Accession of Burundi and Rwanda in EAC: Implications for Private Sector Development By Richard NDEREYAHAGA - PowerPoint PPT Presentation

Title: Accession of Burundi and Rwanda in EAC: Implications for Private Sector Development By Richard NDEREYAHAGA


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Accession of Burundi and Rwanda in EAC
Implications for Private Sector DevelopmentBy
Richard NDEREYAHAGA

• CUTS BIEAC Project
• Regional Workshop
• Nairobi, 27 - 28 May 2010

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Plan of Presentation

• Understanding the EAC Private Sector Development
  Strategy
• Understanding the regional economy in the EAC
• Trade regimes and Investment Climate
• Opportunities and disadvantages from accession to
  EAC
• Wayforward and main Recommendations

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• A. Understanding the EAC Private Sector
  Development Strategy

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Vision Mission Statement

• The EAC PSD Strategy has the vision of a strong
  and globally competitive regional private sector
  for wealth creation through investment and trade.
• Its mission is to create a conducive business
  environment that facilitates private sector
  competitiveness and growth for increased
  investment, productivity and trade.

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The objectives of the EAC PSD Strategy are to

• Increase space of the private sector in
  development of the regional economy.
• Focus on removing regional level constraints and
  tap economies of a larger regional market.
• Ensure that the strategy is consistent with
  people centered and private sector driven
  approach.
• Promote competitiveness by focusing on areas of
  comparative advantage, and develop competitive
  advantages over time.

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The objectives of the EAC PSD Strategy are to

• Identify priority sectors which reflect potential
  sources of growth, export and diversification in
  the East African region.
• Putting in place an implementation strategy which
  specifies the role and mechanism for the
  participation of the private sector.

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Factors constraining economic performance in EAC

• Tight monetary and financial policies.
• Trade policies especially tariff and non-tariff
  barriers.
• Disincentives effects of existing tax regimes
  relating to levels, multiplicity of taxes and tax
  administration.
• Absence of a legal framework to ensure free
  movement of labour, services, goods and capital.

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Factors constraining economic performance in EAC
(contd)

• A restrictive regulatory and administrative
  regime.
• Inadequate and unambiguous competition policies
  have raised concern in the private sector.
• Inadequate investment codes and incentives.
• Inadequate institutional framework and
  governance,
• Inaccessibility to requisite resources,
• Lack of infrastructural and supportive services.

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The EAC PSD Strategy

• Improving the business environment in which firms
  operate
• Evolving an institutional framework and good
  governance that is consistent with efficient
  workings and development of market, and
• Promoting investment in institutional and human
  capacity building and increasing competitiveness
  and diversification of the economy of the region.

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There is a set of actions that are contained in
the PSD strategy.

• Ensuring a strong private sector investment,
• Improving the policy environment and the
  efficiency of markets. 
• Reducing the cost of doing business,
• Building capacities,
• Delivering infrastructure and business support
  services more efficiently and in a demand driven
  manner.

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The Burundian Private Sector

• The CFCIB is engaged in ongoing reforms since
  2008,
• A private Sector that is embryonic,
• Still largely dependent to public administration
  in a post conflicts economy,
• Needs to face the challenges emerging from the
  regional integration,
• A private sector that still needs to listened,
  framed and to be supported.

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Main needs of the Burundian Private Sector

• for an institutional support in the form of
  capacity building,
• for a specific consideration for regional
  integration policies,
• for financial supports aimed at the revival and
  the rehabilitation of the existing companies and
  the creation of new companies.

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Structure of Burundian Private Sector

• 10 independent sectoral chambers (Sectoral
  Chamber of the tradesmen, Sectoral Chamber of
  Mining, Sectoral Chamber of Tourism and Hotel
  Services, Sectoral Chamber of Industrials,
  Sectoral Chamber of artisans, Sectoral chamber of
  the conveyors and forwarding agents, Sectoral
  chamber of the professionals of the Building
  industry, Sectoral chamber of Banking and
  Insurance Companies, Sectoral chamber of the
  Agribusiness , Sectoral chamber of the services
  and new technologies)
• 2 transversal and independent chambers .(Chamber
  of Women Entrepreneurs, Chamber of the
  professionals of the provinces)
• General Assembly of the CFCIB (136 members) (see
  figure page 7)

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The Rwanda Private Sector Federation (PSF)

• The PSF is a co-coordinating umbrella
  organization representing and defending the
  interests and needs of private economic operators
  in Rwanda.
• The PSF was created in December 1999 to replace
  the former Chamber of Commerce and Industry of
  Rwanda. It was initially composed of 14
  Professional Associations. In 2004, the number of
  professional bodies has been reduced to 23.
• For the time being, the PSF is composed of 9
  professional chambers (Chamber of Agriculture and
  Livestock, Chamber of Commerce and Services,
  Chamber of Crafts, Artists and Artisans, Chamber
  of Industry, Chamber of Liberal Professionals,
  Chamber of Tourism, Chamber of Women
  Entrepreneurs, Chamber of Young Entrepreneurs,
  Chamber of Financial Institutions), see diagram
  page 10..

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Mission vision of the Rwandan PSF

• Representing and serving the interests of the
  entire private sector through lobbying and
  advocacy,
• Providing timely and relevant business
  development services that lead to sustainable
  private sector led economic growth and
  development.
• Creating a credible and effective institution
  supporting the emergency of a strong private
  sector for Rwanda's economic transformation

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Challenges constraining the implementation of the
PSF strategic priorities

• Lack of sustainable funding given the enormous
  needs of the members
• Capacity constraint at both the secretariat and
  firm level
• Passive role in the advocacy emanating from lack
  of resources to carry-out research and prepare
  position papers
• Lack of recognition by the donors and other
  actors,
• Limited innovativeness and competitiveness on the
  part of SMEs due to lack of technical and
  managerial skills required in Business,
• Limited networking between local private sector
  and with foreign partners in order to learn best
  practices,
• PSF institutional and human capacity deficiencies
  that hinder effective private sector development
  programs.

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In summary

• The Private Sector is still restucturing in
  Burundi, there is a wide range of reforms yet to
  be implemented
• In Rwanda, the PSF is more advanced and they have
  its Strategic Plan operationalized (2007-2010)
• Many constraints, poorly performing private
  sector, lack of adequate institutional framework
  for private development strategy.

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B. Understanding the regional economy in the EAC
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Macroeconomic performance

• EAC Partner States have all embarked on
  comprehensive reforms that seek to reduce
  government intervention in the economy.
• There is lack of macroeconomic convergence
  amongst EAC States.
• EAC countries have had a somehow stable
  macroeconomic environment, marked by steady
  economic growth (see tables 6 and 7, pages 16
  17)

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Governance and Aid-Dependency

• Its obvious that the authorities of the EAC
  stress on the role of good governance as a
  prerequisite for East Africa economic
  integration, especially when it comes to common
  market step.
• Kenya is the least aid-dependent country amongst
  the five EAC countries.
• The most aid-dependent country within the EAC is
  Burundi.

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• The EAC countries have been improving in one or
  another of the 10 surveyed areas/indicators
  (Starting a Business, Dealing with Licenses,
  Employing Workers, Registering Property, Getting
  Credit, Protecting Investors, Paying Taxes,
  Trading across Border, Enforcing Contracts,
  Closing a Business).

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Doing Business in EACImprovements from 2007 to
2008

• Burundi - in employing workers and in registering
  property.
• Kenya in starting a business, dealing with
  licenses (ranked at 9), getting credit (13) and
  slight improvement in paying taxes.
• Rwanda in dealing with licenses, paying taxes
  and trading across borders. Good ranking in
  starting a business at 63.
• Tanzania - in starting a business. Good ranking
  at enforcing contracts at 35.
• Uganda - trading across borders. Plus good
  ranking at 11 in employing workers and 48 at
  closing a business.

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DB in EAC (Rwanda, the best reformer)

• In DB 2010, for the first time a Sub-Saharan
  African countryRwandawas the worlds top
  reformer, based on the number and impact of
  reforms implemented between June 2008 and May
  2009.
• Rwanda, another repeat reformer, reformed in
  seven of the 10 business regulation areas
  measured by Doing Business.
• At maximum, it now takes a Rwandan entrepreneur
  just two procedures and three days to start a
  business.
• Imports and exports are more efficient, and
  transferring property takes less time thanks to a
  reorganized registry and statutory time limits.
• Investors have more protection, insolvency
  reorganization has been streamlined, and a wider
  range of assets can be used as collateral to
  access credit.

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Corruption and external perception, 2007

• Kenya has been the worst amongst the EAC
  countries at position 150 out of the 180 nations
  surveyed.
• Tanzania leads in the region as the least corrupt
  taking position 94 out of 180,
• followed by Uganda (110), Rwanda (111) and
  Burundi (134).
• Yet, even for Tanzania, the score is poor,
  considering that it is placed 57 places below
  Botswana with the cleanest graft record in
  Africa.

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Trade Performance in EAC

• Burundian economy is the most highly exposed to
  external shocks considering both exports
  dependency and imports dependency or
  concentration coefficients.
• In terms of exports, Tanzania is the less
  dependent (or less concentrated)
• Kenya is the less dependent (less concentrated)
  in terms of imports.

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Trade (cntd)

• Rwanda seems to be the more integrated within the
  EAC market in terms of main trade partners,
• The less integrated seems to be Tanzania.
• Moreover, in terms of trading partnership in
  exports destinations, Kenyan economy is the most
  diversified and Burundi is the less diversified.
• We also conclude that in terms of imports
  origins, the Tanzanian economy is the most
  diversified
• Whereas the Rwandese economy is the least
  diversified amongst the EAC members.

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Comparative Analysis of Domestic Production
Structures

• An assessment of the effects of EAC Customs Union
  on the production value chain was done in 2008
  encompassing sourcing of inputs, clientele base
  and extent of capacity utilization.
• The results reveals tendency for companies to
  source inputs from either the domestic market or
  from the rest of the world with inputs from the
  two sources accounting for an average of 45 and
  35 respectively.

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• Existence of a well established network of
  clientele that can be used in enhancing an uptake
  of output from the domestic production chain to
  the regional market and beyond.
• There is room for exploitation of the strong
  distributor network, which seems to be
  underutilized.
• External factors hindering businesses from taking
  full advantage of the EAC integration vary across
  all the five EAC countries (Electricity, fuel
  prices and lack and inadequacy of infrastructures
  accounting for about 70 of total external
  factors).

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• Excess capacity is a major hindrance to
  competitiveness of businesses in the EAC region,
  with the level of severity varying widely across
  the states.
• The threat is more acute in Burundi and Rwanda,
  where 40 to 50 of companies reported operating
  at between 10 and 30 capacity.
• The problem is less severe in the other EAC
  states where businesses operate between 81 and
  100 at 44, 31 and 39 in Kenya, Uganda and
  Tanzania in that order.

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• The clientele base for intra-EAC export chain
  across include distributors, wholesales/businesse
  s, manufacturers, farmers, transporters,
  Governments, NGOs,
• The predominant export market for businesses in
  the EAC is the respective domestic market
  accounting for an average of 57 and ranging from
  23 in Rwanda to 85 in Tanzania.
• Harmonization of trade and regulatory policies is
  one most critical factor to ensure that
  businesses in the region capture the market.

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• C. Trade regimes and investment climate

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FDI and Regulatory Framework

• With regard to Foreign Direct Investment, the EAC
  region attracted a total of USD 4,585.3 million
  during the period 2000-2006.
• Tanzania took the largest share of FDI into the
  region during the period at USD 2,628.2 million
  or 57.3,
• followed by Uganda at USD 1,591.6 million or
  34.7,
• Kenya at USD 285.1 million or 6.2,
• Rwanda at USD 68 million or 1.5,
• and Burundi at USD 12.4 million or 1.5.

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• Gross Fixed Capital Formation (GFCF) as a
  percentage of GDP for each EAC country increased
  during the period 2000 to 2006,
• with a notable increase for Burundi from 6.1 in
  2000 to 16.7 in 2006, although Burundi is still
  the country with a lower percentage of GFCF
  relative to GDP among the 5 EAC countries.
• However, much of Burundis Gross Fixed Private
  Sector Capital Formation (GFPSCF) benefits the
  public sector owned/managed projects.

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• Most of new direct FDI into the EAC region has
  gone to the extractive industries, notably mining
  and gas/oil exploration, with Tanzania and Uganda
  being the major beneficiaries.
• Tanzania has attracted substantial foreign
  investors and currently contributes about 2.3 of
  GDP, which is expected to grow to 10 by 2025
  Tanzania Development Vision 2025
• Kenyas FDI has mainly been in horticulture and
  Floriculture, Tourism, and Manufacturing ,
  Energy, Telecommunications, and Financial sector.
• FDI inflows into EAC have not favoured Kenya,
  which has fared relatively badly in attracting
  new FDI,
• Kenya ranked as the best in the region as far as
  protection of international investors is
  concerned.

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The four most severe constraints as perceived by
private firms in each country are

• Burundi Electricity, Access to finance,
  Political instability, and Practices by the
  informal sector
• Kenya Tax rates, Access to finance, Practices by
  informal sector, and Electricity
• Rwanda Electricity, Tax rates, Access to
  finance, and Transportation bottlenecks
• Tanzania Electricity, Access to finance, Tax
  rates and Transportation bottlenecks
• Uganda Electricity, Tax rates, Practices by
  informal sector, and Access to finance.

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Trade and investment regulatory, as of 2008

• Regarding the number of documents for exports,
  all the EAC countries performed poorly,
• Tanzania is the better performing country amongst
  EAC countries at 5 documents,
• followed by Uganda at 6 documents,
• while Burundi, Kenya and Rwanda all have 9 export
  documents.
• Regarding the complying time with export
  documents, all the EAC countries performed
  poorly,
• Tanzania is the better performing country which
  achieved 24 days to complete export documentation
  in 2008,
• followed by Kenya at 29 days, Uganda at 39 days,
  Rwanda at 42 days, and Burundi at 47 days.

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The WB Logistics Performance Index (LPI) based on
a survey of global freight forwarders and express
carriers.

• All EAC countries performed below the 2006/07
  Overall international benchmark of 4.19 achieved
  by Singapore EAC had an average of 2.23, with
  Burundi attaining 2.29, Kenya 2.52, Rwanda 1.77,
  Tanzania 2.08, and Uganda 2.49.
• On quality of transport and IT infrastructure,
  all EAC countries average indicator of 2.07 was
  way below the international benchmark achieved by
  Netherlands of 4.29 in 2006/07.
• On International Transport Costs, in 2006/07 all
  EAC countries performed below the international
  benchmark of 4.5 achieved by Netherlands. All the
  EAC countries except for Kenya which had an
  indicator of 2.79 also performed below the world
  average of 2.72.
• Regarding Logistics Competence, the EAC countries
  performed well below the international benchmark
  of 4.25 achieved by Netherlands, the world
  average of 2.71.

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• Regarding the Tractability/traceability of
  shipments, all EAC countries were well below the
  international benchmark of 4.25 achieved by
  Singapore in 2006/07. Also, except for Kenya
  which achieved an indicator of 2.62, all the
  other EAC countries were below the South
  Asia/Pacific countries average of 2.53.
• On Domestic Transportation Costs, where the lower
  the indicator the more efficient a country has
  been rated on domestic transport cost, Burundis
  performance is shown to be quite good at 2.33 in
  2006/07, close to the international benchmark
  achieved by Niger of 1.67 and other best
  performing countries like Ghana (2.00), Japan
  (2.02), and Norway (2.08). Burundi also performed
  better than the world average of 2.9 and EUs
  average of 2.75, while other EAC countries
  performed poorer than the world average
  indicator.
• On Timeliness of shipments, all the EAC countries
  performed well below the international benchmark
  achieved by Singapore of 4.53 in 2006/07 and the
  world average of 3.17.
• With respect to Efficiency of customs procedures
  and clearance by other border agencies, EAC
  countries fall far behind the international
  benchmark of 3.99 achieved by Netherlands in
  2006/07.

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• On Total Freight Costs (as a percentage of import
  value), EAC countries are far behind the
  international benchmark of 0.918. However, all
  the EAC countries performed better than world
  average of 6.88 in 2006-07, with the EAC average
  at 4.84 and Tanzania and Rwanda achieving a
  record low of 3.36 and 3.9 respectively, which
  was even better than the EU average of 4.13.
• Regarding Air freight costs to USA (as a
  percentage of landed US import value), the
  average for EAC at 9.89 in 2000-04 and 12.37 was
  much higher than the international benchmark of
  0.918 achieved by Malta in 2000-04.
• In the view of the UNCTAD Liner Shipping
  Connectivity Index, the EAC countries average of
  8.34 in 2000-04 and 10.72 in 2006-07 was far
  behind the international benchmark of 81.87 and
  88.95 achieved by Singapore in 2000-04 and
  2006-07 respectively.

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• The EAC performs poorly on the cost of acquiring
  a passport compared to the international
  benchmark, the best performing country on this
  indicator was Kenya at a cost of 1.2 to GDP per
  capita, followed by Tanzania at 13.4, Rwanda at
  41.5 and Burundi at the tail end with 50.9.
  Uganda (not reported).
• With regard to international migration stock, all
  EAC countries perform poorly compared to the
  international benchmark achieved by Australia of
  20 and other best cases achieved by Hong Kong at
  22 and Madagascar at 65. Tanzania has the
  highest migration stock amongst EAC countries at
  2.1, followed by Uganda at 1.8, Rwanda and
  Burundi both at 1.3 and Kenya at 1.0. These
  figures show whether a country has cumbersome,
  costly and time consuming procedures for visitors
  to enter its territory.

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• EAC business people take between 1-5 months to
  acquire a work permit for workers sourced from
  another EAC country, which translates to
  inability to employ competent workers when
  needed.
• The uncompetitive nature of hiring local workers
  in each EAC country means that it is even more
  difficult to source workers from across the
  borders.

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• D. Opportunities and disadvantages from accession
  to EAC

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Burundian actors expect to realize positive
impacts from in the following respects

• Increased FDI inflows are expected
• Available mineral resources such as nickel,
  cobalt, vanadium, gold and tantalum which lie
  unexploited in the northern and eastern parts of
  the country,
• Opportunities in tea and coffee farming which was
  previously state-owned activity but was recently
  privatized and the reform is still under process,
• Potential opportunities in the tourism sector,
  especially the virgin beach resorts along Lake
  Tanganyika.
• The countrys unique location to provide business
  links with French-speaking Eastern DR Congo and
  English-speaking EAC countries.

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• The rich agricultural potential, which will
  attract crop farming technologies from other EAC
  countries.
• Significant reductions in prices of consumer
  goods arising from the EAC internal
• Access to a wider market of the community (EAC)
  and, therefore, an increased business turnover
  arising from the increased market size.
• Possibilities of joint-ventures within the EAC
  will be facilitated.
• Broader access to financial funding, for
  instance, the East African Development Bank.

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Rwandan stakeholders expect to realize positive
impacts from in the following respects

• Increased business turnover arising from the
  increased market size.
• Price reductions across EAC as a result of
  reduced unit production costs through economies
  of scale, leading to increased consumer welfare.
• Easier and predictable access to industrial
  inputs such as raw materials.
• Increased investment from other EAC countries,
  free movement of goods, capital and labour
  especially after the Common Market comes into
  force.
• EAC will in future be able to negotiate as a bloc
  for trade agreements with other Regional Economic
  Communities and also within international trade
  agreements.

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Side effects of Regional integration into EAC

• Some of the negative effects envisaged by
  Burundian stakeholders are
• Displacement of some industries.
• Possible decline in industrial production of food
  products
• The Rwandan stakeholders also expect negative
  impacts in the following respects
• Increased competition may lead to closure of less
  competitive industries, especially SMEs.
• Locally produced raw materials will face stiff
  competition from EAC originating imports which
  could displace respective producers.

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• E. Way forward and Recommendations

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• Expanding room for private sector and civil
  society contribution and participation in the
  policy making at the EAC platform.
• Capacity building and wide programs of training
  for actors from informal sector within the EAC on
  overall, and from Burundi and Rwanda
  specifically.
• Provide regional banking facilities by extending
  the EADB coverage and strengthening its loans
  availability for private sector from less
  developed regions of the community.
• Strengthening partnership with the EAC to enhance
  infrastructure lack and increase electricity
  production.

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• The civil society should embark on thematic
  research in collaboration with research
  institutions in order to shed light on some
  problematic issues arising from regional
  integration processes.
• EAC Partner States should encourage and welcome
  skilled labour into their countries with high
  know-how and encourage the learning-by-doing
  strategies for local communities.
• Encouraging regional trainings for private sector
  and civil society as well as for civil servants
  aiming at experience sharing along through these
  trainings.

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• Encouraging the Private Public Partnership in
  various areas of investment and setting up a
  reliable regulatory framework that defines
  time-bound objectives or targets to be met by
  private operators this also assisting you to
  identify the appropriate type of Public/ Private
  Partnership.
• Harmonization of various policies across the EAC
  Partner States such as monetary and investment
  policies, social policies.
• Government are invited to protect public
  goods/the commons by preventing incentives
  structures that invite private actors to
  over-use, let along destroy, public goods.

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Thanks to all of you for

• Your participation
• Your attention
• Your comments
• Your suggestions
• God Bless You