5 May 2013

East Africa: High Operating Costs Still Dog Business in EAC

Fast economic growth and the high cost of doing business usually don't co-exist, but the East African Community (EAC) somehow has the two a scenario in a mix that astounds experts.

Last week the 2013 EAC Doing Business Report, sponsored by a member of the World Bank Group, the International Finance Cooperation (IFC), was launched in Kigali. The report revealed variations in efforts to reform the business environment among member-states--resulting in overall bad business climate.

Trade Mark East Africa's deputy CEO, David Stanton, observed that while EAC is the second fastest growing economic bloc in the world, the region also the second most expensive place to do business.

He attributed the cause to maintenance of red-tape in partner states to secure national interests.

"You will be surprised to know that 47% of the cost of all Rwanda's exports is related to transport overheads accrued in the process of passing goods through the Kenyan port of Mombasa," Stanton said.

From June 2011 to June 2012, the five-member states implemented nine regulatory reforms across eight areas measured by Doing Business upon which comparative analysis was done to determine which economy is moving faster on which indicator.

Unfortunately, the variations were too wide to favor the region's overall ranking globally with cases of one partner doing extremely well in one place and the other very poorly on the same indicators.

The EAC ranked 117th position out of 185 economies assessed.

Now members are being urged to copy from the best among them and adopt the best practices to help uplift the region's global rankings.

"The EAC must reform to compete with the other global economic reforms," said Gerald Ssendaula, the chairman of the East African Business Council.

The question on how committed the politicians are to regional integration will always keeps coming up.


Roads are too bad to enable efficient movement of goods and services, the ports are crowded and efforts to regionalize then for the benefit of landlocked partners is still in contention and legal frameworks which are yet to be harmonized make it hard for free and easy transfer of capital.

Such issues must be addressed if the region is to become competitive.

The report notes that while in Rwanda a business can be registered in matter of hours, it takes over 33 days in Uganda. As a region, the goal is to have eight procedures and 20 days on average to register a business.

Minister of EAC affairs Monique Mukaruliza called for partner states to adopt best practices from neighbors.

Burundi did so when they replicated Rwanda's one-stop centre concept through its revenue authority to ease the business registration. As a result, four procedures were eliminated, time reduced by five days and the cost lowered by 98.4%. Burundi was one of the top global reformers in 2013.

"If you want to be the best, identify the best and apply their practice in your own context to become the best," said the World Bank's David Bridgeman.

Rwanda is doing just that. The country wants to be the easiest place to register a business and has identified New Zealand, the best right now as a model.

Dr. Enos Bukuku, the EAC deputy secretary general remarked that East African citizens deserve not just a bigger market but also a better market.

This can be achieved by reforming more, eliminating unnecessary red-tape that impedes free trade.

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