Transcript Accession of Burundi and Rwanda in EAC

Accession of Burundi and Rwanda in EAC:
Implications for Private Sector Development
By Richard NDEREYAHAGA
CUTS – BIEAC Project
Regional Workshop
Nairobi, 27 - 28 May 2010
1
Plan of Presentation
A. Understanding
the EAC Private Sector
Development Strategy
B. Understanding the regional economy in
the EAC
C. Trade regimes and Investment Climate
D. Opportunities and disadvantages from
accession to EAC
E. Wayforward and main Recommendations
2
A. Understanding the EAC Private Sector
Development Strategy
3
Vision & Mission Statement
The EAC PSD Strategy has the vision of a
strong and globally competitive regional
private sector for wealth creation through
investment and trade.
 Its mission is to create a conducive
business environment that facilitates
private sector competitiveness and growth
for increased investment, productivity and
trade.

4
The objectives of the EAC PSD Strategy
are to:

Increase space of the private sector in
development of the regional economy.
 Focus on removing regional level constraints and
tap economies of a larger regional market.
 Ensure that the strategy is consistent with people
centered and private sector driven approach.
 Promote competitiveness by focusing on areas of
comparative advantage, and develop competitive
advantages over time.
5
The objectives of the EAC PSD Strategy
are to:
Identify priority sectors which reflect
potential sources of growth, export and
diversification in the East African region.
 Putting in place an implementation
strategy which specifies the role and
mechanism for the participation of the
private sector.

6
Factors constraining economic
performance in EAC:

Tight monetary and financial policies.
 Trade policies especially tariff and non-tariff
barriers.
 Disincentives effects of existing tax regimes
relating to levels, multiplicity of taxes and tax
administration.
 Absence of a legal framework to ensure free
movement of labour, services, goods and
capital.
7
Factors constraining economic
performance in EAC (cont’d):

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A restrictive regulatory and administrative
regime.
Inadequate and unambiguous competition
policies have raised concern in the private
sector.
Inadequate investment codes and incentives.
Inadequate institutional framework and
governance,
Inaccessibility to requisite resources,
Lack of infrastructural and supportive services.
8
The EAC PSD Strategy


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Improving the business environment in which
firms operate ;
Evolving an institutional framework and good
governance that is consistent with efficient
workings and development of market, and
Promoting investment in institutional and
human capacity building and increasing
competitiveness and diversification of the
economy of the region.
9
There is a set of actions that are contained in the
PSD strategy.
Ensuring a strong private sector investment,
 Improving the policy environment and the
efficiency of markets.
 Reducing the cost of doing business,
 Building capacities,
 Delivering infrastructure and business
support services more efficiently and in a
demand driven manner.

10
The Burundian Private Sector
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The CFCIB is engaged in ongoing reforms since
2008,
A private Sector that is embryonic,
Still largely dependent to public administration in
a post conflicts economy,
Needs to face the challenges emerging from the
regional integration,
A private sector that still needs to listened, framed
and to be supported.
11
Main needs of the Burundian Private Sector:
for an institutional support in the form of
capacity building,
 for a specific consideration for regional
integration policies,
 for financial supports aimed at the revival
and the rehabilitation of the existing
companies and the creation of new
companies.

12
Structure of Burundian Private Sector:

10 independent sectoral chambers (Sectoral
Chamber of the tradesmen, Sectoral Chamber of Mining, Sectoral Chamber
of Tourism and Hotel Services, Sectoral Chamber of Industrials, Sectoral
Chamber of artisans, Sectoral chamber of the conveyors and forwarding
agents, Sectoral chamber of the professionals of the Building industry,
Sectoral chamber of Banking and Insurance Companies, Sectoral chamber
of the Agribusiness , Sectoral chamber of the services and new
technologies)

2 transversal and independent
chambers .(Chamber of Women Entrepreneurs, Chamber of the
professionals of the provinces);

General Assembly of the CFCIB (136
members) (see figure page 7)
13
The Rwanda Private Sector Federation (PSF):

The PSF is a co-coordinating umbrella organization
representing and defending the interests and needs of
private economic operators in Rwanda.
 The PSF was created in December 1999 to replace the
former Chamber of Commerce and Industry of Rwanda.
It was initially composed of 14 Professional Associations.
In 2004, the number of professional bodies has been
reduced to 23.
 For the time being, the PSF is composed of 9
professional chambers (Chamber of Agriculture and Livestock, Chamber
of Commerce and Services, Chamber of Crafts, Artists and Artisans, Chamber of
Industry, Chamber of Liberal Professionals, Chamber of Tourism, Chamber of Women
Entrepreneurs, Chamber of Young Entrepreneurs, Chamber of Financial Institutions),
see diagram page 10..
14
Mission & vision of the Rwandan PSF:

Representing and serving the interests of the
entire private sector through lobbying and
advocacy,
 Providing timely and relevant business
development services that lead to sustainable
private sector led economic growth and
development.
 Creating a credible and effective institution
supporting the emergency of a strong private
sector for Rwanda's economic transformation
15
Challenges constraining the implementation of
the PSF strategic priorities:
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Lack of sustainable funding given the enormous needs of the
members;
Capacity constraint at both the secretariat and firm level
Passive role in the advocacy emanating from lack of resources to
carry-out research and prepare position papers;
Lack of recognition by the donors and other actors,
Limited innovativeness and competitiveness on the part of SMEs due
to lack of technical and managerial skills required in Business,
Limited networking between local private sector and with foreign
partners in order to learn best practices,
PSF institutional and human capacity deficiencies that hinder
effective private sector development programs.
16
In summary:
The Private Sector is still restucturing in
Burundi, there is a wide range of reforms yet
to be implemented;
 In Rwanda, the PSF is more advanced and
they have its Strategic Plan operationalized
(2007-2010);
 Many constraints, poorly performing private
sector, lack of adequate institutional
framework for private development strategy.

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B. Understanding the regional
economy in the EAC
18
Macroeconomic performance
EAC Partner States have all embarked on
comprehensive reforms that seek to reduce
government intervention in the economy.
 There is lack of macroeconomic
convergence amongst EAC States.
 EAC countries have had a somehow stable
macroeconomic environment, marked by
steady economic growth (see tables 6 and 7, pages 16 & 17)

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Governance and Aid-Dependency
It’s obvious that the authorities of the
EAC stress on the role of good
governance as a prerequisite for East
Africa economic integration, especially
when it comes to common market step.
 Kenya is the least aid-dependent country
amongst the five EAC countries.
 The most aid-dependent country within
the EAC is Burundi.

20

The EAC countries have been improving
in one or another of the 10 surveyed
areas/indicators (Starting a Business,
Dealing with Licenses, Employing
Workers, Registering Property, Getting
Credit, Protecting Investors, Paying
Taxes, Trading across Border, Enforcing
Contracts, Closing a Business).
21
Doing Business in EAC
Improvements from 2007 to 2008:

Burundi - in employing workers and in registering
property.
 Kenya – in starting a business, dealing with licenses
(ranked at 9), getting credit (13) and slight
improvement in paying taxes.
 Rwanda – in dealing with licenses, paying taxes and
trading across borders. Good ranking in starting a
business at 63.
 Tanzania - in starting a business. Good ranking at
enforcing contracts at 35.
 Uganda - trading across borders. Plus good ranking at
11 in employing workers and 48 at closing a business.
22
DB in EAC (Rwanda, the best reformer)
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In DB 2010, for the first time a Sub-Saharan African
country—Rwanda—was the world’s top reformer, based
on the number and impact of reforms implemented
between June 2008 and May 2009.
Rwanda, another repeat reformer, reformed in seven of the
10 business regulation areas measured by Doing Business.
At maximum, it now takes a Rwandan entrepreneur just
two procedures and three days to start a business.
Imports and exports are more efficient, and transferring
property takes less time thanks to a reorganized registry
and statutory time limits.
Investors have more protection, insolvency reorganization
has been streamlined, and a wider range of assets can be
used as collateral to access credit.
23
Corruption and external perception, 2007

Kenya has been the worst amongst the EAC
countries at position 150 out of the 180 nations
surveyed.
 Tanzania leads in the region as the least
corrupt taking position 94 out of 180,
 followed by Uganda (110), Rwanda (111) and
Burundi (134).
 Yet, even for Tanzania, the score is poor,
considering that it is placed 57 places below
Botswana with the cleanest graft record in
Africa.
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Trade Performance in EAC
Burundian economy is the most highly
exposed to external shocks considering
both exports dependency and imports
dependency or concentration
coefficients.
 In terms of exports, Tanzania is the less
dependent (or less concentrated)
 Kenya is the less dependent (less
concentrated) in terms of imports.
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Trade (cnt’d)
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Rwanda seems to be the more integrated within the
EAC market in terms of main trade partners,
The less integrated seems to be Tanzania.
Moreover, in terms of trading partnership in exports
destinations, Kenyan economy is the most diversified
and Burundi is the less diversified.
We also conclude that in terms of imports origins, the
Tanzanian economy is the most diversified;
Whereas the Rwandese economy is the least
diversified amongst the EAC members.
26
Comparative Analysis of Domestic Production Structures

An assessment of the effects of EAC Customs
Union on the production value chain was done
in 2008 encompassing sourcing of inputs,
clientele base and extent of capacity
utilization.
 The results reveals tendency for companies to
source inputs from either the domestic market
or from the rest of the world with inputs from
the two sources accounting for an average of
45% and 35% respectively.
27

Existence of a well established network of clientele
that can be used in enhancing an uptake of output
from the domestic production chain to the regional
market and beyond.
 There is room for exploitation of the strong distributor
network, which seems to be underutilized.
 External factors hindering businesses from taking full
advantage of the EAC integration vary across all the
five EAC countries (Electricity, fuel prices and lack and
inadequacy of infrastructures accounting for about
70% of total external factors).
28

Excess capacity is a major hindrance to
competitiveness of businesses in the EAC
region, with the level of severity varying widely
across the states.
 The threat is more acute in Burundi and
Rwanda, where 40% to 50% of companies
reported operating at between 10% and 30%
capacity.
 The problem is less severe in the other EAC
states where businesses operate between
81% and 100% at 44%, 31% and 39% in
Kenya, Uganda and Tanzania in that order.
29

The clientele base for intra-EAC export chain
across include: distributors,
wholesales/businesses, manufacturers, farmers,
transporters, Governments, NGOs, …
 The predominant export market for businesses in
the EAC is the respective domestic market
accounting for an average of 57% and ranging
from 23% in Rwanda to 85% in Tanzania.
 Harmonization of trade and regulatory policies is
one most critical factor to ensure that businesses
in the region capture the market.
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C. Trade regimes and investment climate
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FDI and Regulatory Framework
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With regard to Foreign Direct Investment, the
EAC region attracted a total of USD 4,585.3
million during the period 2000-2006.
Tanzania took the largest share of FDI into the
region during the period at USD 2,628.2
million or 57.3%,
followed by Uganda at USD 1,591.6 million or
34.7%,
Kenya at USD 285.1 million or 6.2%,
Rwanda at USD 68 million or 1.5%,
and Burundi at USD 12.4 million or 1.5%.
32

Gross Fixed Capital Formation (GFCF) as a
percentage of GDP for each EAC country
increased during the period 2000 to 2006,
 with a notable increase for Burundi from 6.1%
in 2000 to 16.7% in 2006, although Burundi is
still the country with a lower percentage of
GFCF relative to GDP among the 5 EAC
countries.
 However, much of Burundi’s Gross Fixed
Private Sector Capital Formation (GFPSCF)
benefits the public sector owned/managed
projects.
33
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Most of new direct FDI into the EAC region has gone to
the extractive industries, notably mining and gas/oil
exploration, with Tanzania and Uganda being the major
beneficiaries.
Tanzania has attracted substantial foreign investors and
currently contributes about 2.3% of GDP, which is
expected to grow to 10% by 2025 [Tanzania
Development Vision 2025]
Kenya’s FDI has mainly been in horticulture and
Floriculture, Tourism, and Manufacturing , Energy,
Telecommunications, and Financial sector.
FDI inflows into EAC have not favoured Kenya, which has
fared relatively badly in attracting new FDI,
Kenya ranked as the best in the region as far as
protection of international investors is concerned.
34
The four most severe constraints as perceived by private
firms in each country are:
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Burundi: Electricity, Access to finance, Political
instability, and Practices by the informal sector
Kenya: Tax rates, Access to finance, Practices
by informal sector, and Electricity
Rwanda: Electricity, Tax rates, Access to
finance, and Transportation bottlenecks
Tanzania: Electricity, Access to finance, Tax
rates and Transportation bottlenecks
Uganda: Electricity, Tax rates, Practices by
informal sector, and Access to finance.
35
Trade and investment regulatory, as of 2008

Regarding the number of documents for exports, all
the EAC countries performed poorly,
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Tanzania is the better performing country amongst EAC
countries at 5 documents,
followed by Uganda at 6 documents,
while Burundi, Kenya and Rwanda all have 9 export
documents.
Regarding the complying time with export documents,
all the EAC countries performed poorly,

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Tanzania is the better performing country which achieved 24
days to complete export documentation in 2008,
followed by Kenya at 29 days, Uganda at 39 days, Rwanda at
42 days, and Burundi at 47 days.
36
The WB Logistics Performance Index (LPI) based on a
survey of global freight forwarders and express carriers.

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All EAC countries performed below the 2006/07 Overall
international benchmark of 4.19 achieved by Singapore: EAC
had an average of 2.23, with Burundi attaining 2.29, Kenya 2.52,
Rwanda 1.77, Tanzania 2.08, and Uganda 2.49.
On quality of transport and IT infrastructure, all EAC countries
average indicator of 2.07 was way below the international
benchmark achieved by Netherlands of 4.29 in 2006/07.
On International Transport Costs, in 2006/07 all EAC countries
performed below the international benchmark of 4.5 achieved by
Netherlands. All the EAC countries except for Kenya which had
an indicator of 2.79 also performed below the world average of
2.72.
Regarding Logistics Competence, the EAC countries performed
well below the international benchmark of 4.25 achieved by
Netherlands, the world average of 2.71.
37
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Regarding the Tractability/traceability of shipments, all EAC countries
were well below the international benchmark of 4.25 achieved by Singapore
in 2006/07. Also, except for Kenya which achieved an indicator of 2.62, all
the other EAC countries were below the South Asia/Pacific countries average
of 2.53.
On Domestic Transportation Costs, where the lower the indicator the more
efficient a country has been rated on domestic transport cost, Burundi’s
performance is shown to be quite good at 2.33 in 2006/07, close to the
international benchmark achieved by Niger of 1.67 and other best performing
countries like Ghana (2.00), Japan (2.02), and Norway (2.08). Burundi also
performed better than the world average of 2.9 and EU’s average of 2.75,
while other EAC countries performed poorer than the world average
indicator.
On Timeliness of shipments, all the EAC countries performed well below
the international benchmark achieved by Singapore of 4.53 in 2006/07 and
the world average of 3.17.
With respect to Efficiency of customs procedures and clearance by other
border agencies, EAC countries fall far behind the international benchmark
of 3.99 achieved by Netherlands in 2006/07.
38
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On Total Freight Costs (as a percentage of import value), EAC
countries are far behind the international benchmark of 0.918.
However, all the EAC countries performed better than world average
of 6.88 in 2006-07, with the EAC average at 4.84 and Tanzania and
Rwanda achieving a record low of 3.36 and 3.9 respectively, which
was even better than the EU average of 4.13.
Regarding Air freight costs to USA (as a percentage of landed US
import value), the average for EAC at 9.89 in 2000-04 and 12.37 was
much higher than the international benchmark of 0.918 achieved by
Malta in 2000-04.
In the view of the UNCTAD Liner Shipping Connectivity Index, the
EAC countries’ average of 8.34 in 2000-04 and 10.72 in 2006-07 was
far behind the international benchmark of 81.87 and 88.95 achieved
by Singapore in 2000-04 and 2006-07 respectively.
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The EAC performs poorly on the cost of acquiring a
passport compared to the international benchmark, the
best performing country on this indicator was Kenya at a
cost of 1.2% to GDP per capita, followed by Tanzania at
13.4%, Rwanda at 41.5% and Burundi at the tail end with
50.9%. Uganda (not reported).
With regard to international migration stock, all EAC
countries perform poorly compared to the international
benchmark achieved by Australia of 20% and other best
cases achieved by Hong Kong at 22% and Madagascar at
65%. Tanzania has the highest migration stock amongst
EAC countries at 2.1%, followed by Uganda at 1.8%,
Rwanda and Burundi both at 1.3% and Kenya at 1.0%.
These figures show whether a country has cumbersome,
costly and time consuming procedures for visitors to enter
its territory.
40
International
Indicator
integration Burundi Kenya Rwanda Uganda Tanzania
Countries that need a visa to 191
visit this country (number
in 2004)
21
180
0
35
Countries in which residents 163
of this country need a visa
(number in 2004)
140
156
145
142
Cost of passport relative to 50.9
GDP per capita (% 2005)
1.2
41.5
-
13.4
International migration stock 1.3
(% of foreigners)
1.0
1.3
1.8
2.1
41

EAC business people take between 1-5
months to acquire a work permit for workers
sourced from another EAC country, which
translates to inability to employ competent
workers when needed.
 The uncompetitive nature of hiring local
workers in each EAC country means that it is
even more difficult to source workers from
across the borders.
42
Indicator
Burundi
Kenya
Rwanda
Tanzania Uganda
Overall world rank in 70
ease of employing
workers
68
93
140
11
Difficulty
Index
22
44
100
0
0
40
40
0
Difficulty of Firing Index 30
30
30
50
10
Rigidity of Employment 30
Index
17
38
63
3
Firing costs (weeks of 26
salary)
47
26
18
13
of
Hiring 0
Rigidity of Hours Index
60
43
D. Opportunities and disadvantages
from accession to EAC
44
Burundian actors expect to realize positive impacts from
in the following respects:

Increased FDI inflows are expected
 Available mineral resources such as nickel, cobalt,
vanadium, gold and tantalum which lie unexploited in the
northern and eastern parts of the country,
 Opportunities in tea and coffee farming which was
previously state-owned activity but was recently
privatized and the reform is still under process,
 Potential opportunities in the tourism sector, especially
the virgin beach resorts along Lake Tanganyika.
 The country’s unique location to provide business links
with French-speaking Eastern DR Congo and Englishspeaking EAC countries.
45
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The rich agricultural potential, which will attract crop
farming technologies from other EAC countries.
Significant reductions in prices of consumer goods
arising from the EAC internal
Access to a wider market of the community (EAC)
and, therefore, an increased business turnover arising
from the increased market size.
Possibilities of joint-ventures within the EAC will be
facilitated.
Broader access to financial funding, for instance, the
East African Development Bank.
46
Rwandan stakeholders expect to realize positive impacts
from in the following respects:
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Increased business turnover arising from the increased
market size.
Price reductions across EAC as a result of reduced unit
production costs through economies of scale, leading to
increased consumer welfare.
Easier and predictable access to industrial inputs such as
raw materials.
Increased investment from other EAC countries, free
movement of goods, capital and labour especially after
the Common Market comes into force.
EAC will in future be able to negotiate as a bloc for trade
agreements with other Regional Economic Communities
and also within international trade agreements.
47
Side effects of Regional integration into EAC:

Some of the negative effects envisaged by
Burundian stakeholders are:
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Displacement of some industries.
Possible decline in industrial production of food
products
The Rwandan stakeholders also expect
negative impacts in the following respects:


Increased competition may lead to closure of
less competitive industries, especially SMEs.
Locally produced raw materials will face stiff
competition from EAC originating imports
which could displace respective producers.
48
E. Way forward and Recommendations
49
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Expanding room for private sector and civil society
contribution and participation in the policy making at the
EAC platform.
Capacity building and wide programs of training for actors
from informal sector within the EAC on overall, and from
Burundi and Rwanda specifically.
Provide regional banking facilities by extending the EADB
coverage and strengthening its loans availability for private
sector from less developed regions of the community.
Strengthening partnership with the EAC to enhance
infrastructure lack and increase electricity production.
50

The civil society should embark on thematic research in
collaboration with research institutions in order to shed
light on some problematic issues arising from regional
integration processes.
 EAC Partner States should encourage and welcome
skilled labour into their countries with high know-how
and encourage the learning-by-doing strategies for local
communities.
 Encouraging regional trainings for private sector and civil
society as well as for civil servants aiming at experience
sharing along through these trainings.
51

Encouraging the Private Public Partnership in
various areas of investment and setting up a
reliable regulatory framework that defines timebound objectives or targets to be met by private
operators; this also assisting you to identify the
appropriate type of Public/ Private Partnership.
 Harmonization of various policies across the
EAC Partner States such as monetary and
investment policies, social policies.
 Government are invited to protect public
goods/the commons by preventing incentives
structures that invite private actors to over-use,
let along destroy, public goods.
52
Thanks to all of you for:
Your participation
 Your attention
 Your comments
 Your suggestions

God Bless You
53