Dollar scarcity, lack of credit add to NTBs hurting EAC trade

Kenya trails Rwanda in ease of doing business

In Summary

•Pending bills also remain a major challenge for the private sector with suppliers in Kenya among the most hit.

•While EAC has harmonised tariffs and pushed for the ease of movement, traders are still facing challenges at borders and markets.

Long distance trucks along the Malaba-Bungoma highway.
Long distance trucks along the Malaba-Bungoma highway.
Image: FILE

Difficulties in securing foreign currencies and lack of affordable credit in the wake of rising interest rates are major challenges facing traders in the East African Community, a report indicates.

These add to delays in payments by government for supplied goods and services (pending bills), securing government tenders and obtaining tax refunds, tax appeals, rulings, and customs valuation.

According to the Report on the Ease of Doing Business in the EAC 2023 by the East African Business Council (EABC), on behalf of the Germany Corporation for International Cooporation (GIZ), there is also persistent cross-border restrictions and high trading costs which are hurting intra-EAC trade.

This is despite the region being the most integrated compared to other blocs such as Southern African Development Community (SADC) and the Middle East and North Africa (MENA).

While EAC has harmonised tariffs and pushed for the ease of movement, traders are still facing challenges which vary from country to country.

This is despite the region experience steady increases in trade volumes in post-Covid era, driven by reopening of economies and demand for goods and services.

Intra-EAC trade, accounting for imports and exports in the seven EAC partner states, grew from 13 per cent in 2019, valued at $7.1 billion (Sh1.04 trillion), to 15 per cent in 2021, valued at $9.5 billion (Sh1.4 trillion).

By September 2022, EAC's trade value reached $10.17 billion (Sh1.5 trillion), official data shows, representing a 20 per cent share of intra-trade within global trade, which stood at $62 billion (Sh9.1 trillion).

“Despite this progress, persistent Non-Tariff Barriers and protectionist tendencies by EAC Partner States have been identified as key factors hindering the growth of intra-EAC trade,” the report reads in part.

Consequently, the EAC private sector has called for effective mechanisms to eliminate NTBs in the region.

The region’s currencies also remain exposed to the strengthening US dollar with traders struggling to secure enough dollars for trade, amid low usage of local currencies for payments.

EAC forex reserves policy specifies that a member country must have in its coffers at least four months' worth of forex reserves in terms of imports cover at any given time.

Kenya's import cover stood at 3.8 months as of last week, with usable foreign exchange reserves at $7.051 billion (Sh1.03 trillion), Central Bank data shows.

Tanzania's reserves amounted to $5.2 billion at the end of July 2023, even as the Bank of Tanzania insisted they were sufficient to cover about 4.7 months of projected imports.

Uganda's reserves were in June quoted at $4.07 billion with the three economies controlling more than 70 per cent of the region's trade. 

Exchange rates on local currencies have also fluctuating, trends that are affecting trade.

Within the EAC, the Kenyan shilling for instance has weakened against, the Tanzanian and Ugandan shilling by up to seven per cent and 4.5 per cent, respectively, data by the Kenya National Bureau of Statistics indicates.

Rwandese Franc has strengthened against the Kenyan shilling by 24.8 per cent.

Pending bills remain a major challenge for the private sector with suppliers in Kenya among the most hit.

Government’s pending bills hit Sh567.5 billion in June 2023, latest National Treasury data shows, amid high loan defaults by suppliers struggling with cash-flow.

“Pending bills in Kenya and non-performing loans have been trending in the same direction for the last two years,” World Bank says in its latest Kenya Economic Update report released in June.

Rwanda ranks top in East Africa on the ease of doing business, according to the report, with an overall score of 77.88 per cent.

It is followed by Kenya with a score of 70.31 per cent, Uganda (57.06%), Tanzania (53.63%) Burundi (47.41%) and South Sudan (35.34%). DR Congo was not included as it is a recent entrant.

The ease of doing business score captures the gaps in each economy spanning from regulatory performance, starting a business, access to credit and money market, trade rules, and cross-border clearance and movement, among others.

“To improve the ease of doing business in the region, EAC should address the afore-mentioned challenges,” the report states.

It is a sum up of a survey that involved a total of 252 respondents (companies) where 52 per cent of the respondents, equivalent to 133 companies, were from trade in goods, while 47 per cent, equivalent to 119 companies, were from trade in services.

The companies recommended that EAC partner states should enhance border efficiency, to facilitate trade processes on the movement of goods and people.

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