DOING BUSINESS IN The FINANCIAL TIMES SPECIAL REPORT | Wednesday November 30 2011 www.ft.com/east­africa­community­2011 | twitter.com/ftreports

Inside this issue Barriers States may A regional have signed up to the principle but the reality is something market starts else Page 2 Stock markets is way ahead in terms of regulation but it trades only four stocks Page 2 Infrastructure Delays to take shape caused by unreliable rail, worn roads and clogged ports make up 25 per cent of logistics costs Page 2 Katrina Manson and more enticing to outside inves- nity is even considering expan- tors and in a stronger position sion: both and Interview , William Wallis report to negotiate a better deal. Sudan want to join. EAC secretary­general, is on the relaunched Driven by this logic, and with “The EAC is the fastest grow- determined not to do things few of the ideological differ- ing of all the Africa regional by halves Page 3 trading bloc, 34 years ences that divided members in economic communities,” says after the first the past, regional leaders and Donald Deya, head of the Pan- Counterfeit goods bureaucrats have spent the past African Lawyers Union, who Fake attempt fell apart decade refashioning the EAC for has worked on the complex products, the 21st century. legal issues that have emerged. smuggled hen the East Afri- On paper it is beginning to Next year, the EAC even through the can Community work. The EAC has a customs plans to create a monetary region’s (EAC) was first union, a common market, a leg- union and, in 2015 political fed- porous launched in 1967, islative assembly, a bank and a eration. Consultants like to say borders, affect Wit was among the most sophisti- court. It even has an anthem. the bloc is trying to do in 10 virtually cated regional alliances in the More than 133m people with a years what the European Union Flying the flags: national emblems of the five East African Community members meeting in today all areas world. External trade, fiscal and combined gross domestic prod- achieved in 48. of trade Page 3 monetary policy, even univer- uct of $80bn in the five coun- Yet as momentum gathers, GDP per capita GDP growth in 2011 Country’s largest export sity education operated under some of the same tensions are 2011, PPP* ($) 2011 (annual % change) % of exports Monetary union Could the same umbrellla. Europe cert arising that dogged the EU as it be the trading bloc’s was far behind at the time. Integration cannot grew. Integration cannot suc- Burundi Germany? Page 3 Thirty-four years after it fell succeed with less than ceed with less than whole- 430 4.2 Coffee Coffee apart amid intense political and hearted political backing, some Burundi Security What do you do ideological rivalry between its whole­hearted political officials in the region argue. 70% 20% when you have a failed three member states – Kenya, backing, some officials “Half-integration is dangerous Rwanda 1,319 7.0 state next door? Page 4 Uganda and – the EAC in my opinion, because it gets Kenya Tanzania Regional carriers in its latest and larger iteration in the region argue half of the benefits and all of the Uganda 1,305 6.4 – adding Rwanda and Burundi – costs,” says Richard Sezibera, Tea Tobacco are bucking the global trend, enjoying robust is at the vanguard once again of the new secretary-general of the 6.1 African regional integration. tries now trade among each EAC, who is a strong advocate Tanzania 1,506 20% 9% growth, healthy profits and The logic behind its relaunch other with fewer barriers. Intra- of closer political union and a undertaking ambitious fleet and route expansions is not so different from that regional trade up is up as a regional currency zone. Kenya 1,751 5.3 Rwanda which informed its creation: if result, from $1.8bn in 2005 to Yet in a year when the future Page 4 Coffee African countries traded more $2.7bn in 2008 – although this of the eurozone has been called Sub-Saharan 2,381 5.2 Retail with each other, strengthened still only repreaents 11 percent into question and countries Africa average 37% Retail co-operation in keeping the of EAC total trade with teh rest such as Britain outside it are Sources: IMF; national sources Purchasing power parity spending is peace, and spoke with one voice of the world Growth across the pushing for the return of powers * growing at on the world stage, they would five was 6.4 per cent a year for ceded in the past, there are 15 per cent go a long way toward overcom- the years 2005 to 2009, making obvious lessons about the dan- , the former sovereignty, it should focus ini- manufacturers say that in the in Tanzania ing the frailties associated with the region among the fastest gers of allowing political enthu- secretary-general who stood tially more on the “bread-and- current global environment they and 18 per their colonial era borders. growing in the world. siasm to get ahead of economic down this year, says that if the butter” matter of trade flows. could not keep going without cent in By merging into larger trad- As Burundi, its newest mem- reality in countries that still dif- community is to avoid getting On this subject, opinions on the benefit brought by Uganda Page 4 ing blocs, the continent’s frag- ber hosts the 13th EAC heads of fer greatly in fiscal and eco- bogged down like the EU has in progress among business people mented markets become at once state summit today the commu- nomic terms. detailed debates about national in the region are mixed. Some Continued on Page 2 2 ★ FINANCIAL TIMES WEDNESDAY NOVEMBER 30 2011 Doing Business in the East African Community Lack of harmony on road to smooth cross­border trade

destined for the entire east agencies checking and nised domestic taxes; non- regional decision-making – rate amounts to 31.3 per Rwanda and hopes to trade up its first store in Tanza- Barriers to trade African region. Together inspecting, too many power tariff barriers are still a big the likes of a three-day axle cent in business-friendly Kenyan stocks directly from nia. with Kenya’s port of Mom- outages and computers issue; and they still don’t weight harmonisation Rwanda, it reaches 49.6 per there. Despite the official phas- Katrina Manson basa, sup- going down, money being have a mechanism for workshop, and debate over cent in Kenya, where tax- Experts cite examples ing out of internal tariffs, says transport costs plies a hinterland reaching paid but not reflected in revenue-sharing,” she says. 26 separate agreements over payers must allot 393 hours where member states dis- experts say there is plenty landlocked Burundi, authorised banks for a “We still have internal bor- computerised scales and to the process, more than criminate against each of deliberate protectionism. 80% more than in Rwanda, Uganda and whole week at a time – in ders within what is meant weighbridges – that costs double that in Rwanda. other to the benefit of out- While countries have signed US and Europe beyond. retail, time is everything,” to be a single customs terri- can be cut. It takes three days to siders. up to the principle of freer The World Bank’s latest says Ali Mufuruki, a joint tory.” But it took 10 years for open a business in Rwanda, “It is still easier for a trade, the instinct to protect Doing Business survey owner in Woolworths’ Tan- TradeMark East Africa, a ranked 45 of 183 countries Briton or an Indian to come domestic industries and Tourists gazing at the azure finds that while it costs zania and Uganda opera- donor-funded body intended There are too worldwide for its ease of and work in east Africa jobs continues to hold up horizon of Tanzania’s $1,430 to import a container tions. to help make EAC integra- many power doing business, but 34 in than it is for a Kenyan or a everything from milk to Indian Ocean coast are dis- to Tanzania, it costs $4,990 Businesses are frustrated tion a reality, says trans- outages and Uganda (ranked 123). Ugandan to find semi- margarine, and beef exports turbed by a long line of in Rwanda, 1,400km inland. at the lack of progress port and logistics costs are computers Burundi, at the bottom of skilled or service sector jobs to one-day old chicks. ships lit up like baubles. Woolworths, the South delivered by a customs 70 to 80 per cent higher going down – the five at 169, is neverthe- in each other’s country,” “Everybody thinks they The port at Dar es Salaam African retailer, says clear- union signed in 2004 and than those in the US and Ali Mufuruki less ranked among the says Robin George, director have their own bureau of is so packed, vessels must ance at Dar es Salaam is so the common market that Europe. world’s top 10 improvers. at Adam Smith Interna- standards,” says Atul Shah, anchor outside for days time-consuming that goods officially kicked into play It wants to cut the cost of Such disparities are tional, following a study by ’s managing before a space is free for arrive in stores in Tanzania last year. “There isn’t a lot doing business across bor- member states to agree on a already losing countries the consultancy in Uganda. director. He says each coun- them to offload cargoes. nearly two weeks after of commitment and zeal to ders by 15 per cent over 56-tonne standard heavy- business. Despite common proto- try follows the laws of its The delays, along with those flown at three times implement some of these three years, which it says loaded truck, in the effort to Aly-Khan Satchu, a stock cols on freedom of move- former colonial power, with lengthy customs clearance, the expense direct to common market issues,” will save the region close to halve waiting time costs at market investor who runs ment, Nakumatt, a Kenyan the odd bit of South Africa road blocks, bribes and Uganda, where they clear says Agatha Nderitu, head $6bn, through efforts such border posts. Rich Management in supermarket chain, says it thrown in, and regularly duplicate border posts, are customs in a fraction of the of the East African Busi- as joint border posts and Member states still have Kenya, is so frustrated with has received only four per- changes the rules. “Every- among non-tariff barriers time. ness Council. pre-clearance for customs. widely differing approaches regulatory hurdles he is set- mits for its Kenyan expatri- thing. including a banana, that raise the price of goods “There are too many “They haven’t harmo- It is in the nitty-gritty of to regulation. While the tax ting up a brokerage in ate staff of 10 needed to set they will want to test.”

Stock markets Integration has a long way to go Across a small screen in a regulation and data sharing. In urgent reception room at the Dar The authority has a two­ es Salaam stock exchange, year midterm strategy, a digital line representing which has made possible the direction of the index the issuance of regional does not deviate from the bonds and is feeling its way horizontal. Four minutes to connect markets with need of before the close of play, two vastly different hours of trading has seen 31 characteristics. deals. While Kenya and its 58 There are six of a total listed companies and $9.9bn seven brokers in today. And market capitalisation has serious they are sweltering in red automated trading, others jackets they are not allowed rely on an open outcry to remove in the cramped system. Burundi has no room with air conditioning stock exchange at all. that barely tempers the Rwanda has only four investment tropical heat. stocks to its name. There is hope regional Dar stock exchange A late starter, Rwanda is integration will deliver nevertheless way ahead in contribute up to 25 per cent bigger, faster trading and increase liquidity. terms of regulation. It is the Infrastructure of logistics costs. The World exchanges to enable region­ Advocates say a regional only market in the region Bank estimates transport wide listings, investments market would also help raise with a demutualised Congestion in the unit costs are six times and attract more capital. funds for large­scale exchange, something Kenya region is forecast to higher in the EAC than in Officially, the East African infrastructure investments, is struggling with and China and . Community already requires reduce the cost of capital­ Uganda and Tanzania are hit ‘epic’ levels, says Huge investment is a free flow of capital across raising and attract greater turning to only now. Katrina Manson needed to bring the region borders, but harmonising participation from foreign “Rwanda had the advantage up to scratch. The same rules, linking systems and funds. of coming in last, so we study estimated that it establishing a single trading Michael Turner, East went for the best,” says enya has the would cost $3.4bn over five platform remain far off. Africa director of Actis, a Robert Mathu, head of the largest port in years to finance 43 infra- The DSE, the most closed UK private equity firm, says: country’s Capital Market east Africa, mov- structure projects designed of East Africa’s four “A genuine regional Advisory Council. ing 19.1m tons of to bridge the gap. exchanges, not only has a exchange will give us a “We are the most Kcargo a year. But onward These include new con- 60 per cent cap on foreign more liquid market and, of compliant capital market transport connections from tainer terminals at both Dar investment in its 15 stocks, course, a more useful forum with regards to integration, Mombasa to the hinterland es Salaam and Mombasa it also defines Kenyans and for private equity investors because we deliberately are so poor that Nduva ports, for $500m and $342m, other east Africans as such as Actis to exit their picked requirements with Muli, managing director of and improving the two “foreign”, despite the fact investments.” common market protocols Kenya Railways, says the main transport corridors that Kenyan cross­listings Several companies, in mind.” country loses some of its that serve the hinterland. account for a third of including Tanzania’s Sumaria Mr Mathu, who is also associated advantage. The report says that such Let the train take the strain: the railways shift only 6 per cent of port cargo Reuters stocks, 65 per cent of the Group, say they will list only executive director of the “If we don’t solve the investments would save 28 DSE’s $3.7bn market if a regional stock market Easra, says that, although problem, even we Kenyans per cent on transport costs, est operating expense for reduce its staff from 3,282 to for the port to transport capitalisation. In addition, exists. other markets have agreed can call ourselves land- making $1.9bn by 2015. vehicles, at 70 per cent, about 1,000. 23.9m tons a year by 2030 the ban contravenes EAC Kenya’s Nakumatt to integration, they face a locked,” says Mr Muli. Among other projects, it while for rail it should be 25 Profit-focused lessons and take 30 per cent of treaty rules that the country Holdings plans to list in long and cumbersome Across the region, rail- also lists a $280m injection to 30 per cent,” he says. such as this may prove crit- traffic to South Sudan and signed up to in 1999. 2015 across the region. In a process to reform laws that ways – easily the cheapest into Rift Valley Railways, a Like many potential ical for attracting the pri- Ethiopia. Not only that, but so mark of how far regulatory govern them. Kenya’s but most neglected form of private consortium with a investors in the region’s vate sector. Officials are Sindiso Ngwenya, head of fearful is the country of the environments diverge, Mr Companies Act, for example, transport – shift only 6 per 21-year concession to run dilapidated infrastructure, counting on a series of pub- both Comesa and the Tri- prospect of capital flight, Turner says that when Actis is based on 1940s English cent of port cargo. The rest the beleaguered Kenya- he says maintenance has lic-private partnerships to partite, is keen on the Tanzania bans its citizens this month sold its 54.4 per law. goes on roads straining Uganda rail line, built in long been lacking. fix everything from power $24.7bn project. “This is the from investing in stock cent stake in DSE­listed For now, each country will under the pressure of ever British colonial times. Maintenance costs are generation to roads. land bridge that will con- exchanges abroad, including Tanzania Tea Packers keep its own regulator, each increasing traffic. Despite the century-old regularly overlooked in Infrastructure will inevi- nect the east to the west in Kenya, unless the central (Tatepa), a start­up tea of which has agreed to An inter-governmental line’s reputation as the tably stretch beyond the coast of Africa,” he says. bank grants special company supplying implement steps toward study out this year says Lunatic Express, Citadel five members of the bloc. A Such grandiose projects dispensation. When Fairtrade, he found “onerous integration, although no congestion in the East Afri- Capital, an Egyptian pri- Citadel Capital conference in this need support from multiple Safaricom, the telecoms disparities” between decision has been taken on can Community (EAC) is vate equity invested in RVR gives drivers a 30% year brought together three governments, which is why operator, listed in the regulations in Tanzania and the ultimate form it will set to reach “epic” levels. and now holds 51 per cent regional blocs collectively Gabriel Negatu, east Africa biggest IPO the region is yet equivalent rules in Kenya take. This will limit the eco- of the company. bonus for each safe known as “the Tripartite”: head at the African Devel- to see, Ugandans and and Uganda. To integrate, all markets nomic growth for which the The dearth of investment journey they make the EAC; SADC, the South- opment Bank, describes Rwandans were among the Stock market integration need to demutualise and region is striving. It says over the past 25 years ern African Development infrastructure as “the big investors; Tanzanians were does not fall under EAC automate, with the same road traffic is set to quadru- means a huge rehabilitation Community and The Com- integrator” that will elicit not. treaty rules, but the East system, and no one has yet ple by 2030. By then, it pre- project is required. A $345m public infrastructure, so the mon Market for Eastern government backing and Both domestic and foreign African Member States determined who will pick up dicts more than 100m tons plan to modernise the rail- company is also trying to and Southern Africa, with commitment by necessity. investors see the benefits of Securities Regulatory the bill. will arrive at ports and rail way by 2017 is expected to encourage better working 19 members. The Intergov- “Infrastructure is an ena- more open, linked markets Authority (Easra), continues will need to cope with an boost freight volumes from practices to reduce costs. It ernmental Authority on bler, it allows the private that make the most of scale efforts to match up Katrina Manson annual 18m tons. 1.6m tonnes in 2009 to 4.2m. gives drivers a 30 per cent Development, which repre- sector to come in and it “Without infrastructure Karim Sadek, managing cash bonus for each safe sents six countries in the allows domestic resources there is no development,” director of Citadel Capital, journey they make. Horn of Africa joined. to be effective,” he says, Raila Odinga, Kenya’s is convinced that the high So far, pay-outs have Kenya is keen to start a adding the bank will put prime minister told a cost of fuel will ultimately reached $250,000, but Mr 32-berth project at Lamu hundreds of millions of dol- regional conference in Sep- make the project worth- Sadek says the company from scratch, along with lars into these projects. tember. while. “Rail has a natural has saved more than six roads, railways, an oil pipe- “If we get this right, then Be it unreliable rail, worn competitive edge compared times that as a result of line and airports intended the whole region, even if roads or clogged ports, to trucking when it comes fewer breakdowns. The to serve South Sudan and some are landlocked, will transport delays already to fuel – it is the single larg- company also wants to Ethiopia. The ambition is become connected.”

Regional market starts to take shape Contributors Katrina Manson East Africa Correspondent Continued from Page 1 Agatha Nderitu, execu- Uganda both have abun- Kenya is the dominant part- tive director of the East dant fertile land and natu- ner,” says Sumaria group’s William Wallis the 25 per cent common African Business Council, ral resources and the dis- Mr Shah. Africa Editor external tariff (CET) that says: “Bringing our frag- covery of oil in Uganda and Mr Deya at the Lawyers fends off Asian competition. mented markets together gas in Tanzania means that Union says supranational Parselelo Kantai Yet, even where there has and removing the barriers the region will soon have justice offers the best way FT Contributor been significant progress on to trade is very beautiful, its own energy supply. As of forcing the pace and Stephanie Gray the rules, reality on the but our feeling is that there the smallest countries in challenging states that fall Commissioning Editor ground is slow to follow. is a lot that is committed on the region, Rwanda and behind on their commit- A study carried out by paper that is not translated Burundi perhaps stand to ments. “Eventually, it’s liti- Steven Bird Rwanda’s private sector on the ground.” gain most from inclusion in gation that will embarrass Designer business association found Dr Sezibera says 27 non- a bigger market. states into action.” the cost of trucking a con- tariff barriers have been The incentives for closer Business can take laggard Andy Mears tainer from the Kenyan removed so far, leaving states to task over failures Picture Editor port of Mombasa to , another 28 to go. Mean- ‘Removing to meet protocols on the For advertising details, the capital, 1,500kms and while, member states still the barriers customs union and the com- contact: three border crossings cannot clear cheques in to trade is mon market in the East Mark Carwardine: away, can be three times each other’s countries nor welcome’ – African Court of Justice. +44 (0) 20 7873 4880; the price of shipping the invest easily in each other’s Agatha He adds: “Governments email: same container from the US capital markets. Nderitu don’t like being sued. But to Mombasa. Bribery at Some of the bigger stum- the courts have said ‘No no [email protected] weighbridges and road- bling blocks that led to the that’s exactly what you or your usual blocks in Kenya and collapse of the EAC in 1977 co-operation on infrastruc- signed up to. Too bad; the representative Uganda can add more than have disappeared – between ture development are also fleas come with the dog’.” $1,000 to the cost. capitalist Kenya and social- strong. Mombasa port has He may be right. But All FT Reports are Attempts to phase out ist Tanzania, for example – reached capacity, the rail- whether bureaucrats are available on FT.com. waivers to the CET and nevertheless continue to ways are dilapidated, and forced on board or not, busi- Go to: phase in zero internal tar- slow the way. roads evertywhere are in nesses are already forging www.ft.com/reports iffs have also run into The region’s economies need of upgrading. ahead. Banks and super- obstacles. Five-year exemp- complement each other bet- Fears of Kenyan domi- market chains are building Follow us on twitter at tions intended to help ter today and governments nance, however, are ever networks throughout the www.twitter.com/ weaker economies expired now follow broadly similar present, and to the frustra- Community. Telecoms com- ftreports in 2010. Yet each country is policies. Kenya has a fairly tion of many Kenyan busi- panies are harmonising still negotiating rolling advanced and diverse econ- nesses, remain an obstacle their operations to gain All editorial content in this exemptions; some govern- omy, a sophisticated finan- to faster integration. economies of scale. As the supplement is produced ments use these as patron- cial sector, and the largest “In Tanzania in particular informal sector has always by the FT. age, while many paper com- manufacturing base in the and Uganda to a lesser shown, African borders are mitments remain just that. region. Tanzania and extent there is this fear that mostly artificial. FINANCIAL TIMES WEDNESDAY NOVEMBER 30 2011 ★ 3 Doing Business in the East African Community

Counterfeit goods Where to go for a Chinese BlackBerry

For $50, you can get While BAT has lobbied per cent respectively. yourself a brand new governments to address the Burundi instead charges a BlackBerry in one of a row problem, its efforts are sales tax of 50 Burundian of little shops selling mobile ironically hampered by the francs per litre of beverage. phones near Jamia Mosque stringent Tobacco Control “We are engaging with the in central Nairobi. Act, which, owing to its ban countries under the umbrella It does not come with a on advertising, limits what of the East Africa Business warranty and the shop the company can do to Council to lobby for some assistant – briefly lowering educate consumers about level of harmonisation of his eyes – signals that it is the presence of counterfeit these taxes," says Nathan a “Chinese BlackBerry”, cigarettes. Kalumbu, business unit exquisitely possessed of all While east African president for Coca­Cola in the external brand features governments readily central, east and west of the phone, but none of acknowledge the problem, Africa. its applications. they find themselves The presence of Similar counterfeit brands hamstrung by overworked transporters willing to export exist for other phones in quality inspectors at the illicit goods for small similar markets across east ports and the ingenuity of margins has also Africa’s towns and cities. smugglers. More than 2,000 undermined the operations They sell in the thousands containers arrive at the of legitimate hauliers, to lower income consumers, ports of Dar es Salaam and making legal business unable to afford the real Mombasa each day, posing almost unsustainable. thing, but seduced by big a Herculean task to the “Somalis are killing the brand names. small inspection unit. transport rates. Because of From pharmaceuticals, to “Motor bikes have become their competition, nobody Richard Sezibera: appointed as EAC secretary­general in April, he has five years to tackle dual challenges of ‘fear and ignorance’ cigarettes, foodstuffs, a great means of transport can now make money out of phones, CDs and DVDs, the for counterfeiters and their it. If somebody makes a trade in counterfeits is distributors. They bribe little commission from increasingly biting into the security officers staffing the piracy, the only place they profits of east African can invest and run a decent Not by halves, says EAC boss manufacturers and traders. The Chinese business is Nairobi. Shipped in mostly from BlackBerry: “So a lot of them now go Asia and smuggled through possessed of for trucks, second­hand Dr Sezibera says the significant victories, given supranational institutions, integration are mutually the region’s porous borders external trucks from Europe. There Interview overarching aim of protectionist concerns including the legislative exclusive. or through legitimate ports features only are hundreds, everywhere. Richard integration is “about about the job market. assembly. These raise “They are not different. staffed by corrupt officials, Fuel trucks alone will be in becoming a competitive, Member states have agreed member concerns about My belief is that the EAC they affect virtually all areas thousands," says Hassan Sezibera secure, prosperous east to mutual recognition of loss of sovereignty. can walk and chew gum at of trade. crossing or use panya Guleid, a transporter and Africa” leading towards professional qualifications, “As we integrate more, the same time, so we’re It does not help that [illegal] routes to smuggle a chairman of the Eastleigh Katrina Manson monetary union and putting workers on an there is need for doing both.” he says. Somalia’s southern port of whole container in minutes,” Business District talks to the EAC political federation. equal footing throughout supranational bodies to “Sometimes governments Kismayu, controlled by the said one inspector quoted in Association. “To be competitive, the region. drive the agenda,” he says, are not quite ready to militant group al­Shabaab, a local daily. For manufacturers such secretary­general secure and prosperous, we He is determined to adding that such bodies relinquish their sovereign has become an entry point Just as problematic is the as Jayesh Shah, head of the have no choice but to do it chivvy governments to do must further avoid the risk power; that is normal. It for illicit goods. lack of a harmonised tax Sumaria Group of together, because we more: a new common of “democratic deficit” by happens in the EAC, in The trade is increasingly regime. Although the East companies, the results have ichard Sezibera cannot do it separately,” market scorecard will embracing region-wide Europe, in every regional linked to organised crime Africa Community has a been little short of has five years to he observes. expose the dawdlers. elections, which critics community,” he says. syndicates, and attempts to common external tariff in disastrous. tackle what he The former doctor of “Every time the argue will further erode But, he counters, fight it are hampered by an place, it is observed more in “We were the number one sees as the two medicine says the countries meet, we see who national pre-eminence. member states know they unhappy combination of the breach than in practice. detergent company in Rgreatest challenges to experience of integration of is not doing what. They That way, he says, signed up to a “rightly underfunded agencies, “There are still many parallel Tanzania, but we found that, regional integration: fear both the US and the give an explanation and citizens can retain control ambitious” treaty intent on uneven regional tax regimes taxes, with various regimes, legitimately, we would not and ignorance. European Union shows the provide a plan to redress of their political and ultimate political and endemic corruption. some of which are punitive. be able to compete,” says The former minister of need to overcome long, where they’re falling economic destiny. federation. In Kenya, the tobacco To make the EAC Mr Shah. The company had health in Rwanda took the costly and difficult issues. behind,” he says. Juma Mwapachu, the “To have agreed on a industry is the worst common market an enabling no choice but to sell off its helm of the East African “Integration by its former EAC secretary- customs union and affected, with counterfeits platform for accelerated detergent company as a Community in April, nature may front-load the general, who stood down engaged earnestly in representing up to $19m or business investment and result. determined not to do cost, so that constitutes ‘There is a lot of this year, argues the negotiating a monetary 5 per cent of product sales. growth, there is a need to “In Tanzania, there is a lot things by halves. He looks the challenge, because the work, and a lot contrary. He says the union means the five “Part of it has to do with harmonise taxes – excise of business taking place set to use his five-year people and the nations community should be less partner states are quite the lack of a harmonised tax taxes, VAT and even without the payment taxes, tenure trying to accelerate look at the costs to them, of it will be giddy about political willing to pool their regime in the Community, corporation taxes. and for us as taxpayers it the pace of integration at a which may be immediate acrimonious but it integration and focus more sovereignty in pursuit of a the rise of Dubai and China Excise tax on soft drinks, was not making economic critical moment in the unless they’re handled on the “bread-and-butter” common good,” he says. as export outlets and the the biggest element of the sense,” he says. regional bloc’s existence. well,” he says. has to be done’ matter of trade flows if it “We must make sure the conflict in Somalia. retail price, is administered His company’s turnover “Half-integration is For all the bugbears over is to avoid becoming stuck community brings It’s a regional problem. If differently in all five has thus fallen from $200m dangerous in my opinion, halting implementation of in the kind of debates everybody on board – there’s a peak in imports, countries. three years ago to $120m because it offers half of the grandiose pledges, Dr The best way to deal about national sovereignty businesses, students, MPs we normally see a Tanzania runs a specific today. benefits but all of the Sezibera says progress has with the problems of slow that bogged down the EU must be on the same page. corresponding spike in illicit rate charging TS69 per litre costs,” says Dr Sezibera, been “remarkable”. progress, non-tariff barriers for years. “The women of east trade,” says Selena Olende of beverage, Kenya, Uganda Parselelo Kantai who has the support of the Creation of a single and discordant fiscal “Let the legislative Africa must agree. There is of British American Tobacco and Rwanda run an ad With additional reporting by EAC’s most ardent customs territory, the most regimes, he says, is assembly be the driver of a lot of work, and a lot of in Nairobi. valorem rate of 7, 13 and 39 Katrina Manson advocate among heads of immediate issue, will still through the institutions of deeper economic legislation it will be acrimonious, but state, , take “a lot of leadership the community itself. and be better recognised it has to be done.” Rwanda’s president. and commitment from “Anybody who is and appreciated,” says Mr He says that trade partner states. We are aggrieved in commercial Mwapachu. “If you begin to between the most reluctant determined to make sure transactions has the right create some kind of a integrationist, Tanzania this gains momentum”, he to be heard nationally or supra-institution to address and other EAC member says. regionally and take up democratic deficits at states has actually grown He attributes delays in their cases. They’re national levels, it will never the fastest of the three realising the dividends of absolutely right to go court work,” he says, warning of original member states: the common market, such if their rights are being the continuing primacy of “There is ample evidence as free movement of labour trampled on.” national politics. that the fears and and capital, to a process The embrace of regional Dr Sezibera refuses to expressed by most under which national legal recourse forms part accept that fine-tuning the Tanzanians and Ugandans governments must ratify of his backing for the bread-and-butter issues and at the beginning were not each agreement. Already development of stronger pursuit of more ambitious borne out.” the EAC has scored some and wide-reaching plans for political

Convergence efforts ‘can only be helpful’

undoubtedly,” says a bull- Monetary union ish Dr Sezibera of the crisis in the eurozone alongside Katrina Manson rampant inflation and reports on what crashing currencies within the EAC. Currency swings make cotton seed cake too expensive may be unrealistic The regional target of 5 deadlines per cent inflation is way out than the Tanzanian shil- to agree on the prospect of of reach. Following a series ling, making it too expen- special funds that individ- of shocks and mismanage- sive for its customers on ual countries might draw The East African Commu- ment at home, Kenya, the the other side of the border. on to cushion their econom- nity has already missed a dominant economy, is “This is a clear example ics in times of external 2009 deadline for monetary battling 18.9 per cent where, if we had a common shocks, such as a drought union, and the prospect of a inflation. currency, that problem affecting only one member, common currency, now set A European Central Bank would not be there,” says or tax transfers from the for next year, still looks study requested by the EAC Jayesh Shah, group manag- likes of Kenya to Burundi unlikely. says monetary union next ing director at Sumaria. to even out inequalities. Growth across the region year is “unrealistic” and The EAC says it has He says that Kenya, like shrank to 1.8 per cent in that the group is not ready, learnt the importance of Germany, might even bene- 2010, down from 4.4 per cent warning that constantly matching up fiscal policy in fit from such fiscal trans- in 2009. Galloping inflation shifting deadlines will also addition to monetary policy fers. in food and fuel prices, on damage the project. from the eurozone experi- “It is just like Germany top of depreciating curren- “Unrealistic timetables ence. It is seeking advice and Greece,” he explains, cies, has undermined much and consequent postpone- from the International Mon- pointing out Germany has hope of macroeconomic con- ments may undermine the etary Fund to revise the benefited from the inclusion vergence in 2011 and next credibility of monetary rules on convergence. of less developed economies year. “In terms of the ultimate keeping the real exchange Besides, the economies objective of a common cur- rate of the euro lower than are already vastly at odds. It is an open rency, that’s clearly a long what the D-Mark would Incomes range from $833 a question whether way off,” says John Wake- have been. head in Kenya down to $173 man-Linn, IMF head in Tan- “Germany has benefited in Burundi, while growth members have the zania. The IMF nevertheless from greater competitive- rates last year deviated commitment to believes the effort to con- ness because its exchange between 7.5 per cent in verge is worthwhile. rate has been affected by Rwanda to 3.9 per cent in cede fiscal control “All the things they need having these weaker parties Burundi. to do to achieve a common in the market,” points out Tanzania is a member of currency – integrate finan- Mr Wakeman-Linn. two regional blocs – the union and thus the support cial markets, labour mar- But, he acknowledges this EAC and the Southern Afri- from market participants kets, capital markets, trade might inflame local senti- can Development Commu- and the general public that policy, statistics databases, ment, since Kenya’s own nity – both of which tout is necessary to the whole develop easy mechanisms finances are stretched in their desire for a single cur- process,” says the study. for exchanging each others’ one of the most unequal rency, which means at Yet, EAC officials insist the currencies – all of these countries in the world. some point it may have to project is still on. would be extremely valua- “Politically, it is a lot choose. Many companies operat- ble and would help develop harder to point out that to Richard Sezibera, EAC ing in the region would wel- the regional economy, and your population when they secretary-general, is ada- come a single currency. so they should do them,” say ‘yeah but why are you mant that members will Sumaria Group says Mr Wakeman-Linn says. transferring x billion shil- sign a memorandum of cross-border sales into It is “an open question” lings to Burundi’,” says Mr understanding committing Kenya of its cotton seed whether member states Wakeman-Linn. them to a common currency cake, an animal feed by- really have the commit- It might be tempting to early next year. But that is product from its Tanzania ment, willingness and abil- see Kenya as the Germany different from realising a cotton ginning operations, ity to cede fiscal control to of east Africa. But it is a single currency. are down after the Kenyan the regional level, he says. long way from being Ger- “There are complications shilling depreciated further Member states have yet many. 4 ★ FINANCIAL TIMES WEDNESDAY NOVEMBER 30 2011 Doing Business in the East African Community Business and buoyant middle class take to the skies

RwandAir expanded its destina- Mr Mirenge, RwandAir CEO, While RwandAir has maxim- an overall drop in profits. How- skies, airlines are increasingly jets on order, which would Airlines tions to include Juba, Mumbai formerly head of the state- ised its lucrative Kigali-Nairobi ever, while global aviation con- hard-pressed to meet demand. increase their fleet to 83 aircraft and various capitals in southern owned water and utilities com- route, flying into the Kenyan tinues to be hit hard by the eco- Kenya Airways has placed flying to 62 international desti- Parselelo Kantai Africa, identifying the rapidly pany. capital seven times a day, the nomic downturn, the region’s orders with Boeing for 24 new nations. reports on an industry diversifying travelling patterns And while the is airline is focusing on untapped airlines, tapping into new mar- aircraft over the next five years Flying used to be the preserve of its clients. focused on passengers and not regional markets such as east- kets while expanding capacity and plans to fly to every African of the elite, in the days when that is bucking the However, its aggressive low- cargo, freight business has also ern Democratic Republic of on existing routes, remain capital by the end of 2013. African capitals were linked to international trend pricing policy is perhaps most grown from one exclusive flight Congo, and also taking advan- remarkably bullish. Kenya Airways’ pre-tax profit each other via their old colonial responsible for its increased pas- a week to four. tage of the increasing commuter Both Kenya Airways and Ethi- for the first half of 2011 rose 37.7 metropolises. senger numbers. For about $280, While RwandAir’s return to traffic into favoured Middle East opian Airlines, the dominant per cent to KS 2.83bn, thanks to But as government-owned When John Mirenge was passengers can shuttle between East Africa’s skies and beyond destinations such as Dubai. local carriers, have recently increased passenger and cargo national carriers were priva- recruited by the Rwandan gov- capitals Kigali and Nairobi; is impressive, it is hardly The airline, relatively small undertaken impressive expan- haulage at higher yields. tised to increase their competi- ernment to head RwandAir, he Kenya’s flagship carrier would remarkable. Even as the global by regional standards, with a sions to their fleet and their Its clever fuel price hedging tiveness, airlines have become was inheriting a company with charge more like $380. aviation industry is in the dol- fleet of 11 aircraft buoyed by a regional and international desti- helped to cushion higher oil ever more innovative in their a history of failure. , Special-deal singles to Johan- drums, facing rising fuel costs recent Boeing purchase, has nations. costs; it has also started calcu- pricing and route strategies. the former national carrier had nesburg are half those of com- and pinched margins, East raised the stakes in an industry Earlier this year, the Kenyans lating prices in dollars to offset While the Rwandans, being been defunct for two years. petitors. Annual passenger num- Africa’s carriers are enjoying that is becoming increasingly signed a deal for 10 Embraer losses from the falling shilling. government-owned may stand Attempts to privatise the new bers have risen to 500,000. up growth, posting healthy profits competitive. jets from the Brazilian manufac- “Our hedgebook is healthy. out as the exception, their atti- venture were successful. Then, from 200,000 at the end of 2009. and undertaking ambitious fleet “For us, it is not about our turers at a cost of more than We are in the money for up to tude to East Africa’s growing in 2009, the government decided The airline expects to carry 1m and route expansions. size. It’s about the region we’re $400m with purchase rights for $30m,” says Alex Mbugua, aviation market is no less com- to invest directly in it, injecting people in the next two years. “The market in this region is in,” says Mr Mirenge. an additional 16. Kenya is now Kenya Airways’ finance direc- petitive. $200m and giving it exclusive “RwandAir has never posi- undersupplied. You’re still get- In a year marked by volatile among Embraer’s top 10 cus- tor. The airline carried 1.8m pas- “We are demystifying flying, ownership. tioned itself as a low-cost air- ting the best yields here over fuel prices, currency fluctua- tomers. sengers this year, up 22 per cent we want ordinary people to start The turnaround was remarka- line, but we’re now opening up anywhere else in the world,” tions and inflation, East Africa’s As business and a buoyant on the same period last year. flying: it’s safe and fast,” says ble. In a little over two years, to low-budget travellers,” says says Mr Mirenge. aviation industry is likely to see regional middle class take to the The Ethiopians have 35 new Mr Mirenge. Rising cost of a failed neighbour

ums, making African products less Somalia competitive and, in areas where pirate money is being laundered, such as Three EAC members have Nairobi, contributing to higher prop- troops in the country, erty prices. Having a failed state on the door- writes William Wallis step is becoming an increasingly Private army: al­Qaeda­linked terrorists operating from Somalia have put the east Africa tourism industry in jeopardy Getty costly affair. The last iteration of the EAC fell apart in 1977 over ideological abduction of tourists and aid workers success in stabilising Somalia. But, nothing, however, has been rising. “Our position is properly calculated here is nothing like a common and political differences, as well as on its territory. Three of the five EAC says Prof Anderson, he has looked “Kenya decided that the risk if it sat in the hope that the international enemy for cementing cross- personal rivalries between heads of member states now have troops in isolated at times as a result. “Having and didn’t do anything is greater than community will come in and form join border ties. In al-Shabaab, the state. Shortly afterwards, Tanzania, Somalia – Burundi and Uganda with the Kenyans come in plays very well going in, so it went in,” says a senior efforts to stabilise Somalia,” he said radical Islamist militia in under Julius Nyerere, invaded the African Union mission supporting for Uganda.” western official. in an interview in London. TSomalia, and in the Somali pirates Uganda, then under dictator Idi Amin, the weak transitional government in There is no guarantee for either of Whether the region can afford to “This is not Kenya’s war. This is a hijacking ships along the Indian and the two countries went to war. Mogadishu, the capital, and Kenya in success, however. pay for a more aggressive military big challenge not only for the Horn of Ocean coast, east African countries In 2011, personal rivalries persist. the southern half. Past foreign incursions have confrontation, or can persuade weary Africa and not only for the African have found two. Yet this time round, there is much Ethiopia, which is not a member of inflamed Somali nationalism, ended in western donors to foot the bill, is Union, but for the whole international Since the 1998 bombing of the US more that unites the five members on the EAC but is of IGAD, the Horn of failure and almost always complicated another matter. community,” he added. embassies in Nairobi and Dar es security issues than divides them. Africa bloc, also sent troops in last a conflict that first erupted in 1991 George Saitoti, Kenya’s interior It is a test first, however, of the Salaam, al-Qaeda-linked terrorists In 2008, the post electoral violence month in what looks like an increas- when Siad Barre, the former dictator, minister, pleaded last week for effectiveness of the region in dealing operating from Somalia have put the in Kenya came close to suffocating ingly co-ordinated regional effort to was overthrown. The cost of doing broader international support. with the problems on its doorstep. east Africa tourism industry in jeop- Uganda and Rwanda, whose trade crush the Somali militants. ardy. Tourism is an important foreign routes were cut off. Both countries “The key point is that this [Somalia] exchange earner in all but one of the played critical roles in negotiating a is a problem that has grown to five members. solution. This year the continued fail- immense proportions for these Al-Shabaab militias broadened the ure of the state in Somalia is at the states,” says David Anderson, profes- threat with the 2010 bombing of Kam- top of the list. sor at Oxford university’s African pala, and have spread throughout the Richard Sezibera, the secretary- Studies Centre and a Somalia expert. region. This month, Shamsi Vuai general of the EAC, notes on his pro- “It dates from the al-Shabaab bomb- Nadodha, Tanzania’s home affairs lific blog that the threat posed by ing of last year. Since then, minister, said 10 Tanzanians had been Somali terrorists and pirates requires the heads of state in IGAD have been arrested in the Somali capital, Mogad- concerted regional action. “These concentrating more on how to solve ishu, fighting alongside Somali mili- groups co-ordinate their activities. this problem once and for all; led by tants. Our response to them should be co- Museveni who transformed the Ami- Meanwhile, Somali pirates have ordinated too,” he says. som [African Union Mission to Soma- raised the cost of trade across the Kenya has for long pursued a policy lia] presence from being a defensive to board, according to Walter Obado- of containment in Somalia, but last offensive operation,” he adds. Okok of the Kenya Private Sector Alli- month sent its troops across the bor- The Ugandan president has staked ance, pushing up insurance premi- der for the first time, following the his country’s reputation partly on its

Discerning consumers are attractive prospect

ances, automobiles and “You are increasingly see- Retail processed foods,” says the ing formal retail come on, report. especially in the main Supermarket chains Retailers say the patch- urban centres, so it’s impor- are showing an work of standards and cus- tant that we evolve our own toms procedures, which reg- distribution strategy to interest, says ulate everything from make sure we’re fighting Katrina Manson import taxes to inspecting and winning there as well – cosmetics and checking salt or else we’ll lose our brand Atul Shah: Nakumatt chief content, prevents products to others seen as global.” On her regular fortnightly travelling throughout the Among the few Tanza- perception exists that Afri- shop in Tanzania’s biggest region freely. nian expansion success sto- cans are poor, don’t con- shopping mall, Anita Mtisi On-the-shelf prices are ries, Whitedent has found sume, don’t make a distinc- disdains Colgate for local- about 20 per cent higher in its way to South Africa. tion between one type of brand toothpaste. the three landlocked EAC “It’s exciting because it shirt and another because She opts instead for members, partly because of shows we can export from of their dire circumstances. Whitedent, Tanzania’s lead- non-tariff barriers, which what is perceived to be a But the mobile telephone ing make. The bigger tube are used in some cases to less developed market to a revolution has put paid to is cheaper and emblazoned protect homegrown indus- more developed market,” those views; we see a very with pictures of a smiling tries. says Mr Abbot, although discerning African con- Tanzanian family: all grin- But the opportunities are the brand still relies on sumer.” ning white teeth. there nonetheless, and east small shops and stalls. Ms Mtisi says: “Even a “I like it for the taste and Africa’s growing consumer Walmart’s entry per- free gift makes a difference, it really helps prevent tooth suaded Woolworths, a and even small price differ- problems,” she says, wheel- South African chain, to pay ences can attract a cus- ing two baskets down aisle Among Tanzanian more attention to its east tomer,” having bagged a 11 of the 13 that make up success stories, African franchises, says Ali free toothbrush with her Shoprite, a South African Mufuruki, minority owner Whitedent purchase. chain that, like many for- Whitedent has of Woolworths in Uganda Imminent entry of White- eign hopefuls, is moving found its way to and Tanzania, who opened dent into shops in Naku- into the region. Tanzania’s first formal matt, the undisputed leader Toothpaste, cough syrup, South Africa retail outlet in 1999. among supermarket chains fridges and flatscreen TVs, Woolworths quickly in Kenya, may be its great- – East African consumers bought back into a joint est coup yet. are purchasing as never class is drawing attention venture with Mr Mufuruki The company, which pio- before. from private equity funds. and started on a speedy neered 24-hour opening and The entry of Walmart, the Whitedent, manufactured expansion plan, adding has 3,500 staff, also backs US group, to South Africa by a one of several big Tan- three stores this year to its regional products such as this year has sparked inter- zanian family businesses, existing four. Rwandan tea and coffee and est in a larger growth story. has received investment Its new Uganda store will has expanded into Uganda, In a survey published in from foreign private equity. be the region’s biggest, at Rwanda and, next month, September, Deloitte notes UK-based Satya Capital, 1,500 sq m. Mr Mufuruki Tanzania. that, while 90 per cent of founded by Mo Ibrahim, the says that at the moment In Kenya alone, it sells sales are generated by the Sudanese telecoms billion- Rwandans travel all the 1,600 fridges a month, up informal market, independ- aire, last December invested way to Kampala to shop from 200 10 years ago. ent stores and private sell- “tens of millions of dollars” and the chain is eyeing Monthly sales for plasma ers, fast and sustained into Chemi & Cotex Indus- Kigali, the Rwandan capital TVs consistently hit 1,300, growth of formal shopping tries, whose leading product next. alongside more than 600 centres is guaranteed. is Whitedent toothpaste. Retail spending is grow- washing machines and The report says: “The Justin Abbot, managing ing at 15 per cent in Tanza- freezers. middle class is grow- partner at Satya, says: “The nia and 18 per cent in “People want to be seen ing...[and] will help to regional opportunity is the Uganda, about three times shopping in shopping malls; underpin demand for high- most immediate and impor- the figures for growth in it’s aspirational,” says Atul end consumer goods, tant to us; so we want to gross domestic product. Shah, Nakumatt’s manag- including household appli- deliver on that first. Mr Mufuruki says: “The ing director.