5 July 2012

Uganda: Customs Union Changes Business

Since the East Africa Customs Union was signed in 2005, the region has registered a jump in trade volumes.

In the second part of our series on the East African integration, Moses Talemwa looks at what has changed and the problems that remain.

In 1995, Julius Bamwesigye operated a small shop in Kikuubo in Kampala. Every two weeks, he would board an Akamba bus and head to Nairobi to buy Quencher juice, Imperial Leather soap and other popular Unilever products, ostensibly at a cheaper price.

The 11-hour trip saw him arrive in Nairobi at 5am. Once there, he headed for the Nairobi Industrial Area to purchase the goods and returned to the bus park in the evening in time for the 7pm return trip to Kampala.

"At the time, doing business between Uganda and Kenya was complicated; so, we had to pay people to carry these goods for us across the border as their luggage. Once here, we could make a small profit," Bamwesigye recalls.

Bamwesigye says that back then, importers made more money. However, joining the import trade was not easy because the process of acquiring a licence was lengthy. "We all started by smuggling. But once our capital grew, we found that we needed to get [licences] so that we could transport them back easier, usually by train since it was cheaper," he adds.

In 1999, the three East African states (then Kenya, Tanzania and Uganda) signed the tripartite agreement, and later the Customs Union in 2005, to ramp up trade. At this time, Bamwesigye says the traders had stopped using the railway line; Uganda's side of the border was no longer served by the train.

Apart from the higher transport costs, traders had to withstand the delays at Malaba and Busia to obtain tax clearance. "The Uganda Revenue Authority (URA) only worked between 8:30am and 5pm and you had to pay more for your goods to stay in customs. This led to increased corruption because we all wanted to get to the market early."

Customs Union

With the coming of the Customs Union in January 2005, there was initially hope that things would improve. But trade is still blighted by non-tariff barriers (NTBs), which should have been eliminated by now. According to Everest Kayondo, the chairman of Kampala City Traders Association (KACITA), there is a lack of goodwill between the five countries that make up the East African Community. "Whenever we complain, they remove one set of NTBs and replace them with another," he says.

Kayondo says traders lack information on how to take advantage of the new trade regime. For instance, not all traders are aware of how to obtain certificates of origin, which would guarantee tax-free clearance at the borders for certain goods. In the beginning, traders argued with URA for weeks over whether they were entitled to tax clearance or not. URA's eastern region manager, Geoffrey Balamaga, acknowledges that in some cases traders learnt to bribe URA officials to get a lower tax assessment.

"We saw a sharp rise in blue-collar crime in 2007, where people were willing to pay some part of the tax and get a clearance," he says.

That has since declined although Kayondo complains that there are other problems. "You'll find that some regional authorities will accept trade documents and others will reject them," he says.

Kayondo cites instances where cosmetics manufacturers in Uganda struggle to get their goods imported into Tanzania with a Uganda National Bureau of Standards (UNBS) seal. However, Tanzania classifies cosmetics as drugs and expects the manufacturers to have National Drug Authority approval, on top of a UNBS seal in some cases.

Burundi, Rwanda and Kenya have complained about the existence of several weighbridges in Uganda and Tanzania, which they say delay transit of goods and heighten corruption at checkpoints. The ministers want the bridges reduced to two; one at the entrance and another at exit from the country, a matter some authorities reject.

Transporters have also complained that Tanzania does not allow movement of trucks after 6pm, which some see as an unnecessary delay. Ugandan tea exporters also complain of extra charges, including a plant charge permit for tea headed for international auction in Mombasa. In all these cases the respective ministers admit there is a need for continuous dialogue between the states to ensure free trade.

"Without goodwill, free trade in the region will remain a dream," Bamwesigye says.

But Banwesigye acknowledges that apart from the stiff competitive, the regional trade regime is better than in 1995 when he started out.

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