EAC COMMON MARKET UPDATE Tracking Rwanda s Compliance to the EAC Common Market Protocol Kigali, December 8, 2016
EAC Common Market Protocol WHAT DID THE EAC PARTNER STATES COMMIT TO? +2,700 commitments Capital Services Goods Roll back & stand still on measures A system of exemptions
EAC Common Market Protocol Update Rigorous, Transparent, Timely Accelerates Trade & Investment EAC Common Market Update Ex-ante monitoring Tracks bills, draft regulations & administrative notices Monitors subnational actions Tracks municipal & county regulations & administrative notices
How Does EAC s Economy Compare with Peers? Emerging Economies GDP 2015 Selected African Economies GDP 2015 India 2,073 Nigeria 481 Brazil 1,774 Egypt, Arab Rep. 330 Mexico 1,144 South Africa 312 Turkey 718 Algeria 166 EAC 154 EAC 154 Hungary 120 Angola 102 $bn $bn Source: World Bank Source: World Bank
Movement of Capital Facilitates trade and deepens financial markets
20 Operations to be Free of Restrictions Movement of Capital Article 24, EAC Common Market Protocol: Eliminate Restrictions based on Nationality, Place of Residence, Current Payments, Where Capital is Invested. 20 OPERATIONS Securities Operations 1-14 Credit Operations 15-16 Direct Investment 17-19 Personal Capital Transactions 20 Source: EAC Common Market Protocol
Key Developments Movement of Capital A new investment promotion and facilitation law paves way for equal treatment of all EAC Partner States Citizens in investment related decisions Recent measures focus on reciprocal access requirements No other key developments in 2016
Recent Reform Grants Tanzania Equal Treatment for Investment Movement of Capital Law No 06/2016 of 28/03/2015 Relating to Investment Promotion and Facilitation Article 2 (24) paves for equal treatment of all EAC Partner States Citizens in investment related decisions by excluding them from the definition of foreign investor.
Tanzania Liberalizes Forex Rules, Increases Access To Securities Movement of Capital Foreign Exchange (Amendment) Regulations, GN No 133 of 2014 Permits Tanzanian residents to participate in foreign securities markets using external funds. TANZANIA REFORMS Foreign Exchange (Listed Securities) (Amendment) Regulations GN No 132 of 2014 Allows other EAC citizens participation in GoT Bond Market but with a 40% cap. Capital Markets and Securities (Foreign Investors) Regulations 2014 Allows EAC citizens to participate in Tanzanian securities markets without limits. However Tanzanian residents can only buy such securities using externally generated funds. Source: East Africa Trade and Investment Hub
Kenya s Reforms Focus on Ownership of Firms, Securities Movement of Capital Companies and Insolvency Legislation (Consequential Amendment) Act 2015. Act No. 1 of 2014, Section 37 Repeals S. 22 of the Insurance Act, now allowing citizens of EAC Partner States to own at least one third of controlling share capital of an insurance company. KENYA REFORMS Act No. 1 of 2014 amending Section 153(2) of the Insurance Act Repeals requirement that at least 60% of paid up capital of an insurance broker should be owned by Kenyans, reserves that portion to citizens of EAC Partner States. Capital Markets (Derivatives Markets) Regulations 2015 Kenya now complies with requirement to establish regulations for derivative products. The Capital Markets (Foreign Investors) Regulations, 2002 (Amendment 2015), Regulation 3(1) Emphasizes that any proportion of the voting shares of an issuer after an initial public offering shall be available for investment by foreign investors without any restrictions in the level of holdings, unless excepted.
Uganda s Reforms Focus on Tax, Securities Regulations Movement of Capital The Capital Markets Authority has approved ALTX East Africa, a new securities exchange authorized to trade in derivative products. Income Tax Act amendment effective 2014/15 now provides the same withholding tax rate for residents and nonresidents on interest payments from government securities.
New Measures by Rwanda Since 2010 Movement of Capital Regulation No 08/2010 of 27/12/2010 Authorization to participate in the Central Securities Depository may be declined if the potential participant s domestic law does not offer reciprocal market access. Law No 01/2011 of 10/02/2011 Law Regulating Capital Markets in Rwanda requires that an applicant in the capital market business in Rwanda must already be regulated and licensed by a foreign agency with equivalent powers, and that the regulator can also make special regulations to govern the foreign person.
New Measures By Other EAC Partner States Movement of Capital KENYA Mining Act 2016 Mineral rights only for Kenyan companies, mineral dealerships 60% owned by Kenyans, artisanal mining companies owned 60% by Kenyans. Capital Markets (Derivatives Markets) Regulations 2015 At least 15% of the paid up share capital of a derivatives exchange shall be owned by Kenyans. Public Procurement and Asset Disposal Act 2015 Creates the category of citizen contractor and awards them an automatic score of 21% in procurement evaluations. Private Securities Regulations Act 2016, S. 29 (2) Companies seeking to offer private security services should have at least 25% of its shares held by Kenyans. TANZANIA Procurement Amendment Act (2016) Reserves better treatment for Tanzanian companies in the process of public procurement. UGANDA The Companies Act, 2015 Provides for different treatment for reporting for companies that are neither Ugandan companies nor incorporated a commonwealth country. This excludes Burundi, Rwanda and the Republic of South Sudan.
No Current Bills In Uganda, Rwanda Parliaments Contain Measures Movement of Capital TANZANIA KENYA Public Procurement and Disposal of Public Assets Bill 2016 (Zanzibar) Gives Zanzibari firms preference and mandates local Zanzibari content. Local Content Bill 2016 Gives preference to Kenyan firms operating in the extractives sector. Media Services Bill 2016 Empowers minister to prescribe shareholding of foreign firms. EAC firms are considered foreign.
Recommendations Movement of Capital Transpose EAC Council of Ministers directives into national laws Development of a derivatives exchange regulations
Movement of Services Raises productivity and creates new jobs
Movement of Services Business Communication Construction and Engineering East African Community has committed to liberalize 7 of 12 sectors currently covered by WTO s General Agreement on Trade in Services Distribution Education Environment Financial Health Tourism and Travel Recreation, Cultural, and Sporting Transport Other
Services Are Key for Economic Growth & Competitiveness Movement of Services By 2011 services accounted for nearly two-thirds of global gross domestic product (GDP) Services trade generally correlates to GDP per capita Creates new industries GDP Per Capita 2015 Contribution of Services to GDP2015 Switzerland 80,214.73 United States 77% Norway 74,734.56 Denmark 76% Australia 56,327.72 Singapore 75% United States 55,836.79 Switzerland 74% Singapore 52,888.74 Australia 70% Denmark 52,002.15 Norway 63% Kenya 1,376.71 Kenya 48% Tanzania 864.00 Tanzania 43% $bn 0% 25% 50% 75% 100% Source: East Africa Trade and Investment Hub $bn
The Four Modes of Supply of Services Movement of Services Location of Provider Location of Consumer MODE 1: Cross-border supply MODE 2: Consumption abroad Service supplier NOT present within the territory of the Partner State MODE 3: Commercial presence MODE 4: Presence of a natural person Service supplier present within the territory of the Partner State Source: WTO
Recent Reforms in Rwanda Movement of Services Law No. 83 of 2013 of 11 September 2013, Amending Law No.3 of 1998 Establishing the Rwanda Bar Association Substitutes reciprocity requirements for the practice of law to now include advocates from territories that have concluded a regional agreement with Rwanda. In the case of the EAC, this is the impending MRA between lawyers in the region. This law however requires that approval be sought and obtained from the President of RBA, who can issue authorization to practice on a temporary basis. Annex to Law No. 6/2015 of 28 March, 2015 Introduces preferential corporate income tax rate of zero per cent for foreign companies who qualify for the incentive.
Recent Reforms in EAC Partner States Movement of Services UGANDA REFORMS The Trade Licensing (Amendment) Act Cap. 101 Assented to Nov. 2015, the Act removed the restriction imposed on foreign wholesalers and retailers from establishing businesses in municipalities outside Kampala City. TANZANIA REFORMS Value Added Tax 2016 Zero rates VAT for services supplied by non-resident service suppliers consistent with the Agreement on the Avoidance of Double Taxation. The National Board of Accountants and Auditors (Membership and Registration) By laws, 1997, (Amendment 2012) Recognizes professional qualifications of accountants from the EAC by domesticating the accountants MRA.
New Measures in Rwanda Affect Transport, Legal Services Movement of Services RWANDA S NEW MEASURES Regulation No.007/TRANS/RT/RURA/2015 of 1 June, 2015, Amending Guideline No. 005/TRANS-RURA/2011 of 26 August, 2011 Amends the definition of company to provide that only companies registered under the Companies Act Rwanda can operate passenger road transport business. Law No. 83 of 2013 of 11 September 2013, Amending Law No.3 of 1998 Establishing the Rwanda Bar Association Substitutes reciprocity requirements for the practice of law to now include advocates from territories that have concluded a regional agreement with Rwanda. In the case of the EAC, this is the impending MRA between lawyers in the region. This law however requires that approval be sought and obtained from the President of RBA, who can issue authorization to practice on a temporary basis.
Kenya, Uganda Are Leading Sources of New Measures Movement of Services NEW MEASURES IMPOSED BY OTHER EAC PARTNER STATES KENYA Tourism Act, Authority Regulations, 2014, Regulation 24 Only Kenyan citizens employed in regulated tourism activities or services unless no Kenyan is available. Authority has to approve employment after verification. Advocates Act Cap 16, S. 11 Restricts advocates from other EAC Partner States from Kenyan Courts. They also cannot sign or file any pleadings in court. TANZANIA Procurement Amendment Act (2016) Tightens participation by EAC-domiciled firms in public procurement by mandating inclusion of local experts and local firms in consultancy assignments. Engineering Technologists and Technicians Act 2016, S. 18(1) (b) Requires Kenyan residency and working permit for registration. For firms, local incorporation and at least 51% of shares must be held by Kenyan citizens.
Uganda s New Measures: Financial Services, Local Authorities Movement of Services Capital Markets Authority (Amendment) Act, 2016 Introduced a requirement imposing a restriction on EAC accountants from taking part in transaction advisory services for IPOs. UGANDA S NEW MEASURES Accountants Regulations, 2016 SI No. 23 of 2016 Makes enrolling as an accountant more difficult by failing to recognize training outside Uganda and requiring a further 3 year apprenticeship under a local accountant. Busia Municipal Council (the Professional and Service Providers) Bye laws, 2015 Requires service providers to obtain annual licenses and pay fees for specialized services not regulated by local authorities. Local Government (Nakaseke District) (Maize) Ordinance No. 11of 2015 Requires commercial maize dealers to acquire a license and pay a fee contrary to the Trade Licensing (Amendment) Act which provides for centralized licensing.
Tanzania Registers Highest Number of Bills Containing Measures Movement of Services BILLS CONTAINING INCONSISTENT MEASURES KENYA Local Content Bill 2016 Preferential treatment to Kenyan suppliers in mining, mandatory skills transfer. ICT Practitioners Bill 2016 Requires Kenyan registration and certification to engage in ICT services. Energy Bill 2015 Petroleum Bill 2015 Mandatory local goods, services, labor, training and financing. TANZANIA Fisheries Institute Bill 2016 Agricultural Institute Bill 2016 Additional registration procedures, mandatory local partnerships. Medical, Dental and Allied Health Professionals Bill 2016 Additional clearance by Medical Council, limited practice license. Chemist Professionals Bill 2016 Temporary and specific registration for non-residents. Media Services Bill 2015 Gives the minister power to prescribe the shareholding requirements of a company owned by a foreign national which intends to operate a media house. The Public Procurement and Disposal of Assets Bill 2016 (Zanzibar) Mandates local content in public procurement, provides preferential treatment to goods and services sourced in Zanzibar and mandates joint ventures with Zanzibaris. Investment Bill 2016 The definition of a local investor requires citizenship of mainland Tanzania and controlling rights to be held by citizens of mainland Tanzania. It then denies the foreign investors incentives extended to local ones.
NCMs Lock out or Limit Professionals from Regional Opportunities Movement of Services Engineers Act, Cap 530 A, Section 20 (1) (c) a person may register an engineering consulting firm if at least fifty one percent of the shares in the firm are held by Kenyan Citizens. Largest private investment in Kenya s history - 40,000 acres, 310mw Helios disposal of 24.99% of shareholding in Equity Group Advocates Act, Cap 16, Section 11 (Amended 2012) Restricts advocates from other EAC Partner States from Kenyan Courts unless instructed by, and if appearing in court has to appear with a Kenyan advocate. They also cannot sign or file any pleadings in court.
Recommendations Movement of Services Common market test to aid the legislative process More impact work to determine overall implications of liberalization
Movement of Goods Drives economic growth and expands consumer choices
Key Observations Movement of Goods Eliminate Tariffs and Equivalent Measures Eliminate Non Tariff Barriers Article 5 (2) (a) EAC CMP Implement the External Tariff Sanitary, Phyto-sanitary Standards and Technical Barriers to Trade
Key Observations Movement of Goods In the past 6 months, Rwanda has raised 2 complaints against other Partner States. Other Partner States have raised 2 complaints against Rwanda. The complaints are distilled to include only those of a legal or regulatory nature.
Elimination of Non-Tariff Barriers Movement of Goods Rwanda, and all other EAC Partner States, formally eliminated tariffs on intra-regional trade by 2010 but continue to apply NTBs on intra-regional trade The Report of 21st EAC Regional Forum on Elimination of NTBs, 30th June, 2016 reveals the following measures: Measures Imposed by Rwanda Rwanda compels trucks to pay double for a Certificate of Transit Goods $400 instead of US $200 per truck and trailer respectively Rwanda does not give preferential treatment for rice originating from Tanzania as per rules of origin requirements Measures Imposed against Rwanda Bralirwa Ltd has to wait 3 months for TANEMA certificates to export broken glasses and bottles for recycling in Dar. When issued, the certificate is valid for only 3 months TFDA requires importers to register, re-label and retest already certified goods Source: EAC Common Market Protocol, EAC Secretariat.
Stays of Application Legal, but Undermine CET Movement of Goods Rwanda requested for and obtained approval for 22 stays of application for one year - EAC Legal Gazette Notice, 30th June 2016. Examples include: Iron and steel products Apply a duty rate of 0% (10% for a different HS Code) instead of 25% for one year Wheat grain Apply duty rate of 0% instead of 35% for one year Road Tractors for semi-trailers Apply a duty rate of 0% instead of 10% for one year MVs for Transport of Goods With Gross Vehicle Weight of 5 to 20 Tons. Apply a duty rate of 10% instead of 25% Buses for transportation (+25pax & +50pax) Apply a duty rate of 10% and 0%, respectively, instead of 25% for one year Flat-rolled products of iron or non-alloy steel. Apply a duty rate at 0% instead of 10% for one year Worn clothing and other worn articles Apply a duty rate of 2.5 USD/Kg for worn clothing and 5USD/Kg for worn shoes instead of 35% or USD0.40/Kg whichever is higher Source: EAC Common Market Protocol
Technical Barriers to Trade, Sanitary & Phytosanitary Measures Movement of Goods Both complaints raised by Rwanda of the measures imposed by other Partner States relate to TBT/SPS measures None of the complaints raised against Rwanda were in relation to TBT/SPS measures Rwanda has ratified the EAC SPS Protocol
Recommendations Movement of Goods Implement EAC Rules of Origin to reduce NTB burden Actively participate in the review of the common external tariff
For further enquiries please contact: ALFRED OMBUDO K OMBUDO LEAD AUTHOR akombudo@eatradehub.org