East African governments have increased their annual budgets for the 2015/2016 fiscal year, with more spending directed to security and key sectors expected to drive growth. But the ballooning spending plan for the region comes against the backdrop of faltering revenue collection and declining donor support, creating a fertile ground for increased domestic borrowing. In Rwanda, the total budget for fiscal year 2015/16 is projected at $2.47 billion, reflecting an increase of $8.26 million, compared with the 2014/15 revised budget of $2.46 billion. The Finance Ministry announced that Rwf882.5 billion ($1.32 billion) equivalent to 50 per cent of the total budget will finance economic transformations, rural development, employment and accountable governance. Economic transformation projects will be allocated Rwf413 billion ($619 million)—23 per cent while rural development will be get Rwf227.9 billion ($341.8 million) — 13 per cent. Productivity and youth employment will be allocated Rwf152 billion ($228 million) —nine per cent while the remaining Rwf89 billion ($133 million) — five per cent will go to accountable governance. Foundational areas (education, health, public accounts, justice and sustainable development) will receive Rwf645.6 billion ($968.4 million) or 37 per cent of the total budget. Rwf240 billion ($360 million) or 14 per cent will go to service delivery and ICT promotion. Donor funding is expected to decline to 5.7 per cent of the gross domestic product (GDP) in 2015/2016 from 7.3 per cent of GDP in 2014/15 as development partners opt to channel funds directly to specific projects and to non-governmental organisations. According to...

KIGALI, Rwanda - Better customs system means higher revenues and better controls, lower trading cost and fewer delays. This is why reducing transit costs, simplifying customs procedures, and improving national and regional trade environments are of critical importance. Rwanda Revenue Authority Commissioner for Customs Raphael Tugirumuremyi said this while opening a two days 8th Meeting of Management Committee of the Regional Customs Transit Guarantee (RCTG) Scheme. The meeting was organized by the Common Market for Eastern and Southern Africa (COMESA) and the Rwanda Revenue Authority in Kigali last week. The aim was to discuss ways of making the RCTG programme more successful for businesses. “A landlocked country trade to a large proportion depends upon transportation and this is why high transport costs facing landlocked developing countries have become a far more restrictive barrier to trade for these countries than tariffs,” said Tugirumuremyi . He said: “Those countries on average pay almost three times higher for transport services than these tariffs, which is why there is a clear correlation between distance and transport costs.” According to World Bank 1% increase of distance from major markets could result in more than 1% decrease in the volume of external trade. “That’s why in view of this am pleased to learn that the RCTG scheme which was rolled out in the Northern Corridor countries in December 2011 has achieved the significant progress in the operations of the scheme particularly in the Northern and Central corridors’ countries,” Tugirumuremyi said. More than 13,000 RCTG general bonds...

A common theme expressed by many Africans who look around and see evidence everywhere of Chinese, Indian and European investment is “Where are the Americans?” We would answer that the Americans are coming and once they overcome their misperceptions and realize the tremendous opportunities in Africa, they will come in even greater numbers. U.S. trade to and from Africa has tripled over the past decade with the U.S. exporting $22.6 billion in goods and services to the region last year. The International Monetary Fund has estimated that economic growth rate in sub-Saharan Africa was 6.1 percent last year. And in the five countries of the East African Community (Uganda, Burundi, Kenya, Rwanda and Tanzania), total trade (exports plus imports) grew by nearly 80 percent between 2012 and 2014: from about $1.54 billion to $2.75 ­billion. U.S. exports to East African Community countries more than doubled in that period while U.S. imports from the community grew by about 30 percent. The potential is so much greater. One misperception by some American firms is that you will lose your money if you invest in Africa. That notion is simply outdated. Investments in Africa have the highest rate of return. Another is that the markets are too small. But Uganda, as a member of the East African Community, is part of a market with 150 million people. And the African continent will soon become a free trade area with a ­population of 1 billion people, hardly a small market. The East African Community...

Africa’s sugar-producing countries will lose a significant portion of their export market in 2017 when the European Union Common Organisation of the Markets ends production quotas for its 19 members. Currently, EU member states are limited to supply a maximum of 13.5 million tonnes of sugar, leaving the African, Caribbean and Pacific states (ACP) and least developed countries (LDCs) to supply up to 3.5 million tonnes through their quota-free, duty-free access to the EU market. The EU imports approximately 60 per cent of its demand for cane sugar from the ACP countries. As the world’s largest sugar market, the EU supports African sugar producing and exporting countries such as Egypt, Mauritius, Zambia, Sudan, South Africa, Malawi, Zimbabwe, Lesotho, Mozambique, Ethiopia and Swaziland. These countries have duty free, quota free access to the EU for agricultural products, under the “Everything but Arms” regulation and the Economic Partnership Agreements, which end in 2017. The removal of quotas means that market segmentation (between the markets for quota sugar and non-quota sugar and other products derived from sugar beet) will end, and a single set of prices for sugar beet and processed sugar will apply. Experts said that with the pressure to speed up the Free Trade Area across the continent, competition for the regional sugar market will be stiffer as surplus sugar enters the African market. “In Kenya, for instance, we have to come up with a policy of subsidising the farmers,” said Alfred Busolo, managing director of the Agriculture, Fisheries and Food...

East African governments are to tighten their tax laws in a bid to stem revenue loss through cross-border transactions by multinational firms. Transfer pricing — one of the biggest tax rip offs the recent past — has become a flashpoint as governments come to realise how large multinationals shift costs between items and avoid paying huge amounts of corporate tax within their borders. The malpractice, in which multinationals enjoy low-tax profits, has seen Kenya, Uganda and Tanzania enact transfer pricing laws to deter foreign firms from moving taxable profits to other jurisdictions. Transfer pricing legislation and practice in Africa is based on the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines. Some countries also use the United Nations Transfer Pricing Manual. Kenya and Uganda issued their transfer pricing regulations in 2006 and 2011 respectively while Tanzania formally issued its Income Tax (Transfer Pricing) Regulations 2014 last year. The guidelines recommend stiff penalties for taxpayers who fail to comply with the arm’s length principle of transfer pricing, which states that the amount charged by one related party to another for a given product must be the same as if the parties were not related. In Tanzania, taxpayers who fail to comply with the arm’s length principle will attract a penalty of 100 per cent of the underpaid tax. In addition, a taxpayer that fails to prepare and maintain transfer pricing documentation commits an offence and is liable on conviction to imprisonment for a term not exceeding six months or...

The East African Community partner states have taken the final step in the implementation of the World Trade Organisation Trade Facilitation Agreement, a move expected to widen the market for the region’s goods and services in developed countries. The five member states beat the March 31 deadline for their commitment and full participation as a bloc in the WTO trade agreement as required by the WTO Protocol. Once the protocol is implemented, it is expected to cut the cost of doing business between the EAC and other economies by almost 14.5 per cent, adding to trade reforms already underway in the region to bring down trade barriers. Peter Kiguta, EAC Director-General for Customs and Trade, said that the final notification documents have been deposited with WTO after the East African states agreed on the notification criteria late last month. The earlier deadline for the notification had been set for July 2014, but EAC partners negotiated an extension up to March 31, 2015. Negotiating as a bloc According to Mr Kiguta, partners petitioned for an extension so that they could trade with the other economies as a bloc. “Although under the WTO requirements, countries negotiate as individual partners, EAC countries are bound by the Customs Union to negotiate trade agreements as a bloc. And under Article 24 of the WTO treaty, partners have the leeway to do so but only after consultation and approval by the WTO Trade Committee,” he said, adding that the negotiations by the member states as a...

East Africa’s competitiveness as an investment destination is at risk from the rising incidence of unfair trade practices among firms operating across the region. The delayed enactment of the East African Community Competition Act (2006) has created loopholes for trade associations and firms operating across the region to engage in exclusive agreements, and from cartels, forcing consumers to pay relatively higher prices for goods and services. The operationalisation of the Act, however, requires EAC member countries to have in place national competition laws and institutions. Kenya and Tanzania already have fully functioning national competition laws while Burundi has enacted its own Competition Act and is in the process of creating the necessary institutions. Although Rwanda already has various laws in place to regulate unfair trade practices, a specialised authority to enforce the competition and consumer protection laws has not been established. Uganda is also in the process of enacting competition laws. “There is a serious problem of cartels as some of these companies operate across the region. We have advised our government to ensure that the East Africa Community Competition law comes into force from July 1,” said Wang’ombe Kariuki, director-general of the Competition Authority of Kenya (CAK). The EAC Council of Ministers is working on the EAC Competition (Amendment) Bill 2015, which seeks to amend the Competition Act to establish a mechanism to eliminate counterfeiting and piracy in the region. The Bill is further expected to create a conducive investment climate, free of unfair competition practices and also promote...

While the last 15 years have seen relatively high levels of growth driven by a commodity super-cycle and strong internal demand from a growing middle class, Africa is still dependent on commodities for most of its export earnings. There is now broad consensus that without diversified economies, Africa will remain prone to exogenous shocks and trapped in the paradox of high growth rates, coexisting with high levels of unemployment and extreme poverty. It is for this reason that the last four issues of the Economic Report for Africa have investigated the fundamental policy questions and challenges facing the transformation process and endeavoured to shed light on, and bring coherence to, policy priorities at national, regional and continental levels. The key factors constraining trade and industrialisation in Africa are related to Africa's narrow production and export base, which is dominated by low-value products such as raw materials and primary commodities. This is compounded by very high trade costs, tariffs and non-tariff barriers to intra-African trade and Africa's access to international markets. We have no alternative but to increase our share of global exports. While in the 1970s, Africa accounted for 4,99% of world trade and East Asia 2,25%, by 2010, we had regressed to 3,33%, while East Asia had soared to 17,8%. Limited by poor infrastructure and inefficient logistics, lack of adequate skills and quality inputs, insufficient provision of credit and financial services, ours has become a story of lost opportunity. The time has come for us to awake. Africa's current...

President Paul Kagame says Africa is missing an opportunity to utilize intra-African trade and raise enough investment to replace foreign aid. “We are missing an opportunity in our own countries; intra-African investments are key and it is not happening the way it should,” he said. The Rwandan leader was at a panel discussing Africa’s future during the Milken Institute Global conference in Los Angeles, California on April 28. The panel included; Tony Blair, Former UK Prime Minister, Scott Minerd, Chairman of Investments and Global Chief Investment Officer for Guggenheim Partners and Patrice Motsepe, Founder and Executive Chairman, African Rainbow Minerals. Minerd said: “Africa doesn’t carry the burden of the old infrastructure of the developed world, so it can leapfrog with innovative solutions.” Kagame noted that Africa has paid a big price for failure to engage in intra-African trade and that investments will be secure if African countries work together on security. “This is happening in East Africa,” he said. Africa, with 1.2 billion people, is a mineral rich continent, but is engulfed in conflicts and unfriendly policies that have impeded boosting economies. It has the Economic Community of West African States, the Common Market for East and Southern Africa and the East African Community, but have not opened doors for trade between each other. Apart from EAC where its citizens freely travel without a passport and need no work permits, labour movement in Africa remains a daunting task. The African Development Bank says intra-African trade was less than 5% and...

Burundi, the smallest and poorest of the five East African countries, is on the chasm of chaos. Barely forty eight hours after President Pierre Nkurunziza launched his 're-election' campaign, two demonstrators were executed and dozens injured by police. Their only crime was exercising their freedom of expression and their right to assemble and associate freely. If media reports are anything to go by, these killings are just the beginning of a fatal campaign period. Nkurunziza’s unapologetic and seemingly violent bid for a third term is very disturbing. First, it smacks of the Big Man Syndrome, which 'legitimises' total disregard for the supremacy of the constitution. Second, Burundians who have witnessed genocide twice before, in 1972 and 1993, are so scared that thousands have already crossed over into neighbouring Rwanda where they are living in squalor. Third, those seeking refuge in Rwanda are majority Tutsis, an unfortunate reminder of the circumstances that led to the worst genocide in human history. Dozens of Burundians and Rwandese in the US argue that it is just a matter of time before tension start rising between the two neighbours over the ethnic divide and the materially opposing ruling elite on either side of the border. Nkurunziza is an ethnic Hutu while his Rwandese counterpart Paul Kagame is a Tutsi. Both leaders have rebel backgrounds but their leadership styles are totally different. Burundians fear that Kagame may be compelled to intervene on behalf of his fellow Tutsis and in the process plunge the two countries into...