By Theoneste Asiimwe

East Africa Researcher, GLCSS

This month the East African Business Council (EABC) in conjunction with the Commonwealth Business Council will host an East African investment forum in Nairobi to discuss trade and investment opportunities in Kenya, Uganda and Tanzania, plus Rwanda and Burundi. The theme of the conference will be “Trade and Investment: Growth through global partnerships”
 

EABC represents businesses in Kenya, Uganda and Tanzania and was created by the East African Community secretariat nine years ago. It advocates regional free movement of people, a private and public sectors’ alliance in order to develop and strengthen Small and Medium size Enterprises (SME) and corporate social responsibility.
 

One of the EABC’s primary issues is increasing Foreign Direct Investment (FDI) Improved regional security and leadership in the last ten years has increased local and foreign investors’ confidence. However, FDI has been minimal. According to the 2006 World Investment Report released last month, the region registered only 5 percent the FDI inflows into Africa and no single country in the region placed in the top ten African countries that realized increased FDI. Only Uganda appeared among 34 countries whose inflows rose to 16 percent.
 

This low FDI is attributed to the region’s lack of capacity to engage in significant manufacturing, prolonged drought and lingering questions of security, and the region is not integrated into the global production system. However, there is improvement in the region.
 

According to the World Bank, International Finance Corporation (IFC) 2005/2006 report, Doing Business, 2007, East African countries have for the first time registered significant reforms. Tanzania and Uganda scored high on the ease of doing business across 175 economies. Rwanda and Burundi also scored high in the areas of tax clearance and legal discrepancies, respectively.
 

This analysis is supported by Rhidwaan Gasant, non-Executive Director of Operations of MTN Group in the Middle East, North and East Africa (MENEA). He note, while address a business conference in South Africa last month, that in the past eight years, investor friendly environments in Uganda and Rwanda enabled his company to register more than 1.5 million combined subscribers. As a result, the company increased its shareholdings in Uganda from 51 percent to 97 percent equivalent to US$180 million.
 

According to GLCSS analysis, the East African private sector will faces challenges because of a lack of economic integration.  Some of these companies have started to realize this need. Last week, Safaricon’s Chief Executive Director Michael Joseph revealed that the company was in discussion with Uganda’s MTN and Tanzania’s Vodacom to establish a linkage for a regional network.
 

However, high oil prices continue to be an impediment to investors in the region, which makes the region less competitive than Asian countries such as India, Vietnam and China. According to this year’s World Bank Annual Development Indicators, East Africa has overall lost market share in traditional exports, despite in overall increase in exports by 10 percent.
 

A significant barrier is the quotas imposed on the region by the U.S. African Growth and Opportunity Act (AGOA). This includes restrictions on rules of origin of certain goods such as clothing and textile products and fixed quotas.  
 

Increased prices of consumer goods also work against attainment of this goal. For example, Tanzania’s inflation in November stood at 5.8 percent compared to 0.3 percent in August. According to the National Bureau of Statistics (NBS), consumer price index report, Tanzania scored a 5.5 percent inflation rate. This was caused primarily by an increase in the price of fuel which rose by 0.4 percent.
 

In Kenya, inflation rose to 15.7 percent from 13.8 percent in September. This was attributed to the high cost of food stuffs and fuel. According to the Central Bureau of Statistics (CBS), prices of food, fuel and non-alcoholic drinks increased by between 1.2 percent and 2.9 per cent last month. In the last twelve months, food and non-alcoholic drinks had the highest increase of 23 percent.
In Uganda, the Diagnostic Trade Integrated Study (DTIS), which was commissioned to identify the constraints to trade in Uganda, showed that unreliable access to power affects its export competitive advantage. In addition, the report promoted intra-regional investment, but it noted a lack of local business skills as a barrier
For example in June this year the National Bank of Rwanda (BNR) closed about eight micro finance institutions due to bankruptcy. According to BNR, this was due to significant losses incurred as a result of poor credit management practices, failure to meet minimal conditions for licensing, loss of customer confidence resulting in massive withdrawals of deposits and failure to attract any more new deposits.
GLCSS trains African journalists, offers an on-site internship to foreign African studies students, and manages an exchange program with journalists from the United Kingdom, the United States and Europe.

You may contact Theoneste Asiimwe at asiimwe@glcss.org

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