Background on Services in the East African Community, Policies and Regulations 1

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1 Background on Services in the East African Community, Policies and Regulations 1 A CUTS International Paper* By Fredrick Njehu and Grace Njeri* *Trade and Economic Development Programme staff at CUTS International, Nairobi 1 Presented at the 7 th TRAPCA Annual Conference, 2012 titled Promoting Services Trade in Developing Countries: Chasing a black cat in a dark room 1 P a g e

2 Abstract: Services play an important role in terms of production, investment, employment and trade in our economies. It has been proved in the global economies that the service sector is the fastest growing sector for all the EAC Partner States of Burundi, Rwanda, Kenya, Tanzania and Uganda. The EAC has experienced accelerated growth rates of the share of trade services in their GDPs in the last few decades. The total services export of EAC countries increased from USD 1868 Mills in 1995 to USD 5681 Mills in 2008 (WDI, 2010) which is triple the increase compared to Along with this growth, liberalisation of services trade has become a critical economic agenda for these economies. Service liberalization means deregulation of the services or removal of restrictions that would hinder the free movement of services. EAC countries have made unilateral liberalisations in a number of services sector since the 1980 s. The EAC region has also made a commitment to liberalise the same at the multilateral level. In addition, a significant commitment of their services sectors has been made under the East African Integration process beginning from 1 st July, This paper analysed at least two of the most important service sectors, in each of the EAC partner states. The choice of the sectors was based on their significance to the countries economies and the countries revealed competitive advantage. More specifically, the study identified sectoral legislations, policies and regulations in place. It argues that liberalisation of a service sector in each of the EAC partner states does not mean that the sector will not be regulated. The EAC protocol itself allows for regulation in accordance with the national policy objectives as long as they are consistent with the protocol and do not constitute barriers to trade in services. The intention of this conference paper is a synthesis paper of five Country Update Notes produced by CUTS International as part of a project to inform WTO Ambassadors and negotiators 2 on the status of the identified sectors, with regard to whether they are sufficiently regulated or unregulated. The intended ultimate goal of these findings is to guide the EAC region to formulate appropriate negotiating strategies in terms of services liberalisation and commitments to be undertaken to those sectors. Synopsis: The Doha Round exempts the Least Developed Countries from making any commitment towards services liberalisation, although they can do so if they so wish. In 2000, about 12 services sectors were committed to multilateral negotiations, as specified in Article XXIV of the GATS. Developing countries had the choice to open up and liberalise their services sectors, and the EAC countries have made commitments to liberalise several of them. It would be interesting to assess the benefits of liberalisation of services in the EAC so far e.g. through the examples of the supermarket chains and regional banks. Nevertheless, certain precise restrictions require to be determined by the host country through registration, regulations etc, in order for liberalisation to have an affirmative impact on the country. 2 The 6 th EAC Geneva Forum Meeting was held on the sidelines of the CUTS PACT-EAC project on September 17 th 2012 in Kigali Rwanda. In attendance were country partners, EAC Secretariat officials, Ambassador of Uganda to WTO, Chief trade negotiator for Kenya to the WTO, Trade attaches and Councillors from Burundi and Tanzania. The topic under discussion was Services liberalisation in the EAC. 2 P a g e

3 INTRODUCTION The economic integration of the EAC is stipulated by the EAC Common Market Protocol rulebook. Specifically, Part F of the Protocol contains the obligations in relation to the trade in services. This protocol also mandates EAC Partner States to progressively remove restrictions on service provision by nationals of other Partner States and not to introduce new ones. The protocol provides for a guarantee of National Treatment whereby each Partner State shall give service providers from other Partner States the same treatment as service providers from their own country. This effectively will mean free competition for service providers across the EAC. The protocol further commits Partner States to guarantee the free movement of services supplied by nationals of Partner States, and the free movement of service suppliers who are national of the Partner States within the Community- this is a broad commitment to free movement of all service suppliers in all sectors in all partner States. According to the World Bank s estimates, services contribution in the Eastern and Southern African region averages 50 percent of the Gross Domestic Product (GDP) of many countries. 3 Specifically, it is worth mentioning that in Kenya, services has been the most important sector since independence as seen in the contribution to trade in goods and services, employment, GDP, backward and forward linkages with other sectors of the economy, foreign exchange earnings from export and remittance, and attracting FDI. Figures 1 and 2 show the value of services exports and services imports in EAC between 2005 and The figures reveal that export of services trade has continued to increase in all the EAC Countries with a strong variation among them. Export of services is significant and most substantial for Kenya followed by Tanzania, while import of services is significant to Rwanda and Burundi. This particular scenario depicts that service market is more developed in Kenya that in any other East African Countries. The services sector in the EAC Treaty has been considered crucial sector in attainment of economic development goals and targets in the region. It is the key sector that the EAC Treaty seeks co-operation in harmonisation of policies, joint development, standardisation and testing. Figure 1: Value of Services Exports (US $ millions) from Source: UNCTAD Hand book of statistics, World Bank WDI 2005, Online available 3 P a g e

4 Figure 2: Value of services imports (US $ millions) from Source: Calculations based on UNCTAD Handbook of statistics, 2011 Global researches indicate that the services sector has been the fastest growing sector. This is no exception to the EAC region. Figure 3 shows that the services sector s contribution to GDP in Rwanda has been improving from 2006 but stagnated at 46 per cent up to the year Burundi s services contribution to GDP has been on an upward curve from per cent in 2006 to per cent in Kenya s services contribution to GDP was slightly above 50 per cent in 2007 but has since remained at 48 until Tanzania s services sector s contribution to GDP has stagnated at 43 per cent between the periods of 2006 to 2010 as indicated by the chart below. Figure 3: Contribution of services sector to GDP in EAC (2011) Source: World CIA Fact book, P a g e

5 Global researches indicate that the services have been the fastest growing sector. This is no exception to the EAC region. In the above figure, the services sector in Burundi contributed to about 47.7% to the GDP in 2011, nearly half as was the case for Tanzania at 48%. Rwanda and Uganda services contributed to 53.10% and 52.60% to the GDP respectively which is a significant level. Kenya s contribution of services to the GDP was the highest at 64.40% making it the highest in the region. Contribution to Trade The contribution of services trade to total trade in EAC Partner states has depicted a mixed trend for Uganda, Tanzania and Kenya. Rwanda and Burundi has reveals an increased trend indicating that services trade is further significant to total trade in Rwanda and Burundi as indicated in table 1. Table 1: Significance of Services in Total Trade (% of country s total trade) Burundi Services Goods Kenya Services Goods Rwanda Services Goods Tanzania Services Goods Uganda Services Goods Source: UNCTAD Hand book of Statistics 2011 Contribution to Investment Figure 4 illustrates foreign direct investment inflows to EAC from 2005 to Figure 4: FDI inflow in EAC (in million USD) Source: UNCTAD Hand Book of Statistics: P a g e

6 Understanding crosswise the global and in EAC economies, shows that increases in Foreign Direct Investment (FDI) have been associated with increased liberalisation in services sectors. Data in the above figure indicate an increasing trend of FDI inflows since 2005 with impressive performance in Uganda and Tanzania. Uganda has continued to register more FDI in her economy in the past decade than any other EAC Partner state. This is in line with the figure above where Uganda registered an impressive growth rate of services sectors performance and FDI inflows. The World Investment Report (2011) also highlighted that, from 2006 to 2010 Uganda and Tanzania had tended to be stable in FDI inflows in the region than any other country. Burundi is hanging in the thin line in terms of FDI inflows in EAC. Nevertheless, the World Bank s Doing Business 2013 report 4 ranks Burundi as Africa s most improved country in ease of doing business. In this particular ranking, Burundi rose 10 places, the largest rise by an East African country, to position 159, an improvement from point 169 in the 2012 rankings. The country was ranked at position 177 out of 185 in Regionally, Uganda s better ranking above Kenya grabbed the headlines as the Pearl of Africa put in more reforms compared with her biggest trading partner. Uganda was placed at position 120, up from the 123 rd position it registered in 2012, while Kenya slipped from 109 to 121. Rwanda marginally slipped from position 45 in 2011 to position 50 in Tanzania was ranked at position 134 in 2013 down from 127 in 2012 and 125 in 2011 (The East African, October, 2012). Figure 5: World Bank s Doing Business Report 2013 (EAC Rankings) Source: Compilation from World Doing Business Report Back to investments in services, the reality of movement between services performance and FDI has tremendous impact in the economy, as Lamy (2010) noted that, foreign direct investment, through which much of services trade is conducted, has a dual role of creating opportunities in new markets, as well as bringing capital and know-how, ingredients which are vital for growth. Equally important, workers in the services sectors tend to have postsecondary education. Interestingly, some of the best-paid jobs in East Africa are in services 4 Reports/English/DB13-full-report.pdf 6 P a g e

7 sectors - in financial, legal, advertising, business services, architecture and engineering services, hence the performance in skills intensive employments. Services sectors that receive high employment across EAC Partner countries are telecommunications sector, banking sector, and business-related services. Increased investment in such sectors is also a testimony of deregulation of government monopoly. EXPLAINING THE MOST IMPORTANT SERVICES SECTORS IN THE EAC In general, this paper illustrates that there are striking similarities on the most important services sub-sectors in the EAC which include: Finance, Banking, Insurance, Telecommunication and Tourism as the most important sub-sector in the EAC. Regulation plays a critical role in services trade and liberalization particularly because of the potential huge risks and costs inherent in the services sector. For instance, there are possibilities that opening up services trade may displace domestic providers or may lead to brain drain. There is also the possibility of marginalizing some customers (particularly those in rural areas). A sound regulatory framework is therefore required to ensure adequate competition in the sectors and at the same time ensure that the regulations in place are not a barrier to services trade. One of the most critical issues confronting all the EAC member states is how to strike a balance between regulation and liberalisation of the services sector. The underlying argument is that weak domestic preparation before opening up is likely to be associated with unsatisfactorily and undesirable outcomes of Services liberalisation (Mattoo, 2003). Most studies in the EAC have concluded that implementing sounder regulations is key to better overall performance in services liberalisation. Rwanda: Tourism and Banking Sectors Rwanda plans to become a knowledge-based economy so, services sector will play a critical role. In the recent past, the sector has registered a remarkable growth surpassing both manufacturing and agriculture. Finance, tourism, construction, transport and logistics have been touted as flagship sub-sectors based on their competitive advantage. For instance, services sector contribute approximately 53% of the total gross domestic product in Rwanda s ministry of Trade and Industry (MINICOM) has developed a Services Sector Policy still in draft form that captures the key services sub-sectors. For purposes of this section, the financial sector includes; Banking, Insurance; Capital Markets and related Financial Advisory Services. The tourism sector comprises of the hotel industry, travel and tour services, guides and even restaurants. Sources have noted that the number of international tourists coming to Rwanda has increased significantly for the reason that there are tourism products in the country such as: Mountain Gorilla tracking, unique culture (museums), and Arts and Crafts. Gorilla tourism is the most predominant hence the need for the country to diversify its tourism products. This sector has witnessed steady growth of its revenue and is a top foreign exchange earner. The regulations governing the sector include: revised Rwanda Tourism Strategy; and the Sustainable Tourism Development Master Plan. 7 P a g e

8 On the other hand, Rwanda places high priority on the banking sector as driver of long-term goal. There has been a steady growth of the sector and continued improvement of the sector s performance. Recent reforms in the financial sector include: introduction of a new Banking Act in 2008; and introduction of credit reference bureau. For the case of Rwanda, only financial services and educational services are totally regulated. For this case, the rationale behind developing regulations for non-regulated services sectors starting with those already committed in the EAC remains a matter of priority. According to an official at the Ministry of EAC Affairs (MINEAC): it has been decided that the services sectors which have been liberalised in the context of the EAC Common Market should all be regulated domestically and this means that the unregulated ones must be regulated as a matter of priority. The process is currently under way with most sectors being looked at and the drafting of regulations about to begin. Additionally, still for the services sectors which are regulated, all relevant institutions are mandated to re-evaluate the existing sector-specific regulations with a view to eliminate all restrictions to EAC citizens in order to meet the terms of the national commitments in the EAC and meet the dates of elimination in the schedules of free movement of services. Rwanda s Ministry of Trade and Industry (MINICOM) has commissioned pertinent studies on the liberalisation of services sector which shows that the sector is growing though it is relatively small to those of Kenya, Tanzania and Uganda. It is governed by the lithest laws in the EAC with narrow restrictions, allowing foreign service providers to manoeuvre in the country with no difficulty. One of the significant studies 5 in Rwanda states that: In a bid to ensure quality service delivery, Rwanda has already liberalised several areas in the services sector to allow both local and foreign companies to compete favourably as long as several preconditions and standards are met. Among the areas where Rwanda has relaxed laws of establishment according to relevant studies, includes the banking and financial sector to allow many players and movement of professional labour Burundi: Telecommunications and Financial services ONATEL Burundi is a largely state-owned monopoly in the telecommunications industry. Key agencies involved in the regulation include Agency for Telecommunications Regulation and Control (ARCT), National Commission for Information Society (CNSI), Executive secretariat for Information and Communication Technology (SETIC), and National Communication Board (CNC). A number of governmental decrees have regulated the services sector in the recent past, the most recent addressing internet-related issues such as electronic commerce, virtual identity 5 Key considerations for the free movement of Services in the EAC Common Market (2009) 8 P a g e

9 and data gathering. Nevertheless, discussions are underway involving various stakeholders to harmonise the services regulatory framework. Most stakeholders perceive the services sector as fairly well regulated. Most interviewees during country consultations pointed out the difficult access to credit and narrow range of service available due to bankers version for risk linked to the fact that the insurance sector doesn t seem to play its risk reduction role effectively. Insurance services are said to provide a very limited range of traditional services targeted primarily to individuals like car insurance. Moreover, insurance companies have a reputation to not always pay their dues to their clients. The sector (see Table 2), is regulated by a dedicated law of 2002 that aimed to initiate the liberalisation process of this sector. The law provides for license acquisition requirements, a guarantee fund mechanism, sets the minimum capital to 300 million FBU, and sets the maximum capital share owned by a physical person to 33%. The Agency for Insurance Regulation and Control has the prime responsibility fro proper implementation of the law and depends on the Ministry of Finance. 9 P a g e

10 Table 2: Definite sector legal and institutional frameworks for Communication and Financial related sectors in Burundi. Sectors Sub- Sectors Legal framework in place Institutions Managing the sector Communication Related Postal Services Courier services Decree Law no. 100/116 of 28/11/2005 on reorganization of Transport, Postal and telecommunication regime Decree no. 1100/021 of 7/03/1992 that creates national postal company (RNP) Telecommunication services Voice telephone services Packet-switched data transmission services Circuit-switched data transmission services Telex services Telegraph services Facsimile services Private leased circuit services Electronic mail 9. Voice mail Audiovisual services Motion Picture and video tape production and distribution services Motion picture projection service Sound recording Decree Law no.1/011 of 4/09/1997 governing telecommunications Ministry regulates telecommunication and defines requirements 10 P a g e

11 Radio and television services Radio and television transmission services Financial related Banking Law no. 1/017 of 23/10/2003 defines and regulates banking and financial services. Insurance Law no.1/012 of 29/11/2002 on insurance activities regulation and Law no.1/013 of 29/11/2002 on insurance contract regulation Source: Burundi National Template, 2008 A license is needed from the regulatory body (National communication council) The Central Bank (BRB) is the institution in charge of giving licence and regulating banking activities. Regulated by the National Agency of Insurance within the Ministry of Finance Defines and monitors insurance rules. Tanzania: Tourism and Financial Sectors Tanzania has several policies and legal frameworks at the specific sector and sub sector levels. Some sectors also have institutions for development and regulations while other sectors lack institutions. It is necessary to develop the relevant institutions in the sub sectors where such institutions are lacking. The tourism sector contributes over 17% of GDP and 40% to total export earnings. It currently is the only service sector committed to WTO following the Uruguay Round. The growth and development of the sector is based on the 1996 Integrated Tourism Master Plan and the National Tourism Policy of The regulations that have direct impact on the tourism sector include: The Tourist Board Act, the Hotel Act and the Tourist Agents Licensing Act. Other regulations have indirect impact on the sector and include: the Tanzania Investment Act, the Land Legislation and Village Land Act, the Wildlife Conservation Act, the Antiquities Act and the Marine Parks Act. The restrictive regulatory licensing regime in the sector acts as a major barrier to domestic and foreign investment. The financial sector on the other hand is comprised mainly of banks (predominant), pension funds, insurance firms, and financial intermediaries. Reforms in the financial sector (liberalization, private sector participation, restructuring) began in 1991 with the aim of developing a sustainable, efficient and effective financial system. 11 P a g e

12 Laws and regulations governing the financial sector include: Bank of Tanzania Act 1995, Bank of Tanzania Act 2006, Capital Markets and Securities Act 1994, Financial Laws (Miscellaneous Amendments) Act 1997, Banking and Financial Institutions Act, Table 3: Legal and Institutional frameworks for Financial and Tourism sectors in Tanzania Sector Sub-Sector Policy Strategy Legislation Institutions Financial N/A National Microfinance Bank of Tanzania services Policy, 2000 Banking and other financial services Banking and Financial Institutions Regulations, 2006 The Management of Risk Assets Regulations, The Capital Adequacy Regulations, 2001 The Credit Concentration and other Exposure Limits Regulations, 2001 The Publication of Financial Statements Regulations, 2000 The Independent Auditors Regulations, 2000 The Liquid Asset Ratio Regulations, N/A Bank of Tanzania Act, 2006 Finance Act 2004 Foreign Exchange Act, 1992 The Banking And Financial Institution Act, 2006 The Capital Markets and Securities Act, (Act No. 5/94) The Cooperative Audit and Supervision (Amendment) Act, 2005 The Finance Act, 2006 The Appropriation Act, 2006 The Government Loans, Guarantees and Grants (Amendment) Act, 2003 The National Microfinance Bank Incorporation Act 1997 (Repeal) Act, 2003 The Supplementary Appropriation (for short title financial year 2003/2004) Act, 2004 The Tanzania Postal Bank Act, 1991 Capital Markets and Securities Act, Capital Market and Securities Authority (CMSA) Savings and Credit Cooperative Society Tanzania Bankers Association N/A 12 P a g e

13 Tourism All Insurance and related services N/A N/A The Insurance Act 1996 N/A National Tourism Policy of September 1999 and Tourism Master Plan (1996). Zanzibar tourism policy (2003) The Tourism Act, 2008 (Act No. 29/08) The Immigration Act, 1995 The Environmental Management Act, (Act No. 20/04) Zanzibar Tourism Promotion Act (1996) Ngorongoro Conservation Act Tanzania Tourist Board Tanzania National Parks (TANAPA) Zanzibar commission for tourism, Hotels and N/A The Hotels Act - Cap. 105 of the Revised Edition N/A Restaurants 2002 Travel agencies and tour operators N/A Tourists Agents (licensing) Act No. 2 of 1969 N/A Source: Tanzania National Template, 2008 It is worth noting that in Tanzania, Banking and Financial institutions regulations apply to mode 3 of supply. Such regulations limit ownership shares in banking or any other financial institution, oblige banks to maintain minimum capital, grant restrictions on dividends and require acquisitions of banks or financial institutions to be endorsed by the Central Bank of Tanzania. There are regulations specifically to the banking sub sector with respect to prohibitions and provisions of the banking institutions. Banks are also disallowed to lease fixed assets. 13 P a g e

14 Kenya: Telecommunication and Financial Sectors In Kenya, services sector forms an important part of the backbone of the economy. It has been the most crucial sector since independence. 60% of the country s Gross Domestic Product comes from the services sector making it significant. In addition to creating linkages with other sectors and supporting foreign direct investment, its input to Kenya s balance of payments is considerable given that the services exports are higher than the services imports. Significant service sectors encompass finance, tourism, Postal and Telecommunications, Transport and communication, wholesale and retail trade. Kenya has a revealed comparative advantage in the export of four service sectors, namely: financial, communication, transportation and cultural services. Services sector performance based on modes of supply has been dictated by cross-border supply (mode 1), which is composed of 70% of total export of services and 35% of total exports. The share of consumption abroad (mode 2) is about 15%, while commercial presence (mode 3) and movement of natural persons (mode 4) jointly comprise about 15% of the services exports. Major reforms in the telecommunication sector began in the 1998/99 and included market liberalization, privatization and separation of policy and regulatory roles. This period saw the creation of three legal institutions: Telkom Kenya Limited, Postal Corporation of Kenya and the Communications Commission of Kenya (which is the governing body of the telecommunications sector). Other reforms made include: liberalization of international gateways in 2006, launch of the National ICT Policy and ICT Strategy, construction of fibre optic cable network in 2007, reduction of taxes on ICT equipments, and establishment of a Universal Access Fund to support the marginalized areas through subsidies. The financial sector is crucial for Kenya s economic growth and development. The sector is comprised of formal financial sector, capital markets, informal sector, and non-banking sector. The reforms and regulations in both the financial and telecommunications sector (shown in table 4) have encouraged mammoth growth in the two sectors over the last decade. Table 4: Summary of Legal and Institutional Framework for Telecommunication and Financial sectors in Kenya Sector Sub-sector Policy/Strategy Legislations & Regulations Institutions Other institutions Financial Banking Kenya Vision Central Bank Act (cap 491) Ministry of Finance; Central Kenya Bankers Association 2030 Medium Term Framework Plan Banking Act (cap 488), the Bank of Kenya; Kenya Revenue Authority Insurance The Insurance Act cap 487 Ministry of Finance, Association of Kenya 14 P a g e

15 Non-bank financial services Others Communications All National ICT Policy and ICT Strategy (2006) Fixed Telephones Mobile Phones Postal & Courier Internet Source: APSEA and Kenya Law website Microfinance Act, 2006 Capital Markets Authority (CMA) Act(cap 495A); The Kenya Communications Act No 2 of 1998; the Universal Access Strategy, 2004; Information Technology Act E-Government Strategy 2004, E-Commerce Strategy 2004, Ministry of Finance, Central Bank of Kenya; Ministry of Local Authorities Ministry of Information and Communication; CCK; The Communications Appeals Tribunal; Telkom Kenya Limited; Postal Corporation of Kenya Insurers Kenya Broadcasting Corporation (KBC), the Kenya Institute of Mass Communications (KIMC), Kenya Film Classification Board (KFCB), Kenya Film Commission (KFC), Kenya College of Communications Technology (KCCT) and the Gilgil Telecommunications Industries (GTI). Safaricom; Zain; Econnet wireless 15 P a g e

16 Uganda: Financial and Insurance Sectors In Uganda, the financial and insurance services are the two most critical services sectors of the economy. At present, as high as 62 percent of the country s population lacks access to formal financial services, and only 33 percent is banked. The obvious financial exclusion in the country necessitates regulations that enhance financial inclusion. The main factors contributing to the high financial exclusion rate are high transaction costs (this affects lowincome consumers who make small transactions), constraints facing loan markets, lack of prominence of the formal institutions particularly in rural areas where only 12% of this population is served by these institutions. Various regulatory and institutional reforms have been undertaken and include: a memorandum of understanding (MoU) between the Bank of Uganda, the Capital Market Authorities and Uganda Insurance Authority was signed so as to enhance information exchange in the sector. A Financial Stability Department and Financial Sector Surveillance Committee were also set up to enhance linkages within the sector. The Bank of Uganda, created by the Bank of Uganda Statute (1993) is the governing body of the sector. Other regulations governing the sector include: the Financial Institutions Act (FIA) 2004 and the Micro-Finance Deposit-Taking Institutions Act (MDI) With regard to the insurance sector, the country boasts of 22 insurance firms, 26 insurance brokerage firms and 8 loss-assessors. But like its counterpart financial sector, the insurance sector is largely underdeveloped with a penetration rate of as low as 0.6 percent. The sector also offers limited life and non-life products and despite the significance of the agricultural sector to the economy there is single agricultural insurance or micro insurance for the lowincome earners. The regulatory framework for the insurance sector is a relatively new concept and has only been in operation for the last ten years. Some of the regulations governing the sector include: The Insurance Act, Cap 213 Laws of Uganda 2000; Insurance Regulations, 2002; Statutory Instruments no. 59 and 60; Motor Vehicle Insurance (Third Party Risks) Act, Cap 214 Laws of Uganda; the Marine Insurance Act, 2002; Co-operative Societies Act, Cap 112 of 1991; and Companies Act, Cap 110 of RECOMMENDATIONS FOR THE EAC S SERVICES SECTOR The services sector plays a critical role in the EAC s economies. Nevertheless, the region faces numerous challenges in this sector, which include: low competitiveness of the sector due to little liberalization of the sectors; weak regulatory and institutional frameworks; domination by large firms with headquarters in developed countries, which in turn acts as a barrier to effective competition; prohibitions imposed by foreign markets which act as protective measures; subsidies by developed countries; imposition of technical standards and licensing requirements; and lack of transparency. In order to fully tap into the potential of the services sector in EAC, this paper recommends: 16 P a g e

17 Increasing capacity to improve the EAC countries regulatory capability and domestic standards Adoption of a multilaterally harmonized set of rules and regulations to encourage the EAC Partner States adopt best practices faster than would be possible given a unilateral approach. This however requires being sensitive to the development needs of Partner States Enhancing the participation of the private sector and attracting foreign direct investments particularly to those service sectors which seem to be under-developed but which could have a significant impact on countries economies, for instance, the financial and insurance sectors of Uganda CONCLUSION The services sector in EAC is crucial for the region s economic growth and development. The sector s impressive growth over the years and its growing contribution to GDP, trade and investment attest to the huge potential that lies in this sector. Nevertheless, the services sector is not without challenges as this paper has highlighted in each of the 5 Partner States. For instance, the under-development of some crucial services sectors in some of the Partner States denies the countries enjoyment of the gains that could be derived from the sectors. In addition, the paper has shown that each country has different policies and regulations governing each service sector. Moreover, individual sectors have multiple policies and regulations governing them, which imply that there are still many restrictions on the provision of services in the region hence the need to address these obstacles to services trade both at national and regional level. 17 P a g e

18 References Bagumhe, Peter. Domestic preparedness for Trade in Service Liberalisation: Are East African Countries prepared for Further Trade Liberalisation? Batengana, Ssalongo Lauren. (2008). State of play in services in Uganda. EAC Economic Partnership Agreement dedicate session trade in services August, 2008, Entebbe, Uganda. Brenton, Paul, Nora Dihel, Larry Hinkle and Nicholas Strychacz (2010). Africa s Trade in Services and the Opportunities and risks of Economic Partnership Agreements. COMSEC (2008). EPAs and services in 2008 and beyond- What challenges lie ahead for the ACP Paper prepared for Commonwealth Secretariat by V. Ogalo and G. Rabinowitz of CUTS International, April EAC (2009). East African Community Facts and Figures. Arusha: EAC Secretariat. El-Etrby, Ragui. (2008). Globalisation of services Trade and the Establishment of Industry Coalitions. ITC World Trade Net Business Briefing. Hoekman, B. (2006). Liberalising Trade in Services: a survey, Policy Research Working Paper 4030, Washington, DC: The World Bank, 2002 Niyubahwe, Alain Liberalisation of Trade in Service in EAC: A regional perspective Onyango, C.H. (2008) Assessing the competitiveness of services sectors in the East African Community- Kenya Report Onyango, C.H. (2009) The status of services liberalisation in Kenya Sauve, Pierre and Natasha Ward. The preferential Liberalisation of Trade in Services: African Perspectives and Challenges Sinyavskaya, Blyde J. (2007) Impact of Liberalising Trade in Services on Trade in Goods: An Empirical Investigation. Review of Development Economics, 11(3) P a g e