David Malingha Doya
16 August 2008
Nairobi — Uganda has rejected pleas by its private sector for another decade of protection from competitors from other East African partner states as the country goes into the second round of negotiations on a regional Common Market in Nairobi this week.
In a joint petition, the Uganda Manufacturers Association (UMA) and the Private Sector Foundation of Uganda had wanted a combination of protective tariffs, compensatory mechanisms and regulatory frameworks to be put in place for another 10 years to address imbalances in areas such as construction, education and insurance in order to allow local industry to catch up with its regional counterparts.
The petition was, however, roundly rejected at a meeting last Friday, with the government reasoning that far from helping, continued protection would only hurt consumer interests in sectors such as housing where there is a huge deficit in the stock of houses.
The private sector had argued that the sector was a particularly sensitive area as better-placed construction firms from Kenya were likely to swarm into the market and take over jobs currently being done by local contractors.
They pointed out that construction capacity in Uganda is still low as evidenced by regular contract-breaches and shoddy work done by local contractors, but put the blame squarely on the government for not putting in place an appropriate policy and regulatory framework for the sector.
In a closed-door meeting where the country's negotiating team was consulting with a high level multi-sectoral committee dominated by government bureaucrats, the Private Sector Foundation Uganda and Uganda Manufacturers Association demanded that the government fulfil its responsibility for regulating the sector, by giving local contractors 10 years to build capacity before fully opening it up.
In the boardroom meeting ahead of this week's negotiations, UMA proposed that the protection apply only below a contract threshold, so that the big-ticket projects that are usually taken up by companies from countries like China and Arabia remained subject to international bidding.
However, the meeting, chaired by Second Deputy Premier and Minister for East African Affairs Eriya Kategeya and attended by six ministers and their permanent secretaries, gave the negotiating team strict instructions to adhere to the principles of "regional unity and not protectionism."
"If you have a problem with the government not putting in place [policy and regulatory] frameworks in place, that is another issue -- and the ministers are here to deal with it; but you should not tell us to stop going East African," Mr Kategaya said.
He added, "We should not discuss protectionism or equality but unity. Issues of equality are what sank the first East African Community because other countries thought that Kenya was gaining more."
The freedom to establish businesses anywhere in the region is provided for under chapter 2 of the first draft Protocol on the Common Market.
In the Protocol, the Right of Establishment allows any EAC citizen to establish a business in the host country under the same conditions required for nationals of that state engaged in the same activity.
The week-long meeting, to be attended by the EAC five member states, runs through to August 23 and will consider Tanzania's comments on issues that emerged from the first round of negotiations held in Kigali in April, which it did not attend because its team were still consulting nationally.
The EAC high-level task force, comprising negotiation teams from each of the five countries, will then discuss selected issues that emerged from the Kigali meeting including the Right of Establishment, Right of Residence and free movement of services, transport and capital.
However, issues emerging over the Right of Establishment have created bad blood between the Uganda government and its private sector, with the two parties blaming each other for the "underdevelopment" of so-called sensitive sectors.
For instance, during the meeting, Gideon Badagawa, executive director of UMA, told Mr Kategaya, "You should know that some people in government are not doing their work and the private sector is suffering as a result. You are basically mortgaging the private sector in this country."
The other sector of contention was insurance, where there are a total of 20 firms in the market, 14 of them being foreign-controlled.
More worryingly, the absence of a reinsurance company in Uganda means there is a significant ongoing revenue drain from the sector.
It is estimated that about 60 per cent of total revenue from the insurance sector, some Ush120 billion ($74 million) is sent out of the economy in the form of reinsurance premiums and profit-repatriation, compared with Kenya, where this figure is less than 20 per cent.
"We have been lobbying the government to establish a Ugandan reinsurance company for seven years now, but in vain. The 10 years we ask for are modest," Solomon Rubondo, chairman of the Uganda Insurers Association, said during the meeting.
Mwesigwa Rukuntana, State Minister for Labour in charge of Employment, said, "We cannot guarantee that if we give you that time, you will have developed [capacity by] then. On the contrary, I think when we open up, we shall gain.
In construction, for instance, we have a backlog of 80,000 housing units, so restricting that sector would make the situation worse."
On the Right of Establishment, the bureaucrats quickly dismissed the possibility of a foreigner acquiring land on permanent terms, which is acceptable under this chapter in the draft Protocol, but politically sensitive in Uganda.
"In Uganda, the land belongs to the people, while in the other countries it belongs to the state -- so unless this is harmonised, we could have a problem. According to Ugandan law, it is not possible for a non-national to acquire freehold land -- we only give leases up to 99 years," Minister for Lands and Urban Development Omara Atubo told the meeting.
Interestingly, some other concerns raised by the two umbrella bodies of the private sector, like ensuring that provisions in the Customs Union are properly implemented before moving to the next stage of establishing a Common Market, are shared by Tanzania.
Uganda's private sector particularly demanded that non-tariff barriers (NTB) be convincingly eliminated across the region as required under the Customs Union Protocol, before "rushing" to establish a Common Market.
It is only recently that Kenya announced that it would reduce the roadblocks on the transit corridor from Mombasa port to its western border from a staggering 47 to 15, on top of allowing 24-hour service through the country's entry points.
"But this is still only a reduction, whereas under the Customs Union these barriers are supposed to be completely eliminated," said John Sempebwa, director of trade at the Private Sector Foundation.
Uganda's chief negotiator, Lawrence Kizza of the Finance Ministry, told the meeting, "We shall advise the Nairobi meeting that since there is a negotiated Protocol on the Customs Union that is slated to be reviewed by 2010, any issues in the context of that Protocol's implementation should be left out of the Common Market Protocol."
Business representatives further want article 77 of the EAC treaty -- which addresses imbalances within the Community and provides for parties disadvantaged by opening up of regional markets to be compensated -- be clearly reiterated in the Common Market Protocol.
But whereas Uganda's private sector wants the proposed development fund in the draft Protocol to be used principally for compensation where development imbalances occur, Tanzania has recommended that a structural adjustment fund be established instead.
"The proposed fund should be used in implementing programmes focusing on the development of physical infrastructure like roads and railways, and software infrastructure," reads the communiqué from Tanzania.
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