EAC to exploit the $1.2 billion continental market after AfCFTA ratification

Members of East Africa`s private sector including small and medium size enterprises are preparing to exploit the over Tshs.2.7 trillion ($1.2 billion) continental market after endorsement of African Continental Free Trade Area (AfCTA).

At their meeting in Arusha on Thursday 25th April,2019, members of East Africa Business Council (EABC) who teamed up with United Nations Economic Commission for Africa (ECA) said they foresee large potential gains from the AfCFTA, including an increase in intra-African exports of Eastern Africa by nearly Tshs.2.3 trillion ($1 billion) and job creation of 0.5 to 1.9 million

`Together African economies have a collective gross domestic product (GDP) of $2.5 trillion, making it the 8th largest economy in the world. That makes the continent much more attractive to investment, both from within and from outside the continent, ` said Andrew Mold, the acting Director of ECA in Eastern Africa.`This should encourage business people to take advantage of AfCFTA and make the investments necessary to sustain economic growth and create employment, ` Mold added.

EABC Chairman, Nick Nesbitt emphasized the importance of the continent having a clear vision to put an end to the fragmentation of the internal market. `I really applaud everybody who has been involved in creating the AfCFTA because their vision is the one of pan-Africanism,` Nesbitt said. `It is something our founding fathers aspired to. Our thanks to ECA for being at forefront of this conversation and pushing the agenda forward so that the continent becomes a single economic trading bloc, ` he added.

Speaking at the same gathering, Director General of Customs and Trade at the East African Community Secretariat, Kenneth Bagamuhunda cited the experience of regional economic communities as the building blocks for the AfCFTA.

`The AfCFTA should build on what has already been achieved in regional negotiations like the tripartite free trade area, as well as within our respective regional blocks, Bagamuhunda said. He also highlighted governments need to set a conducive environment for the successful implementation of AfCFTA.

The AfCFTA was signed in March 2018, at a historic meeting of the African Union in Kigali. 52 of 55 African Union member states have so far signed the AfCFTA (Eritrea, Nigeria and Benin are yet to sign the agreement) , 22 countries have ratified the agreement, which was the minimum number required for it to enter into force. Gambia`s parliament approved the AfCFTA on Tuesday 23rd April,2019, becoming the 22nd nation to do so, and effectively meeting the minimum threshold for the agreement to come into force.

The AfCFTA seeks to create the largest trade zone in the world, increase intra-African trade by 52% by the year 2022 and remove tariffs on 90% of goods.

Also read: Africa’s move to push for cheaper, faster trade

Starvation, death threaten Horn of Africa stability

Among those who require immediate early action are 10.7 million people across Somalia, Kenya, Ethiopia and the Karamoja region in Uganda.

The Greater Horn of Africa region is at high risk of worsening food insecurity in parts of Kenya, Ethiopia, Somalia and Uganda if forecasted rainfall deficits materialize.

This means that around 23.4 million people are currently food insecure in the region.

Among those who require immediate early action are 10.7 million people across Somalia, Kenya, Ethiopia and the Karamoja region in Uganda.

According to Intergovernmental Authority for Development (IGAD), there is a high risk of a worsening situation due to forecasted rainfall deficits although the food insecure population is lower than numbers observed during the 2017 drought where 15.3 million people were at risk.

Below-average crop production

In a statement by IGAD, delay in the start of the March to May long rains, coupled with forecasted rainfall deficits are building on already dry conditions due to poor October to December rains over some parts of the Greater Horn of Africa.

The poor performance of the past season’s short rains already led to below-average crop production and deteriorating pastures in some agro-pastoral and marginal mixed farming areas.

Analyses show that rainfall levels through mid-April will likely be amongst the driest on record (since 1981) in some areas, particularly in southern Kenya, much of Somalia, Somali region of Ethiopia, and localized areas of Uganda.

Rainfall predictions for the remaining season (15 April to 31 May) suggest that parts of the region will still receive below average rainfall.

The drought may deal a blow to the East African region whose economic growth is outperforming its African peers.

Reduced food production

In particular, eastern Kenya, eastern Uganda, central and eastern Somalia and western Ethiopia.

If the forecasted rainfall deficits materialize in April and May, this would lead to an atypical increase in food insecurity and livestock movement, likely to peak from June to October.

Northeastern Kenya, south and central Somalia and south and eastern Ethiopia would likely experience a rapid decline in pastoral conditions.

Dry conditions and high temperatures, between January and March, have already led to deteriorations in pastures and water availability in these areas, affecting livestock body conditions, reducing milk production, and driving pastoralists to keep their livestock in dry season grazing areas for a prolonged period, stressing limited pastoral resources and increasing the risk of conflict in receiving areas.

The Uganda-Kenya border where pastoral conditions are expected to remain acceptable could suffer from possible competition over resource and may result in localized conflicts.

Price increases and reduce access to food supplies

Crop production would also be below average in marginal agricultural areas of Kenya, Somalia and Ethiopia.

This, along with the potential of lower than average production of key regional players such as Uganda and Tanzania, could cause price increases and reduce access of poor households to basic food supplies.

The rains during the remainder of April will be a key determining factor for seasonal performance and future food security.

However, should the forecasted below-average rains materialize, this would be the second consecutive poor rainy season across many areas.

Additionally, in pastoral areas, the widespread nature of the rainfall deficits could limit opportunities for livestock migration.

Worsening food insecurity and nutrition

Under this scenario, worsening food insecurity and nutrition would be likely in parts of Kenya, Ethiopia, Somalia and Uganda, with a peak between June and October and highest severity in worst-affected Kenya and Somalia.

Current 2019 projections show a worrying regional nutrition outlook, which is expected to worsen in the coming months should rainfall deficits materialize.

2.76 million children under five are expected to suffer from acute malnutrition in Ethiopia, 903,086 in Somalia and an estimated 541, 309 in Kenya.

In total, over 4 million children are predicted to require support for acute malnutrition.

This does not include the additional 3 million pregnant and breastfeeding women nor the potential additional numbers if robust prevention is not actively implemented.

History of hunger and famine in Africa

In 1968 to 1980s, a drought in the Sahel region led to 1 million deaths in Mali, Chad, Niger, Mauritania, and Burkina Faso.

Drought and conflict led to widespread hunger in Uganda in 1980 to 1981.

Approximately 1 million people were estimated to have died during a famine in Ethiopia in 1984 to 1985. This was in the northern highlands of the country where problems delivering aid led to the casualties.

The Somalia famine was caused by drought and civil war in 1991 to 1992 while in 1998 to 2004 during the Second Congo War, more than 3 million people died in the Democratic Republic of the Congo, mainly from starvation and disease.

In 2011 to 2012 a hunger crisis in the Horn of Africa was responsible for 285,000 deaths.

A strong El Niño affected almost all of East and Southern Africa in 2015 to 2016 causing food insecurity for more than 50 million people.

In 2017, 25 million people including 15 million children, needed humanitarian assistance in East Africa.

Torrential rains in East Africa caused floods that killed people, livestock, and crops, and washed away roads and bridges making it hard to deliver aid from February to May 2018.

In June last year, the rain brought some relief to dry pastures and cropland but the height of the lean season brought severe food shortages for many, according to World Vision.

Dealing with the current crisis

The Food Security and Nutrition Working Group urges immediate and coordinated planning by governments, donors and all concerned stakeholders to respond to the potentially deteriorating food security and nutrition situation.

Some of the actions that should be urgently undertaken include activation of early actions focusing on strengthening rural agricultural livelihoods in worst-affected areas to mitigate the likely food security impacts of an upcoming prolonged and severe lean season.

Stakeholders are also being asked to release drought-related contingency funding to enable timely early actions and response and prepositioning required goods for emergency response in advance of the expected peak in needs between June and October.

You can also read Kenya Space Agency intensifies use of science to curb drought, Gates Foundation grants $24.6 million to aid maize farming in Tanzania and Ethiopia, Somalia in IRC’s 2019 humanitarian crisis list.

EAC to launch platform to promote food security and nutrition

Members of Parliament from eastern African countries are on 15th April, 2019 expected to launch the Eastern Africa Parliamentary Alliance for Food Security and Nutrition (EAPA FSN) – a sub-regional platform aimed at promoting the right to food in eastern Africa through improved legislation.

According to a statement issued on 14th April, 2019 by the Food and Agriculture (FAO) of the United Nations, the launch is in line with the first annual meeting in Tanzania in 2019.

The platform came after realizing that malnutrition continues to be a major impediment to economic development, whereby it is estimated that 58 million children under the age of five years are too short for their age (stunted) in Africa.

`Childhood malnutrition is costing the African economy about 11 per cent of Gross Domestic Product (GDP) every year, whereas preventing malnutrition delivers $16 in returns on investment for every $1 spent in Africa,` the statement read in part.

It further said that parliamentarians play a critical role in alleviating hunger and malnutrition.

`In fact, MPs enact laws and regulations, monitor law enforcement, influence national development plans, determine the design and allocation of national budgets, and hold their governments accountable for policy implementation related to food security and nutrition.`

After a number of consultative meetings, MPs from eastern African countries, acknowledging the insufficient progress in food and nutrition situation, committed to establish a sub-regional platform that will promote cross border sharing of experience and best practices. It was also agreed to create the Eastern Africa Parliamentary Alliance for Food Security and Nutrition (EAPA FSN) and to hold the first annual meeting in Tanzania in 2019.

`This meeting is therefore meant to officially establish and launch the EAPA FSN. It will also provide an opportunity for launching the FAO-IGAD Technical Cooperation Program developed to support parliamentary action in Eastern Africa,` the statement said.

The meeting which will be held in the Northern Safari capital of Arusha, the meeting will bring on board about 40 MPs from 9 countries; IGAD Inter-parliamentary Union and East African Legislative Assembly and it will be chaired by the Speaker of Parliament, Job Ndugai.

In the 2018 Global Nutrition Report, Globally, stunting among children under five years has fallen from 32.6% in 2000 to 22.2 per cent in 2017. Yet, while stunting in children under five years of age is declining at a global level, the numbers in Africa are increasing. Driven by population growth, despite the decrease in stunting prevalence in Africa, the number of stunted children has steadily increased from 50.6 million in 2000 to 58.7 million in 2017.

The data also shows an overall increase in both overweight and obesity in Africa. At the same time, the region is undergoing significant growth in consumption of packaged foods.

Also read: World Food Day: Food security situation in East Africa

Uganda-Rwanda tiff scares Bamburi cement as profits drop

2018 profits dropped to US$6.1 million from US$18.8 million in 2017

Cement manufacturers-Bamburi Cement has expressed concerns over the Uganda-Rwanda border row, warning it could derail its earnings.

This comes amid a drop in net profit for the year 2018, reported at Ksh614 million (US$6.1 million) down from Ksh1.9 billion (US$18.8 million) in 2017.

“The difficulties experienced in the Uganda-Rwanda border have significantly impacted exports to Rwanda from Uganda and the Group hopes this matter is resolved expeditiously,” the company said in its financial statement signed by Chairman John Simba and Group Managing Director Seddiq Hassani.

The Nairobi Securities Exchange (NSE) listed firm has however reported a 3.7 per cent jump in turnover, from Ksh36 billion (US$3.6 billion) in 2017 to Ksh37.2 billion (US$3.7 billion) in 2018 as cement volumes grew by nine per cent.

“The Group achieved this growth despite a market decline of five per cent in Kenya, our biggest market, and a flat cement market in Uganda. Increased competitive pressure fuelled by a growing gap between installed cement grinding capacity and the shrinking market has played a key role in market dynamics,” the firm has said.

However, the overall top line growth in a declining market is a clear indication that the execution of its “Building Growth” strategy has put the firm on solid track to consolidate its market leadership position.

The group operating profit reduced to Ksh800 million (US$7.9 million) in 2018 from Ksh4.2 billion (US$41.6 million) in the prior year.

Despite the increase in turnover, there was a higher cost environment relating to higher energy costs (power, coal and petcoke), imported clinker and raw materials’ input prices, the firm has noted.

Uganda was further impacted by additional provisioning mainly on receivables. The net result of all these being that operating profit in Kenya remained flat compared to 2017 and declined in Uganda.

Cash generated from operating activities as Ksh3 billion (US$29.7 million) was lower than for prior year at Ksh5 billion (US$49.5 million), mainly on account of lower operating profit.

Uganda closed the year in a net borrowing position; while Kenya remained cash positive, the company’s financial indicate.

In the second half of 2018, the Group completed the first phase of the capacity expansion projects both in Kenya and Uganda, at a total cost of Ksh7.9 billion (US$78.2 million).

“These have put us in a strong position to leverage growth opportunities in our markets and to further solidify our market leadership position,” the management notes.

The market is expected to rebound in both countries in 2019 thigh fears remain on the export market mainly products to Rwanda from Uganda.

The group will continue to execute “Building for Growth” strategic agenda , while maintaining focus on cost of optimization in order to grow profitability and competitively.

The board has recommended payment of a final dividend of Ksh4.10 per ordinary share.

READ:Bamburi cement warns investors of profit slump in 2018

ALSO READ:Kenya, Uganda markets blamed for 66% drop in Bamburi cement’s profit

 

 

How East African businesses are going to lead the AFCTA

The apex body for East Africa’s businesses, East African Business Council has urged regional CEOs to opportunities arising from the EAC regional integration process.

This takes place even as the council in collaboration with TradeMark East Africa (TMEA) launched the regional programme on Public-Private Sector Dialogue (PPD) for Trade and Investment from 2019 to 2023.

According to EABC Chief Executive Mr Peter Mathuki said “The project aims to enhance advocacy and dialogue on transport and logistics, trade facilitation, customs & tax, standards, and NTBs at regional and country level. In addition, the programme extends beyond the EAC and incorporates the COMESA, COMESA-EAC-SADC Tripartite Free Trade Area (TFTA) and  Africa Continental Free Trade Area (AfCFTA).”

“Public-Private Dialogue can facilitate the trade & investment climate reforms by promoting better diagnosis of investment climate problems, transparency and inclusive design of policy reforms making policies easier to implement. TMEA launched this new partnership with EABC to galvanize and facilitate trade and investments in the EAC,” said Mr. Allan Ngugi, Ag. Director Private Sector Advocacy TMEA.

For businesses in the region to grow and expand within and beyond the EA, there is a need for technical and financial support to EABC in a bid to advocate and input substantive issues affecting the business community in regard to policy formulation and implementation in the region.

According to Mr Mathuki businesses should proactively engage the East African Community through EABC given the proximity advantage that the EAC and EABC Secretariat are located in Arusha. He noted there is a need to remove Non-Tariff Barriers and embark on trading proactively with the neighboring countries even before venturing outside the continent.

“Let’s spur business within ourselves as the EAC bloc,” said Mr Mathuki.

According to the CEO, EABC is keen to enhance dialogue and partnership between the private and public sector; hence EABC will spearhead the programme in close collaboration with the all national and regional sectoral private sector associations in the EAC.

Speaking at the recently concluded CEO Round Table Meeting Mr. Charles Omusana from the EAC Secretariat informed the CEOs on initiatives and programmes that support businesses growth and Investment the EAC Secretariat is working on such as the review of the EAC CET.

He noted, “It is the right of the private sector to demand a better and improved business climate in the region.” He further urged the CEOs to give input on the EAC Private Sector Development Strategy that will be developed.

The Chairman of Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) Arusha Mr. Walter Maeda welcomed closer collaboration between TCCIA and the East African Business Council in a bid to support SMEs to take advantage of the opportunities availed by the  EAC regional integration process.

“Request for waiver of duty from the Import Commissioner for EAC Originating Goods takes 7 days, this delays business and intra EAC Trade” Mr. Amani Temu  from Taha Fresh elaborated one of the obstacles to cross border trade. Among other issues, affecting businesses is the recent notice on no conditional release for imported goods by the Tanzania Bureau of Standards, which subjects imported goods from the EAC Partner States to inspections causing delay.

The steel industry in Arusha is calling for the review of East African Harmonized Standards on hot-rolled steel plates of less than 1mm as the plates are an important raw material for their industries.

“Mutual Recognition of Standards is important to businesses, such protectionist administrative measures are NTBs which hinder intra EAC trade, “ said Hon Mathuki

The CEO Forum in Arusha also agreed to consolidate issues affecting businesses at the ground and through the support of EABC they are keen to engage the EAC Secretary General and Council of Minister for a quick resolution.

This comes at an opportune time when the EAC integration process is marking 20 years in November 2019  since the signing of the Treaty, it is important that the private sector and government dialogue and ensure that protocols and policies work on the ground for EAC businesses. In addition, Article 7 of the Treaty for the Establishment of the EAC states on people-centered and market-driven cooperation as a principle to govern practical achievements of the objectives of the EAC integration process. Further Article 128 emphasizes on strengthening of the private sector as a key partner in the EAC integration.

“Barriers to trading across borders such as multiple product standard inspections, bureaucratic trade procedures delays business transactions and increase the cost of doing business. EABC will evaluate and monitor EAC policies to ensure they work for businesses at the ground level and create momentum for accelerating the policy reforms related to business and investment climate in the EAC ” said Mr Mathuki.

The programme seeks to contribute to the reduction of transport (road, rail, and air) cost and time along transport corridors by 10 per cent and increase the efficiency of logistic services. Furthermore, it will increase the export capacity of East African businesses and enhance customs and other trade-related agencies efficiency by reducing time to process trade documentation.

It will enhance dialogue on customs matters such as tariffs, taxes, levies, Common External Tariffs, and import/export tax incentives. It will also look at Harmonization of East African Standards, counterfeit and sub-standard issues as well as Non-Tariff Barriers,” said Mr Mathuki.

“The operationalization of the Single Customs Territory has contributed to the reduction of delays in cargo clearance in the Northern Corridor, the turnaround time of goods transiting from Mombasa to Kampala has been reduced from 18 days to 4, and goods from Mombasa to Kigali, from 21 days to 6.2, “ said Mr Mathuki.

According to the World Trade Organization to the Central Corridor turnaround time between the port of Dar es Salaam and Kigali (or Bujumbura) has been reduced from over 20 days to 6.

WorldBank’s Ease of Doing Business report (2018), EAC is ranked at 149 out of 190 in the ease of trading across borders.  In the region, the time it takes to export is at an average of 76.hrs which is too high compared to 12.5 hours in OECD High-Income Economies. The cost to export outside the region is at an average of USD427.8 compared to 139.1 in OECD High-Income economies.

The export documentary compliance in the region takes 80.2hours and cost USD 170.2 while in OECD High-Income economies is at 2.4hrs and USD35.2 respectively.

TMEA will continue to play a critical role in facilitating ease of doing business in the region and the continent.

 

ALSO READ: EABC celebrates 20 years of doing business in the region

East Africa’s economic growth outperforming African peers

According to the African Development Bank (AfDB), job creation and ramping up manufacturing will continue to be major priority areas for creating growth and employment across the continent.

East Africa’s economic growth is soaring leading other regions on the continent at close to 7 per cent while the overall outlook for the rest of Africa is cautiously positive.

According to the African Development Bank (AfDB), job creation and ramping up manufacturing will continue to be major priority areas for creating growth and employment across the continent.

In the Bank’s regional reports launched this week in Abuja, Nigeria, East Africa is leading the continent with GDP growth estimated at 5.7 per cent in 2018, followed by North Africa at 4.9 per cent, West Africa at 3.3 per cent, Central Africa at 2.2 per cent, and Southern Africa at 1.2 per cent.

Eastern Africa Economic growth robust

AfDB released four of its five regional economic outlook reports for Yaounde, Nairobi and Pretoria, with specific forecasts for West, Central, East and South Africa.

The reports follow the January launch of the 2019 African Economic Outlook, which provides a broader, continent-wide perspective.

Economic growth across Eastern Africa will remain at a robust 5.9 per cent in 2019, making it a promising investment and manufacturing destination.

Within the region, Ethiopia is in the lead as the fastest growing economy with a predicted 8.2 per cent growth in 2019, while Rwanda was second at 7.8 per cent; Tanzania (6.6 per cent); Kenya (6 per cent), Djibouti (5.9 per cent) and Uganda (5.3 per cent) follow behind.

Africa’s least integrated region

Growth in Central Africa is gradually recovering but remains below the average for Africa as a whole.

It is supported by recovering commodity prices and higher agricultural output.

The region is one of the continent’s least integrated, with potential for reforms and greater linkages, the Central Africa regional report said.

The West Africa Regional Economic Outlook calls on the region to explore innovative means of raising revenue through reforms that enhance tax collection, minimize tax evasion and curb illicit financial flows.

Economic recovery for countries on a downward trend

Between 2014 and 2017, West Africa’s GDP growth trailed the rate for Africa as a whole, though it was faster than in Central and Southern Africa.

Countries bucking the downward trend, such as Cote d’Ivoire, Ghana and Senegal, continue to offer positive examples of economic recovery in a sober economic environment.

Growth in Southern Africa is expected to remain moderate in 2019 and 2020 after a modest recovery in 2017 and 2018.

Southern Africa’s subdued growth is due mainly to economic stagnation in South Africa, the largest regional economy, which has a ripple effect on neighbouring countries.

All the regions face similar risks to their economic prospects in 2019–20, these include rising debt, fragility, population growth and climate change.

Job creation, regional integration, key areas for focus

From East to West, North to South, and across Central Africa, employment remains a major concern and concerted efforts must be made to keep up with growth rates, the reports noted.

The flagship African Economic Outlook Report pinpoints industrialization as a key to the continent’s employment conundrum.

Regional integration, the special theme for this year’s report, is seen as a key gateway to Africa’s economic growth, with a borderless Africa being the foundation of a competitive continental market.

Policy actions to grow Africa’s total gains

The report outlines five trade policy actions that could bring Africa’s total gains to 4.5 per cent of its GDP, or USD 134 billion a year.

First is eliminating all of today’s applied bilateral tariffs in Africa. Second is keeping rules of origin simple, flexible, and transparent.

Third is removing all nontariff barriers on goods and services trade on a most-favoured-nation basis.

Fourth is implementing the World Trade Organization’s Trade Facilitation Agreement to reduce the time it takes to cross borders and the transaction costs tied to nontariff measures.

Fifth is negotiating with other developing countries to reduce by half their tariffs and nontariff barriers on a most-favoured-nation basis.

You can also read about why the DR Congo is mulling joining the EAC, E-commerce investment opportunities in mobile-only Zambia and how mobile money is making Africa ‘bankable’.