tralac’s Daily News Selection

tralac’s Daily News Selection
Photo credit: The New Times

20 Jun 2019

Diarise: UNCTAD’s Economic Development in Africa Report will be released next Wednesday (26 June) on the theme Made in Africa: rules of origin for enhanced intra-African trade

Nigeria to consider its local industries in Africa free trade zone decision (Naija247)

Nigeria will consider the interests of its industries in deciding whether to sign up to a $3 trillion Africa free-trade agreement, President Muhammadu Buhari said in a meeting with local manufacturers on Wednesday. Buhari told leaders of the Manufacturers Association of Nigeria trade body that he was awaiting the findings of a committee set up in October to assess the potential cost and impact if Nigeria signed up to the agreement. “Nigeria will be guided by national interest in taking any decision on the agreement establishing the African Continental Free Trade Area,” Buhari said in a statement. He did not say when a decision would be taken. “I don’t think Nigeria has the capacity to effectively supervise and to ensure that our colleagues in AU don’t allow their countries to be used to dump goods on us to the detriment of our young industries and our capacity to utilise foreign exchange for imported goods.” [Business Day: Will Africa’s free-trade area live up to the hype?]

US-Africa trade and investment: two important updates on policy issues

  1. US trade and investment with Sub-Saharan Africa: recent trends and new developments. Following receipt of a request dated 6 May 2019 from the USTR under the section 332(g) of the Tariff Act of 1930, the US International Trade Commission has instituted Investigation No. 332-571, US trade and investment with Sub-Saharan Africa: recent trends and new developments, for the purpose of preparing the report requested by the USTR. The Commission has scheduled a public hearing in connection with this investigation for 24 July 2019. Transmittal of Commission report to USTR: 31 March 2020. The USTR asked that this report should include (inter alia) the following:

    Provide examples of how products and services from the United States integrate into key SSA value chains; identify possible opportunities for US firms to better integrate into these value chains, where appropriate; and describe national or regional policies and other macroeconomic factors that may affect future demand for these US products.

    To the extent information is available, describe the intellectual property environment, including national and regional laws, enforcement measures, and infringement issues, in key SSA markets. Through case studies describe the effects of the intellectual property environment on trade and investment in the key SSA markets.

    Provide a broad overview and examples of technological innovation in the SSA food and agricultural production, processing, and marketing system. This should include a broad description of SSA food and agricultural producers’ use of technological improvements in such areas as crop and livestock nutrition and genetics (including biotechnology); machinery and equipment; data processing and analytics; and digital market information and risk management systems.

    Provide information on the market for digital technologies in those key SSA markets as well as the role of digital products and services from the United States. To the extent that data are available, describe the market for digital products and services, such as internet-connected devices, cloud computing,e-commerce, Internet of Things, blockchain, and internet search and digital content, as well as how adoption of digital technologies affects other industry sectors, such as manufacturing and other services.

    Provide a summary of recent developments of regional integration efforts in SSA, including progress on the negotiation and implementation of the African Continental Free Trade Area and briefly summarize the AGOA utilization strategies that have been developed by SSA countries.

  2. USTDA launches Access Africa Initiative. USTDA’s Acting Director Thomas Hardy: “Through Access Africa, USTDA is responding to the rising demand by Africans for increased connectivity and IT infrastructure across Sub-Saharan Africa. Access Africa will also ensure USTDA establishes greater connections between US industry and stakeholders in Africa’s ICT sector through the deployment of quality US ICT solutions across the continent.” USTDA also announced a call for initial ICT proposals for funding from project sponsors in Sub-Saharan Africa or US companies working with African project sponsors. In addition, it will host a series of three reverse trade missions to connect public and private decision-makers from Sub-Saharan Africa to US ICT technology and service providers to support the region’s infrastructure development goals. USTDA also awarded a grant to SEACOM, a pan-African service provider, for a feasibility study that will evaluate the enterprise market for fiber telecommunications services in Kenya, Tanzania, Uganda and Rwanda.

Selected updates following last Thursday’s Budget Day across East Africa

Profiled budget summaries, guides:

  1. Kenya. PwC: Kenya’s National Budget Bulletin 2019/20; Deloitte: Kenya Budget Highlights 2019/20; Grant Thornton: Budget 2019

  2. Uganda. Deloitte: Uganda Budget Highlights 2019/20

  3. Rwanda. PwC: Rwanda’s National Budget Bulletin; Deloitte: Rwanda Budget Highlights 2019/20

  4. Tanzania. PwC: National Budget Bulletin 2019/20; Deloitte: Tanzania Budget Highlights 2019/20

  5. Related: Mauritius. Mauritius Chamber of Commerce and Industry; Deloitte: Budget Analysis; KPMG: Budget Highlights 2019/20; PwC: Budget Brief 2019

News updates

EAC tables $111m budget proposals to EALA for financial year 2019/2020. Barely a week after Partner States presented their respective budgets, the EAC yesterday presented for consideration, budget estimates for the Financial Year 2019/2020, totaling $111,450,529 to the East African Legislative Assembly. The Deputy Minister for Foreign Affairs and East African Cooperation, United Republic of Tanzania, Dr Damas Ndumbaro, presented the budget speech on behalf of the Chairperson of the EAC Council of Ministers and Rwanda’s Minister for State, EAC in the Ministry of Foreign Affairs and International Co-operation, Amb Olivier Nduhungirehe. The 2019/2020 Budget is themed: “Transforming lives through Industrialization and Job Creation for shared prosperity”. According to the Chair of Council of Ministers, the priority interventions for FY 2019/2020, will focus on the consolidation of the Single Customs Territory and promotion of intra and extra EAC trade and export competitiveness, development of regional infrastructure, effective implementation of the Common Market Protocol and the enhancement of regional industrial development. Other areas include the implementation of the roadmap towards the EAC Monetary union, institutional transformation focusing on implementation of the institutional review recommendations and improvement of performance management at the EAC Organs and institutions. The Chair of Council proposes that 2019/2020 Budget be allocated to the Organs and Institutions of the EAC as follows:

Debt, deficit and a monetary union conundrum in EA’s expanded budgets. East Africa’s finance ministers presented expansionary budgets with ambitious revenue targets that are likely to be missed, leading to more borrowing amid rising concerns over looming debt distress. In Uganda, Matia Kasaija presented a Ush40.5 trillion ($10.7bn) budget, a 2% rise from this past year’s Ush32.7 trillion ($8.7bn) To fund the rising budget, which is as a result of significant increases in military, public administration and infrastructure spending, East Africa’s third-largest economy plans to borrow more from both local and foreign sources. Kampala is also targeting an already depleted Petroleum Fund, and is tightening the screws on existing taxpayers to fund an 8.2% fiscal deficit. Uganda’s fiscal deficit is significantly above the 3% ceiling agreed with the International Monetary Fund in the charter for fiscal responsibility.

ising budget deficits across the region run against ongoing efforts to establish the East African Monetary Union by 2024: Each EAC member state should keep its budget deficit at around 3%. Kenya, which unveiled a Ksh3 trillion ($30bn) budget, is set to sink deeper into debt under a proposed plan to borrow $5.9 billion to cover a 5.7%. Patrick Ocailap, Deputy Secretary at Uganda’s Treasury, said bringing down the fiscal deficit in time for the EAC Monetary Union timelines is now impossible, but added that Uganda isn’t the exception in this failure as other EAC member states like Kenya are facing a similar predicament. Given the current investments, Mr Ocailap said Uganda will reduce the fiscal deficit to the levels required by the EAC in 2023, just one year before the monetary union is supposed to be launched. [Editorial opinion: Ambitious budgets, wounded economies]

Double-edged tax measures to grow EAC local industries. East African finance ministers converged on tough taxation measures aimed at protecting local manufacturers from “unfair imports competition,” in their spending plans for the coming year. Most of the tax measures, contained in the budget statements for the 2019/2020 fiscal year, were approved during the ministers’ pre-budget consultations in Arusha in May. Higher taxation of imports is aimed at driving consumption of cheaper locally produced goods, spurring the growth of manufacturing and creating jobs that ultimately improve living standards. Proponents of the proposed measures are in line with the EAC Industrialisation Plan that seeks to transform the region into a globally competitive, environment-friendly and sustainable industrial sector that is capable of significantly improving the living standards of the people by 2032. Despite the good intentions, experts have warned that these tax measures - which are also applicable to goods coming from EAC member states - could stand in the way of integration, as each country becomes inward-looking in a bid to build its industrial capacity.

Import substitution: Will it boost local production in Uganda? In 2017, government imposed a 25% import duty on irish potatoes. The aim was to mitigate importation of the agricultural product that would have otherwise been acquired in Kabale - the potato hub. That year, Uganda imported 158,553 kg of ‘potatoes not prepared or preserved other than vinegar or acetic’ worth $71,438 (Shs267.7b) from the United Arab Emirates, Uganda’s biggest import destination. In 2018, government imposed an even higher import levy on potatoes from 25% to 35%. Uganda Revenue Authority’s annual trade report 2018 indicates only 44,534kg worth $30,448 (Shs114m) of the same product was imported. Government has nearly doubled the import duty on potatoes from 35% to 60% in 2019/20 financial year. Among those products whose import duty is proposed to be 60% for 2019/20, is honey, toothbrushes, ball point pens, exercise books and toilet paper and toothpaste, among others. Importers of granite marble, clay tiles and tomato paste will fork out 35% import duty from 25% for one year.

Tim Njagi (Tegemeo Institute): Kenya’s budget must focus on efficiency – new zero-based strategy could help. It is likely that the government will have to borrow more to address the increasing fiscal deficit, currently at 5.6% of the GDP. The National Treasury has tried to suggest measures that will reduce recurrent expenditures – like reducing the increasing government wage bill, domestic and foreign travel expenditures. But this is unlikely to work. The wage bill has increased by an average of Ksh 46 billion (about $450m) over the last six years due to an increase in the number of employees and salaries. The government must increase human resource planning and management and implement other recommendations proposed in the comprehensive public expenditure review report – like implementing a robust payroll system to prevent leakages and ensure better forecasting. In addition to this, measures to improve fiscal responsibility should be cascaded to county governments where there’s a lack of fiscal discipline and wasteful expenditure is high.

Kenyan manufacturer calls for tax cuts for fair EA competition. Manufacturing is one of President Uhuru Kenyatta Big Four Agenda but imposition of excise duty on Kenyan products in other East African countries goes against the common external tariffs which make it costly to operate. Local manufacturers have on several occasions called for tax cuts to ensure a level-playing ground with other companies in other Eastern African countries. Rajul Malde, Commercial Director of Pwani Oil Company which is one of the biggest manufacturers of edible vegetable oils and fats, laundry and toilet soaps in the African continent says, cost of production is high in Kenya than in Tanzania, Rwanda and Uganda. “We are charged 2% on the raw products we import; our counterparts are not forced to pay this. If the government could remove that cost of production will go down, and consumers will pay less.”

Tanzania’s CTI wants zero duty on crude edible oil imports. The Confederation of Tanzania Industries has lauded the 2019/2020 budget estimates, but proposed for zero import duty on crude edible oil and increased import duty of 35% on iron and steel products to protect local industries. CTI said that maintaining 25% import duty on crude edible oil increases production costs to industries which use the product as raw material hence affecting their competitiveness at internal and external markets. CTI Executive Director Leodegar Tenga said the government should consider zero-rating the products to protect local manufacturers. Crude edible oil is zero rated in other East African partner states such as Kenya and Uganda, he elaborated.

State refutes government, private sector credibility gap claims. Minister of State in the Tanzanian’s Prime Minister’s Office, Investment, Angellah Kairuki told reporters that there was no basis for continued mutual distrust between the government and the private sector, saying the government is readily implementing the reforms as recommended in the blueprint for regulatory reforms to improve business environment. “There is no credibility gap whatsoever. The government recognises and values the private sector. That’s why whenever anything comes up, we come to the table,” she said after opening a business dialogue between the government and US investors. Earlier, US Embassy Charge d’ Affaires Dr Inmi Patterson suggested that there was growing credibility gap between the government and the private sector, arguing that the government doesn’t seem to walk the talk of business reforms.

Tanzania’s Opposition issues alternative budget. Acting shadow Minister for Finance and Planning David Silinde told the national assembly that despite the various changes in economic systems that the country has undergone, it has failed to remove the country and its people from abject poverty. He said the opposition will allocate 20% of the total budget to agriculture, education (20%), industries (15%) and 10% to water and health sectors respectively. He said it was sad to see that 40% of the 2019/20 development budget had been directed to three projects, namely Stieglers Gorge, Standard Gauge and the revival of the Air Tanzania Company Limited, instead of investing more on projects that touched directly on people’s lives.

Tanzania cashew nut sales drop by more than half. Tanzania’s total cashew nut sales on the international market dropped 63% to $196.5m last year, compared with $529.6m in the 2017 trading period, Minister for Finance and Economic planning Phillip Mpango has said. Dr Mpango, who was presenting the 2019/20 budget in Dodoma, said exports fell to 120,200 tonnes from 329,400 tonnes in 2017. However, the price per tonne on the international market increased by 1.7% from $1,607.7 to $1,634.2 in the one-year period. Cashew nut production in Tanzania during the last harvest season (2017/2018) stood at about 240,000 tonnes, out of which, some 213,000 tonnes were purchased by the government. About 90% of the cashew nuts are exported in their raw form owing to the country’s low processing capacity.



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