EABC Newsflash
FEBRUARY 2005

In this issue:

-EAC COMPETITION BILL LIKELY TO BE PASSED IN THE SECOND WEEK OF MARCH
-WHY EABC WANTS TO BRING SMEs AND OTHER KEY SECTORS ON BOARD
-EAC PARTNERS TO SEEK WORLD BANK ASSISTANCE TO OFFSET LOSSES ARISING FROM CUSTOMS UNION
-A MAJOR PRIVATE/PUBLIC SECTOR CONVENTION PLANNED
-BARRIERS TO TRADE – MEETING BETWEEN TANZANIA AND KENYA BRINGS OUT NEED FOR URGENT REMOVAL OF NTBS
-SINGLE INVESTMENT CODE FOR EAC PARTNERS ON THE WAY

EAC COMPETITION BILL LIKELY TO BE PASSED IN THE SECOND WEEK OF MARCH

After receiving views from Stakeholders on the East Africa Community Competition Bill, 2004, the East African Legislative Assembly is now all set to consider and most likely pass the EAC Competition Bill at a session planned for February 28 to March 11, 2005.

Last week (February 21 st -25 th ), the EAC Committee on Communications Trade and investments met stakeholders in Arusha, during which it received submissions from East African Business Council, East African Law Society and EAC Director General in charge of Customs Mr. Peter Kiguta.

Once the bill is passed by EALA, it is expected to go for third reading and if voted for, it will be presented to the heads of state of the three EAC partners for assent. After that, it will become an Act. It should then be enforced.

Ideally, the Act aims at promoting and protecting fair competition within the EAC. It also aims at taking care of consumer welfare and establishment the East African Community Competition committee.

It is anticipated that the Act will also enhance the competitiveness of EAC enterprises in the world markets by exposing them to competition within the region, create an environment which is conducive to foreign direct investment in East Africa, bring the community's competition policy and practice in line with international best practices and strengthen the partner-states role in relevant international organisations.

WHY EABC WANTS TO BRING SMEs AND OTHER KEY SECTORS ON BOARD

The East African Business Council is to progressively broaden its membership to include the SMEs, tourism, agriculture, finance, banking and insurance sector in a move to make it more representative of the private sector.

At a review and planning workshop held in Mombasa on February 14, 2005 , the members also agreed on the need to explore possibilities of more tie-ups with regional and international organisations, including NEPAD, and evolve income-generating activities to ensure financial sustainability.

“For EABC to be truly representative of the business community in the region we need to bring on board the other sectors that are currently not represented in EABC,” said Mr. Hirji Shah, EABC Chairman. “But it is also important that we achieve some measure of financial sustainability.''

Chairman of EABC Management Committee , Mr. Amu Shah (left) airing his views during the EABC Review & Planning Workshop held in Mombasa on the 14 th of February 2005 . On the right is Dr. Simon Kagugube, a member of EABC Executive Committee.

At present, membership of the regional body falls into three categories – ordinary members who among others include chambers of commerce and industry, associate members who comprise of investment promotion centers and export promotion zones, and corporate members.

As part of the strategy to get SMEs on board, EABC is already in the process of preparing a proposal that will be used as a benchmark to recruit SME associations. A similar proposal will be prepared for recruitment of players in the other key sectors - tourism, agriculture, finance, banking and insurance.

The members also agreed on the need for the organization to carry on with sensitization of the region's business community on matters pertaining to the implementation of EAC Customs Union. To achieve this, EABC plans to carry out a private sector competitiveness needs assessment which once implemented will improve the competitiveness of firms in the region and globally.

EAC PARTNERS TO SEEK WORLD BANK ASSISTANCE TO OFFSET LOSSES ARISING FROM CUSTOMS UNION

Permanent Secretaries from the three EAC partner-states want the EAC Secretariat to institute a task force of experts by July 2005. The task will be to evolve an East African position which will be used as a basis of seeking financial assistance from the World Bank and other development partners to offset revenue losses arising from the implementation of the Customs Union Protocol.

At a meeting of Fiscal Affairs Committee held in Arusha on February 19, 2005, the Permanent Secretaries also agreed that Partner States should make projections of losses over the next five years covering import duty (including VAT and excises on imports), the elimination of internal tariffs and resultant effects on the direction of trade flows, and submit their forecasts to the EAC Secretariat by 30th June 2005.

Although they are yet to quantify the exact amounts, the three EAC partners anticipate that they will incur significant revenue losses, in the new trade regime, as a result of opening their borders and embracing a common external tariff.

Noting that several issues had arisen in the taxation of Antiretrovirals (ARVs) and exemption regime, following the implementation of the Common External Tariff, the Permanent Secretaries agreed that these and other urgent issues needed to be resolved expeditiously.

They urged the Partner States to submit urgent concerns to the Secretariat by 28th February 2005 for discussion by the Sectoral Council on Finance and Trade and also to make a comprehensive assessment of the application and implementation of the CET by mid April 2005.

The East African Business Council in collaboration with the East African Community plans to launch a business convention which will bring together key decision-makers in the region's public and private sectors with a view to promoting good working relationship between the two sectors, for the well-being of the private sector.

Dubbed “Smart Partnership”, the initiative owes its genesis to a request by the organizers of the annual East Africa Business Summit (EABS) who asked EABC during the third summit held in Ngurdoto, Arusha, late last year, to use its infrastructure and bring to a round-table, presidents of the EAC partner-states, ministers and permanent secretaries and the business leaders in East Africa, to discuss and come up with concrete solutions to issues of concern to the private sector.

The Council will be meeting Uganda 's president Yoweri Museveni soon to sell the idea. The heads of state of the other two EAC partner states will also be approached.

The initiative is part of EABC's wider private-public sector partnership programme, which is aimed at promoting the spirit of dialogue between the public and private sector, and in the process help drive home its agenda.

BARRIERS TO TRADE – MEETING BETWEEN TANZANIA AND KENYA BRINGS OUT NEED FOR URGENT REMOVAL OF NTBS

A meeting called to find ways of eliminating Non-tariff Barriers between Kenya and Tanzania has agreed that there is need for follow up meetings to monitor implementation of agreed actions.

According to a report of the meeting of Council of Ministers held in Dar es Salaam on February 11, 2005, and attended by Tanzania's minister for Foreign Affairs and International Cooperation, Mr. Jakaya Kikwete and Kenya's minister for East African and Regional Cooperation, Mr. John Koech, trade between the two EAC partners was being slowed down by NTBs and it was vitally important that this issues are addressed promptly. Eight issues were on the table:

- On the issue of $5 charge currently being levied by Tanzanian customs authorities on any foreign registered (including Kenya and Uganda) private vehicle crossing into the country, the ministers agreed that Tanzania consult further on the issue

- Concerning the requirement by Tanzanian Authorities that Mastermind Tobacco ( Kenya ) Ltd, obtains an import license and also execute a bond for import taxes before being issued with stamps for excise duty, Tanzania undertook to grant a permanent license the Kenya cigarette manufacturer within this month

- On the question of imposition of higher duties by Tanzania on BAT cigarettes, the ministers agreed to review the respective cigarette excise structures within three months in order address the issue of discrimination

- About the $50 business visa charge imposed by Tanzania on Kenyan businessmen crossing into Tanzania , the ministers agreed to defer the issue until the EAC Secretariat avails the report of the committee of the chiefs of immigration (who are expected to deal with the issue)

- On the requirement by Tanzania that exporters from Kenya obtain a certificate of analysis issued by Tanzania government on goods imported from Kenya , Tanzania said its companies also faced similar problems whenever they shipped goods into Kenya . As a result it was agreed that there is no need for fresh certificate of analysis where goods had been certified by bureau of standards of the exporting partner-states

- On the issue of introduction, by Tanzania , of new fees for Kenyan registered companies on exports of pre-packed food to Tanzania , Tanzania undertook to review the matter and was asked to respond to Kenya by the end of this month

- About reports that landing certificates on Kenyan goods exiting through Namanga can only be issued by Tanzania Revenue Authority in Arusha and not at the Namanga border, Tanzania affirmed that Customs Officers at Namanga have the authority to issue landing certificates without referring traders to Arusha. The ministers agreed that Tanzania writes to Kenya confirming the position

- On the question of continued imposition of suspended duties on cigarettes imported from Kenya , Tanzania said the programme of the elimination of tariff was being applied

- On the issue of the implementation of a council decision regarding gazettement of Zanzibar State Trading Company as the sole buyer and seller of cloves in Zanzibar , Kenya said it needed time to consult.

SINGLE INVESTMENT CODE FOR EAC PARTNERS ON THE WAY

With the gazettement of the Investment promotion Act, by Kenya , on January 3, 2005 , the stage is now set for the harmonisation of the three EAC partner-states' investment regimes.

Preparation of a single investment code for the region, have been going on between Kenya , Uganda and, despite the slowness by Kenya to institute an investment code.

The harmonized code, to be referred to as EAC Model Investment Code, borrows a lot from other countries. It is expected to promote the region as a single investment destination once it becomes a reality.

It will be an investment guide; spelling out tax incentives, for both local and foreign investors, issue of certificates, entitlement to entry permits, penalties and regulations, among others.

Both Uganda and Tanzania already have their own investment codes in place. Kenya , which has been dragging its feet on the issue for close to a decade, now has an Act which is only awaiting commencement, which should happen, once the Finance minister issues a gazette notice.

A Fiscal Affairs Committee Meeting in Arusha on February 19, 2005 , agreed that the EAC Model Investment Code should separate fiscal policy formulation and investment promotion from the administration of incentives.

The Permanent Secretaries also recommended to the Ministers that:

- Tax incentives for investment should be directly related to the amount of investment and not take the form of tax holidays.

- Tax incentives that are allowed should be in the law and available to all enterprises, in the same sector, on the same terms with the exception of EPZs.

- Granting of tax incentives by administrative discretion should be limited to emergency cases and should be institutionalized to minimize potential abuse.

- When tax incentives are repealed, investors eligible for the prior incentives should be allowed to continue enjoying the incentives during the period the incentives were promised, assuming they continue to meet the conditions for them.

- Partner States should submit their current policies on capital recovery rules,incentives offered under EPZs and any other incentives to the Secretariat by 30th March 2005 .

- EAC Secretariat should convene a task force meeting of experts by May 2005 to harmonise the above incentives.

They committee also recommended to the Ministers that:

- A Code of Conduct for Investment Incentives and Company Income Taxation for the EAC should be prepared to cover both tax and non-tax incentives to limit harmful tax competition for investments.

- The Secretariat should source for external assistance to draw up an EAC Code of Conduct for Investment Incentives and Company Income Taxation.

- The Secretariat should reconvene the task force meeting on the EAC Model Investment Code by 30th April 2005 to finalise this work.

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