30 July 2012

Uganda: Curbing Illicit Trade

On a warm Friday morning July 13, at the Rwandan side of the Gatuna border with Uganda, several unlikely guests graced the place causing quite a rare scene.

These were not ordinary travelers on the Jaguar coach, but rather high profile persons who mostly travel by air so it was quite a moment for the Gatuna business community to see Rwanda and Uganda's heads of their respective tax authorities hop in and out of customs facilities at the busy border.

Rwanda Revenue Authority (RRA)'s Ben Kagarama and his counterpart, Uganda Revenue Authority (URA)'s Allen Kagina were with ambassadors Richard Kabonero and Kunio Hatanaka of Uganda and Japan to Rwanda respectively.

The purpose of their presence was to firstly sign a Memorandum of Understanding (MoU) between Rwanda and Uganda's tax bodies that would see the two countries launch Joint Border Surveillance activities along the Katuna/Gatuna Border in North-Eastern Rwanda.

After the signing of the MoU, both commissioners received equipment comprising of two four wheel drive Pick-ups, a motor cycle and state of the art two way communication gadgets each from the Japanese International Cooperation Agency (JICA), worth a total amount of US$180, 000 meant to boost proposed activities in the just signed MoU.

"As smugglers advance in tactics, the best way to tackle them is through increased information sharing and cooperation between our customs authorities," noted URA's Commissioner General Allen Kagina shortly after signing acceptance documents of the donations.

How big a problem is illicit trade at Gatuna?

According to RRA's Commissioner General Ben Kagarama, there are no reliable figures that can explain or quantify the losses to illicit trade through Gatuna let alone other borders.

"This is because we are talking about smuggled goods that go unnoticed therefore impossible to quantify. We only have a rough idea based on few commodities we seize," revealed Kagarama.

However, Kagarama insists they know for a fact that illicit trade prospers probably more than legitimate trade which leaves both tax bodies and formal traders ruing over the consequences.

"That's why we strongly believe in joint efforts for the surveillance of this border and others to reduce if not eliminate smuggling so that we give more chance for legitimate trade to prosper," noted Kagarama.

Gatuna is a very busy and the biggest point of trade between Rwanda and Uganda. It is also the main entry of goods and person from Kenya and its Mombasa Port which most of the Rwandan imports go through.

According to Silver Ojakol, Uganda's commissioner of external trade in the Ministry of Trade, Industry and cooperatives, trade with Rwanda accounted for between US$180milion and US$200million in 2011 alone.

As for Rwanda, Kagarama reckons his authority collects about Rwf360 million worth of tax revenue from legitimate trade per month.

In Kagarama's mind, this border has potential to bring in more than that considering its busy traffic.

Information from the customs authorities indicates that Katuna/Gatuna receives on a daily basis over 2000 travelers, 200 transit goods trucks and about 40 buses.

Uganda's Kabale and Rwanda's Gicumbi districts that lay along the Gatuna border on either side have people with relatives on either side of the border creating a situation difficult to control. The same communities have been alleged to be heavily involved in practices of illicit trade as they are well versed with most of the terrain.

A research report released at the Commonwealth East Africa International Business Forum 2008 in Kigali indicated that East African countries are threatened by counterfeit, undeclared production and smuggling practices along the borders.

All the vices were believed then to be rising eight times higher than legal trade.

Dr Mohan Kaul who's the Director General of Commonwealth Business Council said then that, illicit trade is a growing menace within East Africa's consumer goods market, and includes products which are smuggled, counterfeited or undeclared local production.

"It undermines the investment needed to improve competitiveness, and producing the jobs and income needed to support families and public services," he added.

For instance, that 2008 report on smuggling estimated that illicit trade in tobacco, costs the British American Tobacco (BAT) the region's largest cigarette supplier approximately $61m (Rwf34.6 billion) in tax revenues annually from the East African Community (EAC).

The loss is due to cross border smuggling of genuine tobacco products manufactured in neighboring EAC countries.

Mr. Kagarama also reveals that the other most smuggled commodity is alcohol packed in sachets and several other items mostly from Uganda to Rwanda.

The East African Business Council (EABC) which has been at the vanguard of fighting the illicit trade in EAC finds itself cornered with its own belief that a free and open marketplace is fundamental to improving competitiveness, increasing investment, generating jobs and improving the economies of the region.

EABC concedes that illicit trade undermines each of the goals of an open marketplace, and therefore is a growing menace within East African market.

The EABC sees illicit trade as a multi-faced problem and includes, among others Counterfeits, Smuggling, Undeclared local production, Pirated products and Parallel Imports where non-counterfeit products are imported from another country without the permission of the intellectual property owner.

"The profitability and market share of legally registered East Africa companies, especially those involved in manufacture of fast moving consumer goods have been negatively affected by counterfeits and illicit trade. This has serious negative impacts on the viability of industries, jobs, tax revenues and the health of consumers across the region," this according to Frank Katarikawe, a University lecturer of marketing in Uganda.

What is being done about it?

The Japanese envoy to Rwanda, Kunio Hatanaka says that being land locked countries, Rwanda and Uganda need help to enhance their competitiveness. This, he says, calls for support in addressing key bottlenecks to legitimate trade as well as removing non tariff barriers which raise the cost of doing business for traders.

"Rwanda and Uganda own no port which means their traders incur a lot of costs in transporting goods from the ports to their final destinations. If the issues such as removal of NTBs and fighting illicit trade can be supported to increase trade facilitation and protect legitimate trade, then we can register more growth," observed Ambassador Hatanaka.

Japan has been a strong ally in these efforts through JICA's Customs Project.

Ms.Kagina testifies that JICA's support for the joint border surveillance of the Kenya-Uganda Malaba border resulted to the realization on Uganda's side a collection of US$4million between 2009 and 2011 this after illicit trade activities had been significantly brought down by joint operations between Kenya and Uganda customs authorities.

In the MoU on the joint border surveillance of Gatuna, both Rwanda and Uganda's custom authorities commit themselves to two major roles of developing a framework of cooperation between the Customs administrations of RRA and URA on joint borders surveillance operations so that they combat smuggling and tax evasion.

The other commitment regards the availability of information by the two Customs administrations that may help to enhance proper application of the customs laws and the prevention, investigation and combating of customs offenses in order to facilitate legitimate trade across the border posts and foster compliance.

The MoU also gives way for the creation of a Regional Joint Border Coordinating Committee (RJCC) that will be charged with supervising all the Joint Border Surveillance borders; a border coordinating committee (BCC) charged with the supervision of joint border surveillance operations and an Enforcement Operational Team (EOT) that will be set up on both sides of the border to ensure the decisions of both RJCC and BCC are enforced.

Looking Beyond smuggling

Though they are the sponsors of the project against smuggling, Ambassador Hatanaka emphasizes the need to look beyond the illicit trade problem and also put efforts in making the business smooth for legitimate traders.

"This must be done through identifying and clearing existing NTBs on all routs affecting trade between the two countries," noted the Ambassador.

His observations resonate with what some traders through Gatuna border are facing in form of delayed clearance hence incurring unexpected costs.

For instance, Joseph Izidoro, a Ugandan produce trader who transports Agricultural produce to Kigali on a weekly basis told this Paper that while Rwanda did a good a thing by introducing on-line clearance methods, the network is always down at the border and traders are often compelled to wait for hours.

"Yet in produce business, prices fluctuate per hour which means any minute wasted at the border might mean heavy losses on our side," lamented Izidoro.

Farouk Zzimbe, another trader pointed out that while customs staff members are supposed to work 24 hours, the Rwandan officer in charge of the scanning device takes several hours off for lunch forcing traders to wait for him.

Kagarama conceded on the issue of unreliable network connection revealing that the matter has been brought to his attention and that it will soon be addressed.

He expressed doubt concerning his officials' alleged absence from work promising to investigate the issue.

But both countries have shown strong need and commitment to eliminate the NTBs on either sides following the renewed relations fueled by Presidents Paul Kagame of Rwanda and Kaguta Museveni of Uganda. Officials from the sister nations recently met in the Rwandan capital Kigali where they listed NTBs and agreed to stamp them out of the way to smoothen trade flow.

Most of the trade barriers that still hinder movement of goods and persons between Kigali and Kampala are on the Ugandan side and some of them include corruption, weighbridges and police roadblocks.

While Rwanda has the least so-called Non-Tariff Barriers (NTBs) compared to Uganda, Ugandan traders have in the recent past complained of few working hours at Cyanika border in northern Rwanda.

Ugandan traders are also unhappy about the bureaucracy they go through at the borders with Rwanda arising from various institutions such as Rwanda Revenue Authority (RRA), Immigration and Rwanda Bureau of Standards (RBS) involved in checking the movement of goods and persons.

Other barriers include bad roads and lack of harmonized import and export standards and procedures. Also, Ugandan truckers complain of too many hours they spend on queues waiting to fill up their fuel reservoirs while in Rwanda. Reports have shown that NTBs have played a significant role in slowing the progress of the EAC integration process which has prompted Rwanda to have bilateral negotiations with her neighboring Uganda to solve the challenges bilaterally with the aim of elevating the trade.

"What we need is to provide a conducive environment for our traders by removing all the non tariff barriers that still exist for the benefit of the nationals as well as boosting the trade," Kassim Omar, the Ugandan coordinator of the committee on the removal of NTBs said in the recent meeting in Kigali.

"If we do not align our trade practices with the EAC Treaty and the Protocols, we stand the danger of losing the benefits of integration," said Emmanuel Hategeka, the Permanent Secretary in the Ministry of Trade and Industry. "We should take this assessment as a basis for a deep examination of the contribution we can make to improve the situation."

Vincent Safari, the coordinator of Rwandan National Monitoring Committee (NMC) on the removal of NTBs said that the bilateral agreement between the two nations had already started impacting positively and economic expectations were also high.

"Some weighbridges were removed in Uganda and we expect to increase our trade with Uganda," Mr. Safari said. "It was imperative to have these barriers removed since we all share the same challenges as landlocked countries."

One of the removed NTB is Mubende weighbridge. Others that will be eliminated but there is no specific period to remove them include Rukaya weighbridge, Busitema and Mbarara weighbridges all in western Uganda where most of the goods to Rwanda from the Kenyan port of Mombasa pass.

In a bid to ease trade facilitation for traders, Ambassador Hatanaka revealed that his government is funding the establishment of a One Stop Border Post (OSBP) at Rusumo to the tune of about US$60 million and expected to reduce the number of check points there that are about eight, according to Fred Seka, Managing Director of Gorilla 1000 Clearing Agency.

"With reduced stops on the road, easier and faster clearance of transit goods, trade facilitation in the region will get better and benefit especially traders from land locked countries whose transportation costs are just unbearable," hoped Amb Hatanaka.

The One Stop Border Post (OSBP) at Rusumo Border with Tanzania is expected to be complete by March 2014.

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