Julius Barigaba
22 July 2008
Nairobi — Uncertainty still hangs over Uganda's accession to the Common Market for Eastern and Southern Africa (Comesa) Customs Union, which is only five months away.
The Customs Union, which will make the regional bloc a free trade area, will guarantee preferential rates to the country's exports.
Uganda is a member of Comesa, but unlike the other East African Community (EAC) member states of Kenya, Rwanda and Burundi, has since 2000 remained indifferent to joining the Comesa Customs Union, which comes with lower market access tariffs than the current terms under which the country exports into several countries of the bloc.
Uganda's procrastination over embracing the free trade area was premised on what protectionists - and the country's manufacturing lobby, the Uganda Manufacturers Association (UMA) - regarded as a threat to its nascent industry.
Indeed, Uganda raised a host of objections even when the EAC Customs Union took off in 2005, filing a list of more than 100 products that it wanted exempted from tax.
The bloc's organs eventually granted UMA the waiver last year, but those exemptions have elicited a few voices of disquiet from EAC's other industrialists.
Without giving details, State Minister for Trade Nelson Gagawala Wambuzi, told The EastAfrican last week that Uganda "is preparing to join the FTA", repeating what government officials have been saying for a while now.
"Technically, we are ready to join the FTA. But what is lacking is the government's decision. The moment the decision is taken, we will have no problems," a senior official of the ministry who declined to be named told The EastAfrican. "While we await the political decision, the implications are that Uganda's exports to Comesa countries are rendered uncompetitive due to high taxes."
Fortunately for Uganda, the proposed Comesa Customs Union is tailored around the EAC Customs Union, with a zero rated common external tariff (CET) for raw materials and capital goods, 10 per cent for intermediary products and 25 per cent for finished goods.
The downside however is whether Comesa is prepared to grant waivers for Uganda's imported "raw materials" as was the case under the EAC.
Studies commissioned by the government on the implications of Uganda opening its borders to other countries in the bloc have indicated the compatibility of the FTA with Uganda's export trade in the region. Moreover, Ugandan businesses would gain from such a move, by accessing the markets at more favourable tariff rates.
It is understood however that Mr Wambuzi flew to Dar es Salaam last week to meet with new Comesa secretary general Sindiso Ngwenya, but officials from the Ministry of Tourism, Trade and Industry declined to comment on the details of the minister's meeting, or whether it would lead to Uganda's accession to the free trade area.
Officially, Comesa markets have been the leading export destination for Ugandan products since 2004, accounting for more than 60 per cent of the country's manufactured, primary and processed agricultural and other export products. The bloc has overtaken the European Union as Uganda's number one export market.
At the time, the top markets were Rwanda, Congo Brazzaville, Kenya and the Democratic Republic of Congo. This shift came despite Ugandan traders bleeding a huge chunk of their profits in entry duty.
The Comesa market, estimated at 400 million people, has since seen Uganda's exports value rise to $506 million last year, compared with the EU-bound exports that earned the country $324 million as of December 2007, according to data from the Uganda Bureau of Statistics.
Last year alone, Uganda's top five export destinations were the United Arab Emirates, Sudan, Kenya, the Democratic Republic of Congo and Switzerland. But in terms of individual markets among Comesa countries, Sudan is leading.
Sudan, for instance accounted for over $170 million of all Uganda's export earnings from Comesa despite the country being a member of the free trade area, which means that Uganda's products are still attractive despite high entry duty and quota tariffs. Exports to the DR Congo were worth $100 million while the Rwanda market earned Uganda $83 million.
Uganda mainly exports construction materials, steel products, beer, soft drinks, cement, sugar, cooking oil and dairy products to these markets. A few products, mainly scholastic materials, do not attract taxes.
From a regional perspective, Ugandan products qualify to enter Kenya under the EAC Customs Union CET, but not so in the burgeoning markets of Sudan and Rwanda, both members of the free trade area, where traders pay varying tax rates, sources said.
Congo, the other major destination for Ugandan exports, is also yet to accede to the free trade area and continues to trade under the same preferences as Uganda, granted by the old preferential trade area, which guarantees limited market access.
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