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

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


1
Accession of Burundi and Rwanda in EAC
Implications for Private Sector Development By
Richard NDEREYAHAGA
  • CUTS BIEAC Project
  • Regional Workshop
  • Nairobi, 27 - 28 May 2010

2
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

3
  • A. Understanding the EAC Private Sector
    Development Strategy

4
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.

5
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.

6
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.

7
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.

8
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.

9
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.

10
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.

11
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.

12
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.

13
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)

14
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..

15
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

16
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.

17
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.

18
B. Understanding the regional economy in the EAC
19
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)

20
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.

21
  • 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).

22
Doing Business in EAC Improvements 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.

23
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.

24
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.

25
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.

26
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.

27
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.

28
  • 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).

29
  • 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.

30
  • 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.

31
  • C. Trade regimes and investment climate

32
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.

33
  • 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.

34
  • 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.

35
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.

36
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.

37
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.

38
  • 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.

39
  • 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.

40
  • 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.

41
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42
  • 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.

43
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44
  • D. Opportunities and disadvantages from accession
    to EAC

45
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.

46
  • 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.

47
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.

48
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.

49
  • E. Way forward and Recommendations

50
  • 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.

51
  • 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.

52
  • 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.

53
Thanks to all of you for
  • Your participation
  • Your attention
  • Your comments
  • Your suggestions
  • God Bless You
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