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.
