tralac’s Daily News selection
KPMG regional overview: 2020/2021 East Africa budget analysis. Riding under the theme of “Stimulating the economy to safeguard livelihoods, jobs, businesses and industrial recovery,” this year’s budget process has seen:
Kenya adding an 8-point Economic Stimulus Plan to its ambitious “Big Four” Agenda;
Uganda focusing on improving the wellbeing of its citizens, boosting economic transformation and improving good governance;
Tanzania prioritizing, amongst others, economic growth, industrialisation and providing an enabling environment for doing business and encouraging investments.
We expect a raft of legislation across the region to anchor these expenditure proposals and the revenue raising measures in law. [Note: KPMG has posted individual budget summaries accessible from the above link]
East African Business Council: pdf Highlights of 2020/21 EAC Partner States Budgets (421 KB)
Kenya’s 2020/21 Budget: details of the new EAC CET measures
Taking into account the impact of these shocks on the domestic economy, growth is now projected at a lower rate of 2.5% in 2020 down from the 5.4% growth recorded in 2019. Moving forward, so as to boost economic activities and foster higher growth rates, we shall not only implement a rapid Economic Stimulus Programme but also lay down a firm ‘Post Covid-19 Economic Recovery Strategy’. These initiatives are ultimately expected to stimulate economic activities thereby culminating to a growth of 5.8% in 2021 and 6.5% by 2024. Our chosen fiscal consolidation plan has been adversely affected by the events over the last six months. In this respect, we are now targeting a fiscal deficit of 8.3% of GDP in financial year 2019/20 from the previous target of 6.3% of GDP. In the financial year 2020/21, the fiscal deficit is targeted at 7.5% of GDP and is expected to improve to 6.1% of GDP in FY 2021/22.
EAC Common External Tariff: I will highlight measures on custom duty as agreed at the regional level during the East African Community Pre-Budget Consultations meeting for the FY 2020/21. These measures are expected to generate about Ksh38.9 billion in tax revenue to the Exchequer. Manufacturing is a major pillar in the “Big Four” Agenda where the government aims to increase the contribution of the sector to GDP from about 8% to 15% by 2022. In this regard, I have proposed, at the regional level, measures aimed at promoting local manufacturing and also measures to ensure that locally manufactured products are competitive. The Customs measures that have been agreed upon at the regional level shall, in accordance with the East African Community practice, be effective from 1st July 2020. Extracts:
Our metal and allied sector continues to face stiff competition from imported iron and steel products. In order to protect the sector, the rate of import duty of 35% with the corresponding specific rates on a wide range of these products have been maintained for another year.
Kenya has sufficient capacity to produce paper and paper board products. In order to protect manufacturers of these products from cheap imported products, we have maintained the import duty rate at 25% for another one-year.
Kenya has capacity to manufacture baby diapers. However, the inputs used in manufacturing these products attract import duty. In order to support manufacturing of the products locally, all inputs for manufacture of baby diapers will be imported duty free under EAC Duty Remission Scheme. In addition, to promote local production of new clothing and apparels including fashion and design, inputs used in the textile and apparel sector will be imported duty free under the Scheme.
The telecommunication sector provides good opportunities for innovations particularly for our youth. In order to stir growth in this sector and encourage local investments, inputs for assembly or manufacture of mobile phones will be imported duty free under the EAC Duty Remission Scheme.
Uganda’s 2020/21 Budget: re-igniting business activity
The crises we have recently faced cannot, however, distract us from our long-term development strategy. These emergencies, indeed, present several lessons and opportunities that we have drawn on to craft the Economic Stimulus and Growth Strategy I will elaborate today. These opportunities include the following:
The acceleration of our import substitution and export promotion strategy for a range of goods including medicines and other health products; and the products of agro-industrialization and light manufactures, which Uganda can produce with a comparative advantage;
Digitalization of many aspects of socio-economic activity to improve efficiency and reduce costs. This can be applied through e-Commerce; e-Government (including tele-conferencing, procurement and the dispensation of justice); e-Learning; robotic automation, artificial intelligence, cyber security and cloud computing; and digital marketing in tourism. This permits to fast track implementation of the Fourth Industrial Revolution ;
Transforming informality of doing business to being formal.
Re-igniting business activity. Micro, Small and Medium enterprises are the backbone of Uganda’s economy, representing an estimated 85% of private sector companies in regard to employment. The vast majority are operated by households and have also been extremely vulnerable to the recent emergencies, as they have low cash reserves and limited access to affordable investment finance. In order to improve the availability of investment finance and the cash-flows of Micro, Small and Medium Enterprises and other manufacturing firms, we will implement [inter alia] the following measures:
Provide credit through SACCOs and Micro Finance Institutions to support micro and small-scale enterprises. I am proposing an allocation of UShs 94 billion for FY2020/21;
Increase access to credit at Uganda Development Bank to offer low interest financing to manufacturing, agribusiness and other private sector firms, for which I have provided UShs. 1,045 billion over the medium term;
Increase funding to Uganda Development Corporation for public private partnership investments to facilitate our import substitution and export promotion strategy, for which I have provided, to start with, UShs. 138 billion.
- Ministry of Finance, Planning, Economic Development: Background to the budget fiscal year 2020/21
Based on the key assumptions in the preparation of this budget as alluded to earlier, macroeconomic targets for 2020/21 budget are as follows:
Real GDP growth is projected to slow down to 5.5% from the initial projection of 6.9% in 2020 compared to the actual growth of 7.0% in 2019. This decline is due to heavy rainfall which destroyed transport infrastructure and impact of COVID-19 pandemic to our trading partners.
Containing inflation at a single digit between 3.0 to 5.0% in 2020/21
Domestic revenue is projected at 14.7% of GDP in 2020/21 from the likely outturn of 14.0% in 2019/20
Tax revenue is estimated at 12.9% of GDP in 2020/21 from the likely outturn of 12.1% in 2019/20
Government expenditure is projected at 22.1% of GDP in 2020/21
Budget deficit (including grants) is estimated at 2.6% of GDP in 2020/21 which is below the target of 3.0% of macroeconomic convergence criteria as agreed in the EAC, and
Maintain foreign reserve sufficient to cover at least four months of imports of goods and services.
Foreign reserves in 2019/20 remained at satisfactory level to sustain importation of goods and services. The foreign reserves amounted to $5.3bn during the period ending April 2020 sufficient to cover 6.1 months of imports of goods and services as compared to $4.4bn, which was sufficient to cover 4.3 months of imports of goods and services in similar period in 2015. This was attributed to the increase in foreign investment and export of goods and services. In addition, the level of foreign reserve attained is above the country’s target of 4.0 months of imports, as well as above the agreed EAC and SADC targets of 4.5 months and 6.0 months respectively.
Related East Africa Budget Quick Links:
Deloitte Insights: Economic impact of the Covid-19 pandemic on East African economies
EAC implements its COVID-19 response plan: reinforces border officers and communities in the fight against cross border transmission
Kenya’s exports to its three leading markets in the EAC fell by Sh3.51 billion in the first full month following the adoption of Covid-19 containment measures
WFP East Africa: Update on the Desert Locust Outbreak