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Uganda: Spiralling Costs Worry Traders
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The East African (Nairobi)
5 May 2008
Posted to the web 5 May 2008
Julius Barigaba
Nairobi
A few weeks to the presentation of the next financial year's budget, Uganda's private sector wants the government to contain ballooning overhead costs that have made the country's business environment one of the least competitive in the region.
According to Gideon Badagawa, trade advocacy director at the Private Sector Foundation of Uganda, the cost of doing business is prohibitive forcing a number of businesses to relocate to other East African countries or, in the case of small and medium enterprises, to close shop.
The foundation lists infrastructure, energy, tax reforms and business finance besides delayed reforms of commercial laws, pension and agriculture sectors, as well as high levels of counterfeits and procurement-related corruption, as areas of concern.
"The government's key failing is implementation. For example, pension reforms have been discussed for seven years. We are told a regulatory body will be in place by December. But every budget speech has been carrying this issue. So where is the implementation?" asked Mr Badagawa.
In June, finance ministers of Kenya, Uganda, Tanzania, Rwanda and Burundi will table their fiscal and expenditure proposals before parliament.
The Ugandan economy is currently recovering from the effects of a political crisis in Kenya that have pushed commodity prices while inflation has gone up to 8.1 per cent.
Transport costs for Uganda importers and exporters are at an all time high - $4,800 for 40-foot, and $3,000 for 20-foot containers, between Kampala and Mombasa as opposed to $600 between Mombasa and Nairobi.
These costs are exacerbated by the poor state of the roads. Although the government established a Ush92 billion ($52.4 million) roads fund last year, it is not enough to even maintain the current road network.
Equally worrying is the energy crisis that has persisted for three years now. The government last year set aside Ush65 billion ($37.1 million) to cushion against possible tariff increases, but the money, like that for the roads, in insufficient.
Moreover, private power distributor Umeme still incurs power theft losses of up to 36.8 per cent, which translate into high tariffs.
The Private Sector Foundation boss Gabriel Hatega told The EastAfrican that the lobby's budget proposals have already been submitted to Finance Minister Ezra Suruma. Among them is a proposal to lower excise duty on mobile phone airtime from 12 per cent to 10 per cent in order to match with Tanzania and Kenya.
Competition in the telecom industry has seen roaming charges across the region removed, meaning that subscribers in Uganda can own lines from service providers across the border and call within the region at the same rate, but pay less in taxes, compared with servicing the network within Uganda's airtime tax regime. This implies a possible loss of revenue for Uganda Revenue Authority.
On top of this, Mr Badagawa says that the Uganda government has done nothing to counter Kenya's decision to apply exclusivity laws .
Ugandan-registered trucks, for instance, are not allowed to deliver goods into Kenya whereas Kenyan trucks pick up, and deliver cargo both in Kenya and Uganda.
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Besides this, a $200 transit fee is levied on Ugandan cargo against only $43 for Kenya, not to mention a 25 per cent import duty on Ugandan trucks.
These costs have consigned Uganda to the bottom of the business climate and performance indicators in a recent survey. Out of 131 countries studied for the 2007/08 survey, Uganda stands at 120 in the key indicators.
Dr Suruma has in his previous two budget speeches promised that infrastructure and energy will be sorted out, but Uganda's roads remain impassable while electricity tariffs remaining excessively high.
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