BAT WIN IN EA COURT FOR ALL OF US

On Tuesday this week British American Tobacco Uganda (BAT) won a landmark case in the East Africa Court of Justice (EACJ) where they challenged the Uganda’s discriminative excise duty levy on goods manufactured outside Uganda but in the Community.

Some background will serve this story well.

In 2013 BAT wound up its cigarette manufacturing in Uganda, they had a plant in jinja. They then started importing cigarettes for distribution in Uganda from Kenya. In 2017 there was an amendment to the Excise Duty Act which required that Uganda Revenue Authority (URA) charged imported cigarettes more than the ones produced locally.

BAT challenged this successfully in a judgement that not only saw BAT receive a sh325m refund on taxes they had already paid, but also declared null and void any provisions in the law that are contrary to the EAC laws.

Kiryowa Kiwanuka of K & K Advocates, which represented BAT, said after the ruling, that the net effect of this is to make the EAC one country for tax purposes.

It was his opinion that manufacturers around the region will be forced to compete on the cost of production and distribution and not on tax levels.

Clearly this is an earth shaking precedent we probably missed because we were focused on imaginary assassins this week.

"It is a double edged sword.

On the one hand one can now expect that our products that were suffering arbitrary barriers to entry in the EAC like sugar and milk, that will be a thing of the past.

On the other hand there are products we are producing that face direct competition from companies in other member countries, some of which can be landed in Uganda cheaper than we produce them here...

With a level playing field they may very have to become more efficient or fold altogether.

So one can expect in the region there will be companies very in support of the new ruling --- the exporters and other companies for whom the new wave of imports will pose serious existential threats.

The principle of the common market is that there will be free movement of goods, services and people through the region. The common market will then be attractive for investors to make a bet on.

The community has a population of about 170 million at last count, of whom 34 million are urban dwellers.  These are just numbers unless the requisite infrastructure and enabling legislation is in place to allow for it to be one market.

The challenge then for individual countries would be their ability to attract the investors to their shores. If you are a country which is irredeemably corrupt, have port hole ridden roads and the quality of your workforce is imbecilic you will fare badly against your better endowed members, in terms of attracting investors.

However, the theorists argue that the improvement’s in living standards of the people from the increased trade will more than offset the loss of investment.

So for example if Uganda becomes the hub of grain production and production in the region, because it can produce at much lower cost that its neighbours, investors in the sector in Kenya and Tanzania will either have to shut down or relocate their capacity to Uganda. There will be job losses in Kenya and Tanzania but there will be some relief at the cheaper products on the shelf.

The workers though might find themselves in the absorbed in the soda ash industry. Soda ash – sodium carbonate, is only mined in southern Kenya, and is a compound in many industrial uses like dyes, ferterlisers and synthetic detergents. The Kenyan indsutry will have to ramp up production to serve all of the region and any other such operations elsewhere in the region would have to shut down.

One big advantage that would come with a full operation of the open market would be that individual countries would be forced to stick to their competitive advantages. There is no point why anyone else in the region should be trying to produce matooke other than Uganda for instance. This specialization will encourage efficiencies that can only make us stronger as a region.

"And that is why too the freedom of movement of goods and services has to go hand in hand with the ease of movement of people, because if I have just been laid off from a steel making plant in Uganda I should be able to relocate to Kenya to work in their plants...

Some people may think it unfortunate that its BAT that won the case, but the benefits of the ruling are not restricted to them. We can all benefit.