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Tanzania’s earnings from agencies cause disquiet among EAC partners

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FRED OLUOCH

By FRED OLUOCH
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The East African Community needs to address the disproportionate gains that Tanzania gets from hosting most of the trading bloc’s agencies, particularly Dar es Salaam’s 73 per cent earnings from the $31.5 million annual average budget of the organs.

All EAC partner states contribute equally to the bloc’s budget through annual subscriptions.

A new report by the EAC secretariat has revealed that Tanzania earns $23 million from hosting five of the eight EAC organs, much more than Kenya, which earns $4 million, Uganda $3 million, Rwanda $1 million, and Burundi which receives $500,000.

The report, however, notes that Kenya gains the most from trade within the EAC, earning $38 million annually, followed by Uganda ($22 million) and Tanzania ($15 million).

Rwanda, Burundi and South Sudan make net losses from trading with the region, according to the draft report titled Equitable Sharing of Benefits and Costs of EAC Integration Process.

“Given the current reality and lessons from the former EAC community, which collapsed mainly as a result of unequal share of benefits, there is a need to share the costs and benefits in a fair and equitable manner for sustainability of the EAC Community which generates far more benefits than the costs,” states the draft report.

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It further states that provisions in the EAC Treaty such as equal contribution to the EAC budget “may no longer be sustainable given the huge differences in population size and GDP of partner states”.

The draft report, which is yet to be approved and adopted, proposes a review of the formulae for equitable sharing of costs and benefits.

Tanzania’s benefits from the five organs that it hosts come from local employment, rent income and supplies. The five are the secretariat, the East African Court of Justice, the East African Legislative Assembly, the East African Kiswahili Commission, and the Competition Authority.

Uganda hosts the East African Development Bank, the Lake Victoria Fisheries Organisation, the Inter University Council of East Africa, and the Safety Oversight Agency.

Kenya hosts the Lake Victoria Basin Commission, Rwanda the East African Science and Technology Commission and Burundi hosts the EAC Health Research Commission.

The study was commissioned after the EAC Council of Ministers at its 18th meeting held in Arusha on September 4, 2009, observed that to actualise the fundamental and operational principles of the EAC required equitable distribution of benefits accruing to or to be derived from operation of the Community.

The EAC secretariat, in an interview on Friday, insisted that the draft report is yet to be finalised and could not therefore publicly discuss its findings.
“This [the earnings by Tanzania] is the percentage of gains from hosting EAC organs and institutions only. It does not include gains from trade where Kenya benefits most,” said Aime Uwase, the EAC principal planning and research officer in a response.

Further studies are ongoing to quantify other benefits from hosting and implementing various protocol provisions under the Customs Union and the Common Market, according to Wilberforce Mariki of the EAC secretariat.

The EAC, initially made up of Tanzania, Kenya and Uganda, broke up in 1977 after the then-socialist Tanzania complained that capitalist Kenya was benefiting more than the other two partners.

Other issues that caused the collapse included Kenya’s demand for more seats than Uganda and Tanzania in decision-making organs, and disagreements with Ugandan dictator Idi Amin who demanded that Tanzania as a member state of the EAC should not harbour forces fighting to topple his government.

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The disparate economic systems of socialism in Tanzania and capitalism in Kenya also contributed to the fall.

Kenya had a more developed manufacturing sector than Tanzania and Uganda, resulting in large income transfers from Dar es Salaam and Kampala.

The report observes that regional integration, by its very nature, creates imbalances in gains if partner states do not take effective measures to maximise the prospective and potential benefits and minimise costs.

The overall objective of the study was to assess whether there is equitable sharing of costs and benefits of the EAC integration so far, and provide a remedial mechanism where possible.

The study suggested that EAC institutions and organs allocate jobs equitably and sustainably as per the Treaty provisions as integration deepens.

The study also suggested that job distribution should be proportional to partner states’ contribution to the EAC budget.

High profile and technical jobs should be competitively awarded, and others should be rotational and allocated on a quota basis.

The study suggests a review of the current system of equal contribution to the EAC budget by partner states, given that they are structurally different in terms of GDP, imports, exports to the region and population.

It suggests that partner states can contribute based on their capacity to pay as represented by GDP. This mode of financing has been successfully used by the Southern African Development Community, the African Union, the Caribbean and Pacific Group of States, and the Organization of American States.

Partner states with bigger economies and population are seen to benefit more, or the impact of integration could be higher in bigger economies than smaller ones. But sharing costs based on GDP remains a parameter that relatively satisfies the principle of solidarity, equity, balance and mutual benefit.

The partner states’ contribution to the 2018/19 total budget was $56,245,162 (56 per cent of the total budget) through the respective ministries of EAC Affairs ($50,227,920), the ministries responsible for education ($4,466,210) and ministries responsible for fisheries ($1,551,032).

Development partners will contribute $42,925,613 to the budget, and member universities will give $333,970. The miscellaneous revenue is pegged at $265,971.

The percentage contribution to the budget by EAC partner states has been increasing over time. It increased from 10 per cent in 2011/12 to 56 per cent in 2018/19.

The analysis of contribution per capita shows a big gap, from $0.94 (Burundi) to $0.19 (Tanzania).
As a result of reforms, trade within the EAC has increased. Intra-EAC trade was $1.7 billion in 2005, rising to $3.5 billion in 2013 and falling to $2.4 billion in 2017.

The report says the shrinking of trade among partner states since 2015 may be as a result of national production patterns becoming more similar, and movement of capital investments where products are manufactured locally.

Annual net trade gain (million US $). GRAPHIC |
Annual net trade gain (million US $). GRAPHIC | TEA

The EAC intra-trade share is below 20 per cent, compared with the EU where it is 61.7 per cent. Among the members of the North American Free Trade Agreement, the share is 50.3 per cent and 24.3 per cent within the Association of Southeast Asian Nations.

The elimination of tariffs on intra-EAC trade led to an average annual loss of Customs duty of $1,689.07 million between 2013 and 2017.

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KWS reverses park entry fees increase after uproar

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OTIATO GUGUYU

By OTIATO GUGUYU
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The Kenya Wildlife Service (KWS) Tuesday withdrew a notice increasing park fees by up to 300 percent for Kenyans across the country from July following public uproar.

KWS said in a statement that the higher fees had been suspended. Tourism and Wildlife Cabinet Secretary Najib Balala earlier termed the Business Daily report of the park fees hike misleading.

The March 30 notice announcing the date when the new higher rates would take effect was linked to an October 18 notification from Mr Balala.

The higher fees drew protest from Kenyans on social media who argued that the timing was wrong, citing the effect of coronavirus-related travel restrictions on Kenya’s tourism sector.

“This is to inform the public that KWS in consultation with Ministry of Tourism has suspended the implementation of the new rates until further notice due to the prevailing circumstances occasioned by the coronavirus,” said KWS in a statement.

Kenya has confirmed 172 cases of the coronavirus pandemic that has hit the tourism sector with the borders closed and social distancing rules prompting hotel shutdowns.

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The new rates were to see locals pay Sh1,500 to visit Lake Nakuru and Amboseli national parks during the peak period and Sh800 during the off-peak period, up from the current Sh500. This reflected a 300 percent rise.

The Peak is between July and March and low season between April and June. Entry fees for locals in the Nairobi National Park were to go up to Sh1,500 and Sh800 during peak and off peak seasons respectively, up from Sh300.

Meru Park, Aberdare, Mt Kenya, Tsavo charges were to jump from Sh350 to Sh1,000 during the peak season and Sh400 the rest of the time.

Foreigners were to pay $70 in Nairobi National Park up from $40 in peak season, with off-peak rates remaining unchanged at $40.

At Amboseli and Lake Nakuru peak entry fees for foreigners were to be cut to $70 from the current $80 while off-peak charges were to drop from $60 to $40.

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Carrefour records Sh18.7bn sales in Kenya

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ANNIE NJANJA

By ANNIE NJANJA
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French retail chain Carrefour recorded sales worth Sh18.7 billion from its Kenyan outlets last year, the company has disclosed in its annual financial report.

Majid Al Futtaim, the exclusive holder of Carrefour’s franchise in Kenya, announced the 28 percent jump in sales from Sh14.6 billion recorded in 2018 indicating that its aggressive expansion bid across major towns in Kenya was paying off.

The retailer said since launching in Kenya four years ago, the franchise of the French hypermarket chain had grown faster than expected, attracting a strong clientele base among the country’s expanding middle class.

The retailer announced plans to continue the expansion of its retail and entertainment business across key markets, including in Africa.

“In 2020, Majid Al Futtaim Retail will open its first store in Uzbekistan, with plans for further expansion to new markets in Central Asia and Africa and scale up its e-commerce capacity to meet growing online demand, through innovative fulfilment solutions,” the group said in the report.

The retailer has been expanding its presence in Kenya after taking over spaces previously occupied by struggling supermarket chains, including Nakumatt and Uchumi, as well as opening new outlets to cash in on the underserved market.

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The retailer has seven branches in Kenya with the eighth one set to open on Uhuru Highway near Nyayo roundabout-taking over space previously occupied by the collapsed retailer Nakumatt.

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The branch, which was set to be opened before the end of March, has faced delays due to the current Covid-19 pandemic.

The retailer’s other branches are also strategically located at the Hub in Karen, Village Market, Two Rivers Mall, Thika Road Mall and Sarit Centre in Westlands.

One-time market leader Nakumatt, now under administration, and cash-strapped Uchumi, have shut the majority of their branches.

The gap left by the collapse of the two retailers has created a void in the sector that has local and international chains scrambling to fill.

The spirited entry into Kenya by multinational chain stores like Game and Shoprite is stiffening competition, pitting new players against the local family-owned retailers.

French firm Amethis recently bought a 30 percent stake in Naivas to back the expansion of the retailer.

Majid Al Futtaim made public its Kenya annual sales in a newly-released financial report that also puts its local assets as of December 2018 at Sh7.2 billion, up from Sh4.3 billion in December 2018.

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Kenya listed among countries at high risk of debt default : The Standard

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President Uhuru Kenyatta (left) chairs the 11th presidential roundtable on economic response to Covid-19 at State House Nairobi. Kenya has a huge task of paying its rising debt.

Kenya has been listed among six African nations at high risk of defaulting on external debt. 

According to data from Capital Economics and the World Bank, Kenya, Tunisia, Angola, Ghana, Zambia and South Africa are the most vulnerable countries in terms of external financing requirements as a percentage of foreign exchange reserves.
And as coronavirus wreaks havoc, a weakening shilling, and drops in tourism, income and corporate tax, exports and remittances are expected to shred Kenya’s finances, leaving it struggling to avoid default.
Kenya’s gross external financing requirements – the amount of money needed to service short-term external debt as a percentage of forex reserves – stands above 70 per cent, according to Capital Economics and World Bank data.
The country’s forex reserves dropped sharply two weeks after the Treasury retired a Sh23.5 billion ($234 million) syndicated loan that matured late last month.
“It will be tough. The Parliamentary Budget Office estimates a drop in revenue of Sh122 billion, which I think is for the remainder for the year due to the tax relief measures announced by the president,” said Churchill Otieno of Genghis Capital.
And bearing in mind that interest payments – both external and internal – are around 23 per cent of expenditure means the pressure will mount.

For More of This and Other Stories, Grab Your Copy of the Standard Newspaper.  

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“What will happen is that forex reserves will fall in tandem,” said Mr Otieno.
Central Bank data shows Kenya’s public debt stood at Sh6.1 trillion in February, with external debt at Sh3.11 trillion.
The country last week joined the African Union to push for debt waivers.
“As part of efforts to mitigate against the adverse effects of the global coronavirus pandemic, African governments will unite in pushing for loan waivers,” State House said in a statement.
China and the World Bank are the key holders of Kenya’s debt. The largest debt payment for 2020-21 is Sh40 billion, planned for payment to China Exim Bank.
Consultancy firm McKinsey last week said Kenya could lose Sh1 trillion of its income due to Corvid-19.


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External debtWorld Bank

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