Should we opt for new routes to sea?
Sep 21, 2012
Should Ugandan importers and authorities resort to alternative routes to the sea and rely less on Mombasa?This is the question that popped up again this week when about 600 containers of sugar and 2,000 vehicles were held at Mombasa following a directive by the Kenya Revenue Authority (KRA) that
By David Mugabe
Should Ugandan importers and authorities resort to alternative routes to the sea and rely less on Mombasa?
This is the question that popped up again this week when about 600 containers of sugar and 2,000 vehicles were held at Mombasa following a directive by the Kenya Revenue Authority (KRA) that transit goods coming to Uganda execute a cash bond equivalent to the tax value of the consignments that would be imposed on the same goods were they to be sold in Kenya.
The August 29 directive caused a cargo movement paralysis and a stand-off, bringing back bad memories for Ugandan importers who use Mombasa-a port that still remains the shortest route for inland states that have no direct access to the sea.
About 85% of Ugandan-bound international cargo passes through Mombasa, according to revenue statistics. Also, 47% of total Uganda Revenue Authority’s (URA) tax collections are from international trade or customs.
In the 2011/12 financial year, Uganda collected about sh3 trillion from international trade, which means about sh2.6 trillion of tax revenue was collected from cargo coming through Mombasa. This financial year, the target is sh3.4 trillion, which means if this target is achieved, Uganda will collect taxes worth sh2.89 trillion from cargo passing through Mombasa.
The above statistics indicate the significance of sea access to Uganda.
The impact of this, according to the Private Sector Foundation boss, Gideon Badagawa, is that even government efforts like value addition and revenue collection will be hampered because import goods pass through ports.
“It is in their best interest (Kenya). We are their biggest trading partner. But it is also in the interest of the Ugandan government that Ugandan businesses remain afloat because the impact is value addition and employment,” said Badagawa.
URA said earlier this week that they were preparing for a high influx of goods, following the transit cash-bond impasse.
This also exposes the need to quickly develop infrastructure as economies grow, according to analysts.
“It is a policy issue with the Kenyan government. It has to be the government of Uganda to resolve it with that of Kenya,” Badagawa noted.
Genesis
With a GDP of $33.6b, Kenya remains East Africa’s largest economy, followed by Tanzania ($23.3b) then Uganda ($16.8b), while Rwanda ($6.6b) and Burundi ($2.3b) trail respectively.
Because of this, the much stable Kenya politically finds it easy to play big brother and bully the smaller states, according to analysts.
But the other smaller economies like Uganda, blighted by decades of war and political instability, have over the years clawed their way back into vibrant economies, posting some of the fastest growth rates globally for about two decades.
This has come with some clear advantages that despite being landlocked, Uganda is now more viewed as land-linked because of its unique geographical position of serving or being the entry point of cargo accessing Rwanda, Burundi, eastern DRC and South Sudan.
Then there is the question of the East African Community (EAC). The EAC has been courted as a global symbol of integration, considering the short period of time (10 years) it took to achieve some key milestones like the customs union and the common market.
The European Union took almost 50 years to negotiate and conclude some of these phases.
“Also, the European Union is no longer a model, following the Eurozone crisis tearing apart the European economic epicenter,” said an economist familiar with regional trade.
But non trade barriers, especially avoidable ones like the state imposed Kenya transit bond, negate the integration process. Yet were the barriers, including overcoming the transport hitches, to be avoided, the economic benefits would be huge because currently, intra Africa trade or COMESA seems more viable in the wake of the economic recession in the Western world.
Kenya did not use agreed platforms of solving such disputes, preferring to arbitrarily announce and begin executing the directive suddenly, halting business flow.
Richard Kamajugo, the URA commissioner for customs, said the genesis of the problem was mainly the increased amount of Ugandan sugar finding its way onto the Kenya market and Kenya’s suspicion that Uganda does not have the capacity to suddenly produce extra sugar.
“They think we have no capacity. We have invited them to come and visit the factories,” said Kamajugo. While the matter was resolved late Monday night, there is no guarantee that it will not re-occur.
Unpredictable Mombasa
Going by history, analysts believe Uganda and other inland states would be justified to explore Dar-es- Salaam and other central corridor routes.
“It is legitimate (exploring other routes), no doubt about it. International trade of import and exports cannot be one way, unless it works both ways, you always have a discomfort,” said Kamajugo.
There have been incidences, even under the customs union, where Kenya has blocked the entry of chicks from Uganda.
The 2007 post-election violence also paralysed the inland states as inflow of petroleum products and the imports business greatly suffered.
Kenya is headed for another election in a few months, and there is already anxiety among inland states.
A few weeks ago, political unrests related to killing of a Muslim cleric also led to uprising disrupting flow.
And now the 2012 transit cash bond that led to a two weeks stand-off brought back memories of the arbitrary and uneasy use of Mombasa.
Improving Mombasa’s efficiencies by Kenya Ports Authority and KRA would benefit Kenya and the region ultimately.
Alternative route, alternative solution
The National Information Technology Authority-U (NITA-U), Uganda’s ICT regulator, is already opening up an alternative undersea fibre optic cable route through Mutukula, Tanzania because of the frequent breakages of sea cables coming through Mombasa, which all illustrate the need for alternatives.
But there is a more long-term solution. Building smaller inland ports is emerging as a great solution as efforts to establish a second access route to the sea via the lakeside ports of Bukasa in Uganda, and Musoma in Tanzania, connected by railway to Arusha in the Tanzanian interior and to the port of Tanga on the Indian Ocean indicate.
The close to $2 billion railway line that will link Tanga harbour and the Lake Victoria side dock of port Bukasa in Kampala via Musoma port is seen as a big solution to Uganda’s never-ending import and export woes.
Estimates show that the Mwambani-Musoma-Bukasa route would cost anywhere in the range of $3b, a figure that includes buying of vessels, refurbishing the short linkage railway lines and building the ports.
If Bukasa in Kampala and Musoma in Tanzania are fully set up and connected, it would also open up a new line of economic activity in these areas, greatly reducing the turn around time and cost of moving goods from the coast to inland Uganda.
These pieces of infrastructure will be a huge bonus to Uganda, as it adds to the new identity of a land-linked country, connecting Rwanda, Burundi, South Sudan and eastern DRC.
Besides, the go-slow process of the Rift Valley Railways line set to link Mombasa to Kampala would push cargo handling by the cheap rail from 15% to 60%.
Analysts believe Kenya is playing “big brother wanting to have it all” in an integrating East African Community, where there are already established mechanisms and platforms for resolving conflicts.
Jones Kiteta, a director at Eusebia, a global shipping firm with offices at Mombasa, says the interruptions increase ultimate cost of doing business in the region, much higher in a region already blighted by high business costs.
“It is like somebody telling you, do not come to my place.”