survey released recently by the East African Business Council (EABC), revealed that while government officials are more optimistic of the future ostensibly due to plans for improvement they have put in place, the business sector is less optimistic either because the plans have not been fully communicated or the sector is not convinced that those plans would be realised.
"We have to bridge the gap between perception and reality. Nobody is going to invest in an environment that is difficult, since business is mainly concerned about profitability, predictability and a secure business environment," said Arun Devani, the chairman of Kenya Association of Manufacturers.
While internal tariffs have been largely eliminated in line with the protocol, NTBs such as customs, immigration, administrative procedures and regulations and licenses, continue to increase the cost of doing business in the region.
The East African Customs Union Protocol—which commits the member countries towards the elimination of tariff barriers—was signed in February 2004, and is expected to lead to a common market that would sell the EAC as a single trade and investment area. Of particular concern in the three countries among the NTBs, are the EAC administration of duty/taxes, corruption and customs administration, that are followed closely by barriers relating to transiting and police checks.
Both Kenya and Uganda businesses rank delays at the border as a major obstacle, with their Kenyan counterparts citing customs regulations and administration procedures as a major hindrance to the flow of business. Tanzanian business, on the other hand, rate the administration of duty and taxes as the leading obstacle.
In Kenya for instance, the time needed for registration and licensing of companies can take an average of between five days to two weeks, while in the UK, companies can be registered on-line. Yet, Kenya still compares favourably in relation to Uganda and Tanzania. While observing that there have been progress towards the elimination of tariffs, the EABC chairman, Hirji Shah, noted that incidents of corruption at the borders are still high, the licensing process is still lengthy, police checks and harassment are still frequent, while border-crossing charges are still being levied in some areas.
The EAC director general of Trade and Customs, Peter Kiguta, warned that although it is understandable that governments are under pressure to impose NTBs because of competition and budgetary pressure, NTBs have the potential of encouraging illicit trade" Because if requirements are unreasonable, trade goes underground". He attributed part of the problems to the hasty manner in which the protocol commenced. "There was a very short time between the conclusion of negotiations on December 30 and the commencement date. Some of the important issues that could have preceded commencement were not done," said Kiguta.
He noted that there ought to have been prior publicity on what was expected of the business community, besides debriefing and training of customs officials at the border who were used to thinking nationally. Mr Kiguta revealed that some of the problems are policy-oriented and the EAC secretariat cannot decide on some of these policies, and the council of ministers is yet to meet and iron them out the problems, though finance and regional co-operation ministers, have been meeting regularly.
"Although the Common External Tariffs (CET) have been implemented, some of problems arise from internal taxes—such as excise duty and VAT—that are yet to be harmonised and are still left at the discretion of individual states," said Kiguta, who, however added that the Customs Union is only five months old and it is upon governments and the business community to come up with practical solutions for it to deliver economic benefits in line with the high expectations.
Mr Kiguta, is however optimistic, given that the region is trying to integrate at a time when globalisation has intensified international competition. As he put it "Competition emerging from the cross-border trade should be seen as a blessing and business should not spend fortunes fighting it. The biggest challenge is the competition coming from outside and business should close ranks to fight it".
Kenyan businesses—that cite corruption and electricity as key programme areas— are however less optimistic on the improvement of business environment in the last 12 months compared to their Tanzanian and Ugandan counterparts. The Kenyan minister for East Africa and Regional Co-operation, John Koech, however gave assurance that ministers of finance from the three countries have been meeting on the NTBs and that concerns by the business community will be addressed soon.
"We recognise that the business community is anxious to see faster results given that the customs union was eagerly awaited. But we in government are optimistic , because we recognise that dissemination of information on NTBs is still low, especially among the common people," he said.
Among the recommendations that came out of the survey are that private/public sector partnerships should be enhanced, besides the establishment of an effective mechanism for the elimination of NTBs. The survey that commenced in September 2003, involved a total of 584 companies operating in the East African region. Ugandan companies had the bigger share with 249 participating, 195 from Kenya and 140 from Tanzania.