Patti McGill Peterson Center for International and Intercultural Studies
The EAC customs union was established in 2005 with an aim to improve trade between the member countries. The initial members were Kenya, Tanzania, and Uganda, but in 2007, Rwanda and Burundi joined the community. In a customs union, trade between member states is tariff-free, and tariffs on imports from non-member states are uniform. Through the Romeo-Gilbert grant, I was able to travel to Kenya in January, 2010 to carry-out research on trade and the non-tariff barriers to trade within Kenya, Tanzania and Uganda. I interviewed small-scale traders in Mombasa, Nairobi, and Meru. These traders bought goods, especially cheap clothing, from Uganda and Tanzania and sold them in Kenya. I also interviewed several freight forwarders as well as importers at the port of Mombasa.
A major hindrance to trade in the EAC is the inefficiency of the customs clearance process, especially in Kenya. Most of the importers and freight forwarders that I interviewed indicated that it was more time consuming and more costly to get customs clearance at the port of Mombasa (Kenya) than to get clearance in Uganda. Thus despite Uganda being land-locked, it is less costly to transport a goods container from the port of Mombasa and have it cleared in Uganda than to have the container opened and cleared at the port of Mombasa. This inefficient clearance process at Mombasa port is partly due to lengthy bureaucratic processes and corruption. Thus despite the EAC having uniform external tariffs, double-importation was still taking place. Traders imported goods from non-EAC countries into Uganda (through Kenya), and later exported these goods to Kenya. Most of the small-scale traders that I interviewed imported their merchandise from Uganda. But these imports originated not from Uganda, but from other countries such as United Arab Emirates and China.
Delays in transportation are another hindrance to trade within the EAC. At most border crossing points, traders have to make a double stop to clear with custom officials at both sides of the border. At each stop, they go through lengthy checks and inspections before they can cross with their goods. During my bus trip from Nairobi to Kampala, we spent about 50 minutes at the Malaba border point before we could proceed. These delays are partly due to lack of modern inspection facilities at the border points.
A great deal of delays also occur at roadblocks and weighbridges on major highways. Cargo trucks have to stop multiple times for inspection. Delays at these points are made worse by bribe solicitation by traffic police officers.
The infrastructure in the region is underdeveloped, which makes movement of goods and people costly. The railway system is unreliable for cargo transportation due to lack of maintenance. Transport through the road system is also slow because of congestion and poor road conditions. Businesses incur very high costs of transportation and this hinders them from expanding their operations.
Lack of uniformity in domestic tax rates as well as differences in tax laws and assessment procedures is also a major hindrance to trade between the member states. These differences are costly to businesses operating across the borders since they have to comply with multiple tax codes. Currently, VAT in Kenya is at 16 percent, 20 percent in Tanzania and 18 percent in Rwanda, Burundi and Uganda.
Due to the prevalent trade barriers within the EAC, most businesses in the region opt to import most of their requirements from outside the EAC. For instance in 2007, imports from EAC countries by Kenyan businesses accounted for only 6 percent of their total imports.
Despite the prevalent non-tariff trade barriers, there has been some improvement in intra-EAC trade since the customs union was established in 2005. For instance, Kenya's trade volume with other EAC countries increased by 92 percent in 2005. The opening up of borders, as well as the subsequent efforts to eliminate non-tariff trade barriers has contributed to the increased trade between EAC partner states. This is a step in the right direction. With the various EAC governments working on facilitating trade, EAC businesses are going to be more competitive and the region is going to benefit.