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The unspoken pain of Kenyan companies in Tanzania

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PETER MBURU

By PETER MBURU
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Though many Kenyan companies doing business with Tanzania may not publicly admit it, they are caught up in a cold war that threatens to freeze them out.

They accuse the neighbour of being averse to competition, and any sense of losing out results in arbitrary introduction of charges that ensure Kenyan products attract higher prices.

Tanzanian has banned some services offered by Kenyan firms and introduced trade barriers that favour local competitors while frustrating the latter.

These frustrations are contained in annual reports and financial statements of many companies pointing to a trade war far from over, but which no one wants to admit overtly.

Carbacid Investments Limited, which exports Carbon dioxide (CO2) to Tanzania is one of the companies, whose operations were hit by introduction of new policies.

Carbacid Chairman Dennis Awori told Smart Company that the Tanzania Revenue Authority (TRA) increases the selling price of imports whenever it realises that the goods are cheaper than those produced there.

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He said TRA creates regulatory requirements that end up raising the cost of operations in the country if it does not have the mandate to hike the price directly.

“TRA will arbitrarily increase the value [selling price] of our exports [to Tanzania] should they perceive that the imported goods are undervalued. They claim we collude with Tanzanian customers to avoid paying the correct taxes,” Mr Awori said in the interview.

Although CO2 exports to Tanzania do not attract customs duty or export tariffs, non-tariff barriers such as a chemical transport licence for vehicles ferrying it, a permit for the same, food and beverages imports and a mandatory inspection and verification on exports at loading points and Inland Container Depot (ICD) by TRA have been introduced, Mr Awori said.

A keen eye will reveal political battles between Kenya and Tanzania, he said, claiming, there is a plan to lock some Kenyan businesses out of the market.

“Tanzania’s macro-economic environment presents challenges for Carbacid exports into the country because of political statements that are deemed to target imports from Kenyan. A recent media statement by the Tanzania Minister for Energy stated that the government will form a committee to verify if Tanzania’s carbon dioxide production is sufficient to meet the country’s demand and should this be the case, he said, he will ban CO2 imports into Tanzania,” Mr Awori said.

According to him, the minister’s statement was an indicator that the government could be planning to ban their exports into the country.

Many companies refused to go on record to state the challenges, fearing repercussions, but almost all seem to be complaining of ‘economic policy uncertainty’ where no one is ever sure of what will happen the next minute.

For instance, in its 2018 annual report Crown Paints Kenya noted that the political environment in the East African region had denied the paint sector growth.

Crown Paints Chairman Muhamud Charania said in Tanzania particularly, “there was slow growth because of uncertainty in the business environment and the recent reduction in foreign and domestic investment, which was affected by the change in government policies.”

Mr Charania said despite enhanced regional integration through EAC, disputes among member-states and the spillover effects of other neighbouring countries’ conflict continued to pose a risk to growth in the region.

“These challenges are constraining investment and market growth, and as a result are detrimental to the economic performance in the entire East African region,” he said.

Crown Paints CEO Rakesh Rao said even though the company had faced difficult market conditions in its subsidiaries around EA, Tanzania’s had slowed down profit margins.

In the banking sector too, some Kenyan banks with subsidiaries in Tanzania have made comments pointing to the roughness in the Tanzanian market, with others stating that businesses may have to consider mergers in order to stay afloat.

In its 2018 financial statement, KCB Group noted that a tightening liquidity environment in Tanzania, higher core capital requirements and high Non-Performing Loans (NPLS) could prompt banks to seek mergers or acquisitions.

“Some headwinds that may be expected arise largely from economic policy uncertainty with stunted private sector growth,” the bank said.

KCB Chairman Andrew Wambari in the report said the lender had appointed a group regional businesses director who was tasked with ensuring that the bank’s subsidiaries were operating at the optimum.

“We expect the subsidiaries to have a return on investment equal to or greater than the Kenya operation. The target is for the subsidiaries to contribute at least 20 per cent of the group’s profit by 2020, from the current six per cent,” he said.

“We, however, appreciate that each subsidiary operates in a unique environment and any strategic changes in terms of the direction each business will take would have to take this into account in addition to obtaining local regulatory approvals,” Mr Wambari added.

The financier, however, noted that the Tanzanian economy was one of the few which demonstrated capacity for higher returns in the financial services sector, and one which it considered growing.

During presentation of the 2018 annual report for Equity Bank, the lender noted the existence of disputes among some East African states.

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“There were hiccups in East Africa’s integration agenda occasioned by cross-border trade tussles and adjourned head of state meetings,” it said.

On January 30, Kenya Association of Manufacturers (KAM) wrote a petition to the new EAC ministry principal secretary Kevit Desai, raising issues on the local and regional business environment.

These included development of a framework for prompt resolution of reported Non Trade Barriers (NTBs) among EAC partners, finalisation of the NTB Act amendments and regulations, and implementation of Trade Remedies committee.

KAM said it had noted with concern that partner States are continuously increasing internal discriminative taxes as a measure to protect their own industries.

“While KAM appreciates any initiative that is geared towards increasing production and consumption of local products in EAC region, we do not agree with other partner States in developing discriminative policies contrary to the protocol on the establishment of the EAC Customs Union. In particular, we are opposed to discriminative fees and charges on other partner states’ products especially Kenyan products,” the petition, signed by KAM chief executive Phyllis Wakiaga stated.

Among unresolved trade hurdles KAM raised with regard to Tanzania were discriminative excise duty on Kenyan cigarettes and import and export fees on beef and beef products.

“This is against the spirit of the EAC where Tanzania (partner States) is required to accord equal treatment to products from Kenya. This has negatively affected Kenya beef and beef products into Tanzania,” said Ms Wakiaga.

Interestingly, these trade battles have been going on within a region that boasts of having a common market protocol that has been in place for a decade, through the East African Community (EAC).

In 2010, EAC member states agreed to eliminate all restrictions on the free movement of capital and labour latest by 2015, a move that would see the creation of a common market.

“To accelerate economic growth and development, it means that the EAC partner States maintain a liberal stance towards movement of all the factors of production and free movement of capital, goods, persons and labour,” the agreement stated.

The sectors protected by the common market agreement are agriculture, customs, culture, education, energy, environment, health, immigration and labour.

“The protocol requires partner States to remove all restrictions on the right of establishment based on the nationality of the companies, firms and self-employed persons,” the EAC agreement also says.

The EAC treaty signed by Kenya, Uganda and Tanzania in 1999 further envisaged, among others, that the countries would enhance and strengthen partnerships with the private sector and civil society, as a way to achieve sustainable socioeconomic and political development.

But even in the past, there have been trade wars between Kenya and Tanzania. Sometimes the situation gets murky when the two countries attempt to block their markets on each other. In some instances, the countries have been forced to resort to diplomatic solutions.

In 2017, Tanzania locked 20 Kenyan firms from its market. At that time, the two countries were engaged in bitter wars as the former defied EAC agreement on free movement of labour.

It banned importation of unprocessed foods, milk products, and cigarettes and asked all Kenyan professionals to pay Sh5,000 for business visas to work there, for tasks that were meant to last shorter times than the EAC agreement states.

This came after Kenya banned gas and wheat imports from Tanzania, claiming they were of poor quality.

In 2018 also, the two countries were in yet another round of trade battles and exchange of threats over blocking each other’s goods from accessing their markets.

Tanzania outlawed Kenyan-made confectionery, juice, ice cream and chewing gum claiming they are produced using imported zero-rated industrial sugar. Dar was demanding that the Kenyan firms pay 25 per cent import duty on the goods.

Kenya later retaliated with threats to block Tanzanian goods, if it did not allow them into the country. This has almost always been the norm.

Since 2015, Tanzania has been charging professionals from other countries, including EAC member states, permit fees after it enacted the Non-Citizen (Employment Regulation) Act, of 2014.

This despite the EAC pact signed in 2010, which would see EAC countries scrap visas and work permit charges among their citizens.

Kenya has been working on the basis of that agreement with Uganda and Rwanda.

But with Tanzania, they seem to be engaging in unending business wars, where until they are all scratching each other’s back, no firm can ever do business in peace in either country.

During the EAC Heads of State meeting in February last year, the summit, through a joint communique, directed partner states to ratify all outstanding protocols and resolve long outstanding non-tariff barriers.

The summit was attended by Presidents Uhuru Kenyatta (Kenya), Yoweri Museveni (Uganda), Paul Kagame (Rwanda) and John Pombe Magufuli (Tanzania).





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