Presentation on theme: "1 Accession of Burundi and Rwanda in EAC: Implications for Private Sector Development By Richard NDEREYAHAGA CUTS – BIEAC Project Regional Workshop Nairobi,"— Presentation transcript:
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 A. Understanding the EAC Private Sector Development Strategy B. Understanding the regional economy in the EAC C. Trade regimes and Investment Climate D. Opportunities and disadvantages from accession to EAC E. 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 (cont’d): 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 It’s 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 country—Rwanda—was the world’s 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 (cnt’d) 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/businesses, 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.
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 Burundi’s 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] Kenya’s 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, Burundi’s 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 EU’s 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 International integration Indicator BurundiKenyaRwandaUgandaTanzania Countries that need a visa to visit this country (number in 2004) 19121180035 Countries in which residents of this country need a visa (number in 2004) 163140156145142 Cost of passport relative to GDP per capita (% 2005) 184.108.40.206-13.4 International migration stock (% of foreigners) 1.31.01.31.82.1
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 IndicatorBurundiKenyaRwandaTanzaniaUganda Overall world rank in ease of employing workers 70689314011 Difficulty of Hiring Index 022441000 Rigidity of Hours Index60040 0 Difficulty of Firing Index30 5010 Rigidity of Employment Index 301738633 Firing costs (weeks of salary) 2647261813
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 country’s 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.
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