East African Business Week (Kampala)
Edris Kisambira, Jude Etyang & Stephen Nuwagira
21 January 2008
analysis
Kampala — The already disturbing economic ramifications of Kenya's disputed election to the wider East African region could prove substantial if the situation does not return to normal soon.
Already, despite clumsy attempts by bureaucrats to down-play the impact, business in Uganda, Rwanda, Burundi and eastern DR Congo has slowed down as industrial goods, raw materials and foodstuffs that come through Mombasa port either cannot move or it is very risky to move them.
Last week, Ugandan importers under their umbrella organisation Kampala City Traders Association (KACITA) invaded the trade ministry to protest government's "inaction" to help them transport their goods containers which have been stranded for weeks at Mombasa port since the post election violence broke out.
The traders are angry that government has not come in to help them have their goods transported from Mombasa, the way government intervened with the fuel suppliers about two weeks ago.
The traders, who earlier held a meeting to find means on how they can have their goods containers transported from Mombasa under the current circumstances, resolved to match peacefully to the ministry of tourism, trade and industry to get what they termed as "an answer" from government.
"Government thinks that we have blown the issue out of proportion, but the situation is real," KACITA spokesperson Mr. Issa Sekito said last week. "The hand of government of Uganda is lacking in all the efforts to help traders get their goods from Mombasa. Anything we do without government involvement is risky."
The importers are also faced with the prospect of canceling orders/contracts with their suppliers in places like Dubai, Japan and China given the uncertainty.
Cancelled contracts come with very high costs and many are bracing themselves for the losses. Canceling import orders/contracts will create a vacuum that could take up to six months to fill--a situation that could lead to shortages.
Traders whose goods were on the way to Mombasa are considering diverting them to alternative places like the Dar es Salaam port, a move that will result in increased costs.
"Diversion of cargo to alternative ports like Dar es Salaam is expensive but that is what some people are trying to do," Sekito said.
First oil, now everything
While the immediate result of the election violence in Kenya was huge shortages of oil products across the region, the after-effects the impasse, which was last week saw more violence, has wider implications.
Members of the Uganda Manufacturers Association (UMA) have been heavily affected by the crisis. Production chains have been interrupted due to unavailability of raw materials, packaging materials and other inputs in the production processes of goods.
And that is beside the increased transportation costs from Mombasa port and the storage costs at the same port.
Production has dropped up to 60% and distributors are grounded because of high fuel costs-a development that has resulted in reduced working hours by industrialists.
Two UMA members have laid off some of their factory staff, because of the scarcity of diesel to keep machines running during load shedding.
"Goods which reach the customers at increased costs are affecting the manufacturers," said UMA director of the business unit, Dr. Bruno Emwanu.
Prices of especially consumables have gone up as businesses have factored the costs of production and transportation into the equation.
Since the start of the year, transportation of goods from Mombasa (80% of cargo bound for Uganda, Rwanda and beyond comes through Mombasa) has become expensive and risky.
The crisis is also burdening manufacturers with demurrage charges, as containers remain stuck at the Mombasa port.
Dr. Emwanu said that because of the ongoing freight delays, manufacturers are also complaining of bank charges on delayed repayments. Emwanu said measures to stem the effects of the crisis need to be solved immediately and appropriately or else it will spell disaster and doom for the manufacturing sector.
Millions of dollars lost
An assessment of the Kenya political crisis on exports by the Uganda Export Promotion Board (UEPB) captures the picture even more vividly. A sample of exporters in sub-sectors like hides and skins, tea, coffee, fish and flowers indicates that losses will run into millions of dollars.
Elgon Leather Co. (U) Ltd has 15 containers destined for Pakistan have been laying at the shippers' premises while those that made it to Mombasa are stuck because of sporadic working hours with no insurance cover.
The Uganda Tea Development Agency Ltd has teas totaling 666 tones worth US$1.7 million stuck at the factory, in transit and at the shipper's yard. 80% of the company sales are through the Mombasa auction and now the company has lost money as a result of failing to participate in the auction at Mombasa.
BIDCO loses $5million
BIDCO Uganda, which has a daily turnover of $0.5 million worth of soap and cooking oil at its Jinja plant has lost $1 million in terms of export sales and $4 million in domestic sales.
The fish exporters are faced with a shortage of containers and fuel. Of the 17 fish exporters, 14 are operational and they require 28,000 litres of petrol and 10,000 litres of diesel per week.
Coffee
The coffee sector is suffering from shortages of empty shipping line containers for loading coffee, shortage of trucks for transportation to Mombasa and the railway (RVR) is not moving cargo into or out of Kenya.
Mr. Robert Byarugaba, the head of logistics, Kyagalanyi Coffee Ltd said shipments out of Mombasa remain stuck and that the situation was likely to continue into February and March.
He said currently, the company has upwards of 40,000 bags of coffee to export this month but are unable to load out anything at the moment.
A UGACOF official said finance is being tied up. "If the situation does not change we shall not be able to buy coffee from farmers. On top of having to bear huge financing costs," he said.
Flowers will wither
The flower exporters through UFPEA said the industry was experiencing increase in production inputs by about 20%-30% largely due to the fact that most packaging material, fertilizers and chemicals come from Kenya.
As far as freight for the perishable flowers is concerned, officials said cargo airlines were threatening to reduce the load out of Entebbe due to insufficient fuel.
Kampala traders are through their umbrella body KACITA demanding that the Uganda government, which they say seems very reluctant about the situation, get involved in helping business people divert cargo to Dar es Salaam port.
In the long term, traders think government needs to think of an inland port. "Am thinking that 80% of our cargo would be here if we had an inland port in operation," Sekito said.
They have also called on government to build more fuel reserves to guard against events of this kind in future.
KACITA also believes government should join hands with Tanzania to rehabilitate infrastructure in the central corridor so that it acts as an alternative route.
Mr. Innocent Bwengye an importer of hardware materials told Business Week that six containers that have been stranded at Mombasa since late December, 2007.
A Chinese importer who declined to be named said his nine goods containers that were supposed to be transported after the Christmas break, are still at the port.
After a closed meeting with the angry traders last week, Ms. Janat Mukwaya, the minister of tourism, trade and industry told journalists that government was still asking Kenyan authorities to put in place measures to ensure that Uganda bound goods are safely escorted to the border.
"We are talking with the Kenyan government to provide escorts so that your reach safely, but we are yet to get a concrete commitment to this effect." she said.
What URA says
But contrary the traders' anxiety, URA assistant commissioner for public and corporate affairs, Mr. Patrick Mukiibi painted a picture of a return to normalcy with operations from URA's Malaba and Busia points returning to normal.
As if to thwart, a request by traders that they be given some form of tax waivers, Mukiibi ruled out any grace period from URA for Ugandan importers because, according to him, it did not arise in the circumstances.
Mukiibi said that although the Kenya civil strife hampered collections for about three days after Christmas, the tax body still surpassed the December 2007 targets by Ush12billion ($7,058,823).
"By goods not coming in smoothly means that our customs collections in the eastern side will be affected," Mukiibi said last week.
"We are yet to realise our targets for January," Mukiibi said that since the month of January had not ended, it was still impossible to give figures on the month's revenue performance whose target is Ush247 billion ($145,294,117).
The IMF Uganda country representative told Business Week that the economic impact on Uganda of the unrest in Kenya, depends on the duration of the crisis.
"If the flow of goods through Kenya reverts back to normal levels in the next couple of weeks, then the impact is likely to prove short-lived. The most prominent of these is likely to be a temporary increase in inflation," Mr. Selassie Abebe Aemro.
"If, however, the unrest in Kenya persists, then it will have adverse implications for Uganda--ranging from lower tax revenues to lower economic activity, until alternative routes can be facilitated."
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