The Opportunities and Challenges of Economic Cooperation Between India and East Africa Community

Dr. Suresh Kumar

(Published in East African Community, Indo-African Society,  Delhi, April 2005.)


Introduction

India and Africa has a long history of political cooperation. Both have achieved political freedom but not from poverty and hunger as both have to still tackle problems of disease and stand together as former colonies to chart our destiny together.  The contemporary international politics requires the mutual cooperation not only in terms of political but social and economic cooperation are in their priority on equal terms. According to key micro-economic indicators 2004, witnessed global economic rebound from 3.9% in 2003 to 5% in 2004. The real GDP growth reached 4.5% in 2004. The improved African growth performance should go beyond geographical subdivisions. “India-Africa partnership is an essential step in the march towards progress for the continent and it should focus on the transfer of technology for SMEs in Africa. Africa is engaged in development through NEPAD with holds dialogues with partners and has a programme for the future. India has supported this framework and contributed $200 million. India can also help through its experience in private-pubic partnerships and help building financial institution and resources”1.

East Africa Community (EAC) is a group of three major countries of east Africa namely Uganda, Tanzania and Kenya. There is a need to assert India (particularly SAARC) and EAC. The East African Legislative Assembly enacted the East African Community Customs Management Act, 2004 on 16th December 2004, and will apply uniformly in East Africa. This Act will govern the administration of the Customs Union, including legal, administrative and operational matters. The Act provides for a transitional decentralized administrative structure for the EAC Customs Union. Within this decentralized set up, the day-to-day operations of customs including collection of revenue will continue to be managed and administered by the respective National Revenue Authorities. The newly established Directorate of Customs, under the EAC Secretariat, will initiate policy issues, coordinate and monitor customs and trade related activities in East Africa.

Today, there is a need particularly to work as building block to realize the Pan Afro-Asia vision through a bilateral and multilateral socio-economic cooperation. EAC Custom Union signed on 1st January 2005 and India looks forward to it. The EAC Customs Union will create a single market of over 90 million people and a combined GDP of around US$30 billion. The main goals of the East African Community Customs Union are:

  1. Liberalizing intra-regional trade in goods on the basis of mutual beneficial trade arrangements among the Partner States.
  2. Promoting efficiency in production.
  3. Enhancing domestic, cross border trade and foreign investment.
  4. Promoting economic development and diversification as well as industrialization.
  5. Liberalizing intra-regional trade in goods on the basis of mutually beneficial trade arrangements among the Partner States.
  6. Promoting efficiency in production.
  7. Enhancing domestic, cross border trade and foreign investment.
  8. Promoting economic development and diversification as well as industrialization2.

The economic development needs to be strengthened between India-EAC on mutual foundation based on their indigenous social and economic environment.EAC trade promotion under Article 6 mentions that the Partner States shall initiate trade facilitation by:

  1. Reducing the number and volume of documentation required in respect of trade among the Partner States.
  2. Adopting common standards of trade documentation and procedures within the community where international requirements do not suit the conditions prevailing among the Partner States.
  3. Ensuring adequate co-ordination and facilitation of trade and transport activities within the Community.
  4. Regularly reviewing the procedures adopted in international trade and transport facilitation with a view to simplifying and adopting them for use by the Partner States.
  5. Collecting and disseminating information on trade and trade documentation.
  6. Promoting the development and adoption of common solutions to problems in trade facilitation among the Partner States and
  7. Establishing joint training programmes on trade.3

India-EAC should necessitate an actively encourage (under Article 6 of trade promotion of EAC mentioned above) to undertake of supply and demand surveys, the organization of buyers and sellers meetings and other multi-country contact promotion events in order to further identify and exploit the potential of intra-Common Market trade. It will support India-EAC enterprises having plants for producing similar products in EAC countries and India may consolidate their capacities at one location for greater efficiency for the combined EAC–India market. Some patterns of specialization (Human Resources Development, Trade Fairs like book fairs, information technology fairs, agricultural fair and others, Scientific, Education and Cultural Exchange Programme) may emerge depending upon the comparative strength of the economies that will encourage mutual trade and investment flows and may nurture the free trade arrangement swiftly. It is the high time for India to draw attention towards EAC as HRD investment location because of growing political stability, commitment to provide liberal foreign-exchange regime, availability of cheap labour, agro-fertile land for agricultural research & food processing and social development. Along with it, there is a need to assert EAC and India as building block to realize the Pan Afro-Asia vision through a Common Union. India should observe the strategic areas of great economic importance of EAC member states like trade liberalization, custom cooperation, trade related issues, industry and energy, monetary affairs, agriculture, pharmaceuticals, economic and social development. Table-1 highlights the area of bi-lateral economic exchange among member states and multilateral cooperation between India-EAC. A vast experience and potential of Indian agricultural economy desires to contribute it with Kenya, Tanzania and Uganda. It will strengthen the ongoing export and import with the individual country and as a part of EAC on the one hand (Table-1) and fulfills the objectives of the EAC Customs Union on the other hand. The specific objectives of the EAC Customs Union are:

  1. Creating a Common External Tariff (CET) regime for goods originating from outside East Africa.
  2. Establishing Common Customs Laws and Regulations, which will apply uniformly in the Partner States.
  3. Harmonizing and simplifying customs procedures and documentation4.

Table-1

  1.     Agriculture Products

Kenya– Coffee, Tea, Corn, Wheat, Sugarcane, Fruit, Vegetables; Dairy Products, Beef, Pork, Poultry, Eggs.

Tanzania- Coffee Sisal, Tea, Cotton, Pyrethrum (insecticide made from chrysanthemums), Cashew Nuts, Tobacco,  Cloves (Zanzibar), Corn, Wheat, Cassava (Tapioca), Bananas, Fruits, Vegetables; Cattle, Sheep, Goats.

Uganda– Coffee, Tea, Cotton, Tobacco, Cassava (Tapioca), Potatoes, Corn, Millet, Pulses; Beef, Goat Meat, Milk, Poultry, Cut Flowers

India– Rice, Wheat, Oilseed, Cotton, Jute, Tea, Sugarcane, Potatoes; Cattle, Water Buffalo, Sheep, Goats, Poultry; Fish

  1. Exports – commodities

Kenya–       Tea, Horticultural Products, Coffee, Petroleum Products, Fish, And Cement.

Tanzania–  Gold, Coffee, Cashew Nuts, Manufactures and Cotton.

Uganda–      Coffee, Fish and Fish Products, Tea, Gold, Cotton, Flowers and Horticultural Products.

India–        Textile Goods, Gems And Jewelry, Engineering Goods, Chemicals, Leather Manufactures

  1. Exports – partners

Kenya– UK 13.5%, Tanzania 12.5%, Uganda 12.0%, Germany 5.5% (2000)

Tanzania– UK 22.0%, India 14.8%, Germany 9.9%, Netherlands 6.9% (2000)

Uganda–     Germany 12.0%, Netherlands 10.2%, US 8.7%, Spain 8.0%, Belgium 7.1%

India–          US 20.9%, UK 5.2%, Germany 4.3%, Japan 4.0%, Benelux 3.3% (2000)

  1. Imports – commodities

Kenya: Machinery And Transportation Equipment, Petroleum Products, Motor Vehicles, Iron And Steel, Resins and Plastics

Tanzania: Consumer Goods, Machinery And Transportation Equipment, Industrial Raw Materials, and Crude Oil

Uganda: Capital Equipment, Vehicles, Petroleum, Medical Supplies, Cereals

India:         Crude Oil, Machinery, Gems, Fertilizer, Chemicals

  1. Imports – partners

Kenya– UK 12%, UAE 9.8%, Japan 6.5%, India 4.4%

Tanzania–  South Africa 11.5%, Japan 9.3%, UK 7.0%, Australia 6.2%

Uganda–    Kenya 43.1%, US 7.0%, India 6.8%, South Africa 6.1%, Japan 3.4% (2000)

India: UK 6.3%, US 6.0%, Belgium 5.7%, Japan 3.5%, Germany 3.5% (2000)

  1. HIV/AIDS – adult prevalence rate

7.

Kenya– 13.5% (2001 est.) Tanzania– 8.09% (1999 est.), Uganda– 6.1% (2001 est.)

India– 0.7% (1999 est.)

  1. HIV/AIDS – deaths

Kenya– 180,000 (1999 est.), Tanzania- 140,000 (1999 est.), Uganda- 110,000

India – 310,000 (1999 est.)

  1. Population below poverty line

Kenya– 50% (2000 est.) Tanzania– 51% (1991 est.), Uganda– 35% (2001 est.)

India- 25% (2002 est.)

Source: The World Fact Book 2002, CIA.

The Economic Determination of EAC Region and Need of India

Kenya is the regional hub for trade and finance in east Africa. President Mwai Kibaki expressed during his inauguration lecture, “My government will embark on policies geared to economic reconstruction, employment creation and immediate rehabilitation of the infrastructure.” 5 Mr. Stephan K Musyoka, Minister of Foreign Affairs expressed, “Kenya and India trade continues to be one of the main pillars in our bilateral relations. There is need for information on each others potentialities, especially on sourcing of various products from either side, such as India sourcing of various products from either side, such as India sourcing for Soda Ash, Pyrethrum Extracts, Coffee, Precious and semi-precious stones, Horticultural produce and other items from

Coffee, Precious and semi-precious stones, Horticultural produce and other items from Kenya. Kenya could also source for more products from India in the field of pharmaceuticals, Engineering, Electronics, Information Technology and Textile.”6 Kenya is particularly interested in having Indian pharmaceutical manufacturers setting up joint ventures with Kenyan partners as well as in the textiles, agricultural and industrial machinery fields. The finished products could be sold through such schemes as the African Growth and Opportunities Act (AGOA), or with the EAC, and the COMESA region.7 It is observed that investors from India are welcome to take advantage of the opportunities offered by the Kenyan investment environment, which the government has endeavored to make more investor friendly through removal of bureaucratic hurdles. India and Kenya are important tourist destinations and there are a lot of opportunities in the sector and Kenya encourage more Indian friends to visit and sample the diverse tourist attractions.8 India readily responded when the UN recent report on 25 January 2005 stated that the people are dying of hunger in Kenya and there is a need to provide the food security on the priority basis. India is willing to offer its food capacity through FAO that will help EAC to overcome the food scarcity in Kenya.

Tanzania offers a good investment climate with stable legal and regulatory framework, good incentives which can guarantee investors of appropriate returns for their investment. Tanzania has stable democratic political system and growing pool of skilled manpower. Goods and services required in the development and operations of investment schemes are easily available inside the country or can be sourced from nearby countries. Energy (Petroleum, natural gas, coal, solar, hydropower, hydrocarbon and wind energy) is one of the growing sectors (5% in 2003) and advocates involvement of private sector in power generation, transmission and distribution that effectively contribute to the growth of the national economy and thereby improve the standards of living for the entire nation in a sustainable and environmentally sound manner. Mineral sector in Tanzania contributes about 3.0% of the GDP, which is projected to account for 10 % in 2025 as stated in the Development Vision 20259.  Following minerals have attracted the interest of investors like gold, base metal platinum group mineral, ferrous metals, tin-tungsten, gemstone and diamond. Recent banking reforms have helped increase private sector growth and investment. Continued donor support and solid macroeconomic policies should support steady real GDP growth of 5% in 2002 and 2003.10

Uganda has substantial natural resources, including fertile soils, regular rainfall, and sizable mineral deposits of copper and cobalt. Agriculture is the most important sector of the economy, employing over 80% of the work force. Coffee is the major export crop and accounts for the bulk of export revenues. Since 1986, the government – with the support of foreign countries and international agencies – has acted to rehabilitate and stabilize the economy by undertaking currency reform, raising producer prices on export crops, increasing prices of petroleum products, and improving civil service wages. The policy changes are especially aimed at dampening inflation and boosting production and export earnings. During 1990-2001, the economy turned in a solid performance based on continued investment in the rehabilitation of infrastructure, improved incentives for production and exports, reduced inflation, gradually improved domestic security, and the return of exiled Indian-Ugandan entrepreneurs.11 Indian businessmen have realized the potential of Uganda and are taking advantage of it’s strategic geographical position as a gateway to the promising East African market12

India has forged a development paradigm that is unique which it is keen to share. Economic development needs capital. India is not a rich country but has good forex reserves that have enabled it to offer lines of credit. Offers for NEPAD add up to over $1 billion. India can offer capital goods, technology and consultancy at a fraction of the cost of what is offered by developed countries but its capabilities are not well known. The India-EAC should expose these capabilities and offer affordable and relevant services in oil and gas, SME, agriculture and food processing, pharmaceuticals and engineering. Mr. EVKS Elangovan, Minister of State for Commerce elaborates, “India is serious about developing trade with Africa under the Focus Africa Programme. The role of trade in opening other business opportunities cannot be underestimated. There is a lack of awareness about opportunities in Africa”13. India and EAC can cooperate in the areas of infrastructure, agriculture and services. They are natural allies and there is new dynamism in this relationship. The North-South divide is destabilizing the international political scene and affected the lives of people in developing countries. India has signed MOUs with many African countries and groups and their delivery and commitments have to be fulfilled.

The India Development Initiative synergies India’s efforts in the development of other countries including confessional credit lines, grants, loans, technical assistance, and participation in special regional initiatives. In credit lines, India has used World Bank data on income and debt levels to categorize countries in the world. The terms of credit are soft where required. 85% of credit lines are used for sourcing goods and services from India. “The old system of government-government lines has been replaced by accessing credits from the international market by EXIM bank of India and other commercial banks. Grants primarily supplement credit lines.”14

The India Development Initiative effort is a tool to strengthen south-south cooperation and support the national efforts of developing countries while promoting India’s long-term interests. “India’s exports to Africa have risen to US $3.8 billion and imports are $2.2 billion. In the past six months, they have surged 32%. Survey shows that 5 of the 10 fastest growing economies in the world are in Africa.”15 The EXIM Bank provides advisory services to facilitate the participation of Indian companies in trade with Africa. It has tie up with the AFDB and other financial institutions and has taken part in institution building processes in African countries. Along with it, strengthening the long history of India-Africa political cooperation, Mr. Natwar Singh, Minister of External Affairs appeals, “India needs Africa support for its application to join the UN Security Council as a permanent member. It will be able to represent African interests as well if it succeeds. The Security Council has to be expanded with new permanent members and India has a right to be included because it’s the 4th largest economy based on PPP and the world’s largest democracy. India hopes the discussions in New York address this to address inequities of the international order.” 16

EAC Tariff and India Prerequisite

1.Common External Tariff

A three-band Common External Tariff structure of 0%, 10% and 25% will apply to goods imported into East Africa. A selected list of sensitive items shall attract rates above 25% as an additional protection measure for similar locally produced products. The preferential treatment under COMESA and SADC shall continue to apply during the transition period. India needs to structure between 0-10 percent that help EAC to get the products in its best amount produced range and supplying the goods to EAC will benefit India.

2.Internal Tariff Trade

The EAC Internal tariff trade on goods originating and traded among the Partner States will attract a zero tariff. In the transition period of 5 years, a limited number of goods from Kenya to Uganda and Tanzania will attract minimal rates of duty in keeping with the principal of asymmetry. The zero tariff rates shall commence to apply on goods that satisfy the Rules of Origin for the EAC. This internal tariff treatment will enhance trade between the Partner States, resulting into better resource allocation and increased productivity within the EAC. India should adopt the same kind of structure (0-10%) to receive the indigenous goods from EAC.

These tariff system enhance the bi-lateral and multi lateral trade with in the EAC region that will strengthen Indo-Africa economic cooperation.

Challenges, Suggestions and Conclusion

The offices of the Commissioners General and Commissioners of Customs will be the focal points from where the business community, stakeholders and the general public will get assistance regarding the EAC Customs Union matters. The EAC Customs Management Act, 2004, the EAC Common External Tariff Handbook, the Internal Tariff Handbook, the Rules of Origin, and the EAC Customs Union Protocol are obtainable from the Revenue Authorities and other Centres as will be advised by the Commissioners General. India will minimize these customs as a challenge and persuade it to a feasible amount for the bilateral relations as an India-EAC bloc. The Revenue Authorities of the respective Partner States in conjunction with the Ministries responsible for the EAC affairs, Finance, Trade and Industry will be responsible for the implementation of the East African Community Customs Union within the Partner States and India may suggest various measures for implementation. To sum up, following suggestions need serious consideration:

  1. EAC faces these major challenges in terms of Economic Growth, poverty alleviation, trade enhancement, political integration, securing international cooperation and simultaneous environmental protection and the Indo-EAC partnership will be act as a source to readily overcome these barriers.
  2. EAC needs for a strong democratic leadership, governmental and economical reforms, corporate governance and strategic partnership, which will persuade the national development, regional integration, enhanced capacity, increased productivity, increased exports, poverty eradication and sustainable development. In the process of developing good governance, EAC recognizes the importance of transparency.
  3. SME’s are the key to the economic development and the growth of the manufacturing sector is critical for integrated socio-economic development.  It is the time for EAC to work for SME engagement strategy. This will facilitate the establishment of an EAC business group in all countries. India offers a wide spectrum of ‘adoptable’, ‘affordable’, and ‘available’ technologies for partnerships that can help building a strong technology based SME sector in EAC.
  4. India should aim to contribute 7% of Africa’s imports including EAC by 2007 equal to $18 billion. Indian companies can set up bases for cooperation are tourism, healthcare, education, financial services and Information Technology.
  5. EAC region needs the training and technical knowledge in the mining areas like coal mines, gold mines, precious mines, oil exploration and mine-crashers to prepare small stones, and other things as per requirement of the road building, railway links, house development sector and others.

*********

References

  1. Jean Peirre Bemba, Vice President, Democratic Republic of Congo, Lecture on India- Africa Project Partnership, 2-4 March 2005, organized by CII, Taj Palace, New Delhi.
  2. For more, East African Community Customs Union, January 1, 2005.
  3. For detailed Study, The Constitution of East Africa Community, 2005.
  4. East African Community Customs Union, January 1, 2005.
  5. Kenya, March 2005, published by Kenya High Commission, Delhi, p.2.
  6. Ibid, p.3.
  7. Ibid.
  8. Ibid.
  9. I H Swai, Director for Policy and Planning, Ministry of Energy and Minerals, Lecture on India- Africa Project Partnership, 2-4 March 2005, organized by CII,  Taj Palace, New Delhi.
  10. The World Fact Book 1998, 2000 and 2002, CIA.
  11. Ibid.
  12. Charles M.P. Walimbwa, “I Invite Indian Business men to Invest in Uganda”, Uganda in Focus, November 2004, p.4.
  13. Mr. EVKS Elangovan, Minister of State for Commerce, Govt. of India, Lecture on India- Africa Project Partnership, 2-4 March 2005, organized by CII, Taj Palace, New Delhi.
  14. Vini Mahajan, Director, Ministry of Finance, Government of India, Lecture on India- Africa Project Partnership, 2-4 March 2005, organized by CII, Taj Palace, New Delhi.
  15. TN Venkat Subramanian, Chairman and Managing Director, Exim Bank of India, Lecture on India- Africa Project Partnership, 2-4 March 2005, organized by CII, Taj Palace, New Delhi.
  16. Mr. Natwar Singh, Minister of External Affairs, Lecture on India- Africa Project Partnership, 2-4 March 2005, organized by CII, Taj Palace, New Delhi.
Designed by Digital Yoddhas