Addressing non-tariff barriers to trade in tandem with infrastructure upgrades

While significant public and private investment in new transportation projects will make a major impact on Kenya’s road, rail, aviation and maritime networks, one of the most significant challenges facing the efficient flow of goods and people in the country currently is non-tariff barriers (NTBs). Delays at Customs, excessive paperwork, and misaligned legal and regulatory frameworks within East African Community (EAC) nations have proven to be a stumbling block to cross-border trade, prompting the EAC Secretariat and member state governments to roll out new initiatives to address them, such as the electronic single window system at the Port of Mombasa (PoM).

The EAC is an intergovernmental organisation comprising five countries in the African Great Lakes region: Kenya, Rwanda, Tanzania, Uganda and Burundi. Currently chaired by President Uhuru Kenyatta of Kenya, the organisation was originally founded in 1967, collapsed in 1977 and was officially revived in 2000. The EAC established its current framework under a 2010 agreement to launch its own common market for goods, labour and capital in the region, with the long-term goal of eventually creating a common regional currency and establishing a singular East African Federation (see Economy chapter).

Trade Growth 

The EAC is in many ways a model for integration elsewhere on the continent, with stronger intra-regional capital and trade flows than comparable bodies in West or Southern Africa. Since 2010 trade ties between EAC member states have expanded significantly. A 2013 report published by the EAC Secretariat found that EAC intra-regional trade grew by 22% in 2012 to reach $5.5bn, up from $4.5bn in 2011. Indeed, trade growth has shown impressive increases since 2000, with total intra-regional exports growing from around $500m in 2000 to $3.2bn in 2012, expansion of over 600%. Kenya continued to dominate EAC trade activities in 2012, accounting for nearly 36% of total intra-EAC trade, with sales to members reaching some $1.3bn in 2012, led largely by exports to Uganda and Tanzania, which reached $675m and $472m, respectively.

Implementing Integration 

However, bilateral and multilateral relationships within the EAC are frequently strained by the ongoing challenge of NTBs; among other things, these include excessive red tape; numerous weighbridges and roadblocks that are often characterised by corruption and bribery; poor infrastructure; unnecessary delays at border posts; as well as a lack of harmonised import and export standards, procedures and documentation.

As Kenya is home to East Africa’s best and most important deep-sea port, and represents the main entry point for EAC goods, its NTBs have come under particular focus in recent years, with ongoing challenges exacerbated by the country’s own introduction of new import levies to fund its enormous standard-gauge railway (SGR) project (see overview).

Kenya has improved its ranking in the “trading across borders” category of the World Bank’s “Doing Business” report, rising from 157 to 156. While it still ranks below Sudan (155), Botswana (145), Namibia (141), Tanzania (139) and Mozambique (131), it is higher than Uganda (164), Rwanda (162), Burundi (175) and South Sudan (187). The survey found that export procedures take an average of 26 days to complete and cost an average of $2255, while import procedures take 26 days to complete at an average cost of $2350.

In October 2013 the EAC’s integration secretary, Barack Ndegwa, told the Kenyan press that NTBs represented the single biggest obstacle to cross-border trade in the bloc, noting that red tape and inefficiency had led foreign businesses to focus on trade with other African countries rather than face delays and cost overruns as a result of NTBs. A 2011 World Bank report titled “Kenyan Infrastructure: A Continental Perspective” claimed that while infrastructure constraints are responsible for about 30% of the productivity handicap faced by Kenyan firms, the remainder are owing to poor governance, red tape and financing constraints.

For example, a December 2013 report published by the EAC Secretariat included complaints from domestic steel and plastics manufacturers that exports to Tanzania are being charged a Customs excise tax (CET) of 25% despite the fact that the EAC’s rules of origin state that locally produced materials do not require CET payments. At the same time, Kenya complained that East African Breweries’ beers were being charged the same 25% CET when exported to Tanzania through Serengeti Breweries, the company’s subsidiary in that country. “The problem with issues such as these is that the only recourse for parties who have lost money is to apply to Customs authorities for a refund. These refunds take months, sometimes years to be processed, meaning manufacturers and shippers are losing valuable revenues and facing excessive red tape in righting the wrong,” Wyclyffe W Wanda, executive officer of the Kenya International Freight and Warehousing Association, told OBG.

Tanzania, meanwhile, complained that Kenya had reintroduced charges for transit goods, while nearly all EAC states have complained about the Kenyan government’s introduction of a 1.5% import levy, which will be used to fund the SGR project. The EAC Secretariat wrote that this levy contravenes EAC Customs Union Protocol, and recommended it be abolished.

Finding Solutions 

The EAC has made serious efforts to reduce and eliminate NTBs, beginning with the community’s Time Bound Programme for the Elimination of Identified NTBs, which was introduced in 2009, and classifies listed NTBs into one of four categories based on their level of political and economic complexity, as well as their effect on EAC trade.

The EAC’s action agenda on NTB reduction is prioritised based on the degree of difficulty in achieving consensus, recorded impacts on intra-regional trade flows, as well as which NTBs are easiest to remove. However, EAC states and the secretariat are facing significant challenges when it comes to enforcement; there is no legal mechanism to ensure partner states justify or eliminate NTBs, and the absence of a clearly defined monitoring mechanism with deadlines for action means that each member is responsible for voluntarily removing or reforming their respective NTBs, without threat of sanctions for non-compliance.

Despite the lack of legal recourse, EAC member states have made solid progress on NTB reduction. A December 2013 published by the EAC Secretariat found that the number of newly reported NTBs fell for the first time since the Time Bound Programme was introduced. The secretariat reported that in 2013, 55 NTBs were resolved, up from 36 in 2012, and while six new NTBs were imposed by EAC partner states between November 2012 and December 2013, this is still an improvement over the 10 new NTBs reported during the same period in 2011-12. Presented at the EAC heads of state summit in Kampala, the report also found that the number of unresolved NTBs was reduced from 35 in 2012 to 22 as of December 2013, largely the result of eliminating weighbridges and roadblocks along Kenya’s Central and Northern Corridors.

The introduction of one-stop border posts (OSBP) across EAC borders is also improving the flow of goods. OSBPs only require truckers to stop at one border checkpoint for Customs clearance, instead of one in each country. Kenya has moved recently to expand its existing network of OSBPs, with the Ministry of Transport and Infrastructure (MoTI) announcing in April 2014 that five OSBPs on the border of Tanzania were nearly completed. In the same month the ministry moved to sign an agreement that will establish an OSBP in Moyale, on the border of Ethiopia.

Single Window 

Outside of roads networks, the PoM’s new electronic single-window system is poised to make a serious impact on sea freight efficiency and reduction of NTBs. In May 2014 President Kenyatta joined leaders from Rwanda and Uganda to launch the port’s new system, Kenya Tradenet, which is expected to enhance international trade by both lowering costs and reducing delays and corruption.

The new system will keep electronic tabs on tax collection, duties and levies within cross-border transactions, reducing cargo clearance time to three days at the PoM, and just one day at the Jomo Kenyatta International Airport, while cargo waiting time for goods in transit will be reduced to just one hour, according to the MoTI. Kenya Tradenet, which is also expected to introduce paperless transactions, will be owned, implemented and managed by the parastatal Kenya Trade Network Agency, and is expected to save the country between $150m and $250m annually within its first three years of operation, and between $300m and $450m annually thereafter.

Within the EAC, only Rwanda has implemented a single-window system, although Tanzania and Uganda also have plans to introduce a similar system in the coming years. According to President Kenyatta, the EAC’s long-term vision involves the establishment of an East African regional single-window platform, which will be capable of sharing information between border crossings and Customs offices across the region.