The EAC is a vibrant economic community, which now trades more with itself than with any other region of the World. Kenya can improve its trade balance, lower prices for a variety of goods and services and create jobs by reducing non-tariff barriers to trade and strengthening exports, particularly services. Although Kenya’s export performance has improved over the last decade, its imports have grown much faster. Kenya’s service sector has experienced recent growth, and there is room for further expansion. Kenya is in an excellent position to benefit from regional integration, and address the nontariff barrier and regulatory reform agenda at both the national and regional levels. Policy recommendations:
- Non-Tariff Barriers at the National Level
Establish a trade regulatory committee to review existing rules and regulations – removing those that cannot be justified – and inform the design and implementation of new rules. More specifically the trade regulatory committee should oversee the implementation of new rules and regulations which affect regional trade, and facilitate the inter-ministry coordination that is essential to address a wide range of non-tariff barriers.
Inform firms and individuals. An inclusive and transparent process for the design and implementation of rules and regulations is crucial for deeper regional integration. The political economy constraints and vested interests can make the removal of NTBs a challenging task, particularly when consumers lack sufficient information, and fail to organize themselves. The case studies show that it is important to consult with the private sector and other stakeholders, and develop a framework for providing information to them.
Introduce an appeal mechanism to allow affected stakeholders – both domestic and foreign – to contest decisions made by civil servants. There should be a channel to allow firms and individuals to dispute the decisions made by officials, in implementing regulations, especially for small producers, who do not have access to the mechanisms that are available to large firms, to influence decisions (World Bank, Defragmenting Africa, 2012).
Review capacity of government ministries and agencies to address the regulatory reforms. Assessing capacity gaps that undermine the effective and efficient implementation of new rules and regulations. There are clearly critical gaps in the standards and conformity assessment infrastructure, which need to be identified and prioritized. For example, are there sufficient officers at the border to apply SPS requirements? – A lack of staff can lead to long delays and spoilage.
- Non-Tariff Barriers at the Regional Level
Disseminate the price-raising effect of rules and regulations. A significant number of SPS or TBT measures that are unnecessarily burdensome to trade are still in place in many EAC countries, including Kenya. It is important for the Government of Kenya to put in place procedures to ensure that SPS and TBT measures are designed and implemented, in the least trade-restrictive way, without compromising legitimate public policy objectives, and set an example for EAC partner states to follow.
Develop an effective monitoring mechanism with possible sanctions for non-compliance. The EAC Secretariat has already identified NTBs for removal, but implementation is not adequately taking place. The COMESA-EAC-SADC Tripartite online reporting and resolution system is showing signs of encouraging progress and good practice. The binding dispute settlement process of the WTO, and the experience of the EU in establishing a legally binding mechanism with sanctions for non-compliance, provide additional relevant models for the EAC to consider.
Consider the development of appropriate standards at a regional, rather than national, level. This would exploit economies of scale in regulatory expertise, prevent fragmentation of the market, by differences in standards, and limit the scope for regulatory capture. However, it would be important to tailor those standards to the specific preferences and needs of regional actors, in order to avoid non-compliance, or unnecessary implementation costs.
- Service Exports at the National Level
Eliminate regulatory barriers that limit the development of service markets. Domestic regulations on the entry, and on the operations of services firms often undermine competition, and constrain the growth of strong services sectors in the EAC. Reforms should focus on eliminating such disproportionate entry requirements, or regulatory measures that limit competition. For example, in distribution services, lengthy registration procedures, multiple licenses, or inadequate zoning regulations, need to be addressed. Price controls imposed across the region, and the cartels in place in several East African countries, represent a serious impediment to competition and should be removed. Furthermore, rules and regulations which strengthen the business environment, have to be put in place. Inadequate codes on investment, commerce, labor, and taxation, as well as the lack of bankruptcy procedures, create significant uncertainty and burden for firms which are trying to conduct business operations, in the formal distribution sectors of East African countries.
Reduce costs of access to, and improve quality of, education. Encourage collaboration between universities, professional associations, and the private sector. Education-related reforms that address skills-shortages and skills-mismatches need to be encouraged. Solutions that equip students with market-relevant skills, and address the absence of institutions which offer specialized courses, need to be addressed.
Involve the Export Promotion Council. The EPC can collect and disseminate to Kenyan service firms market information, and highlight available opportunities. Most Kenyan service exporters feel that direct incentives to exports, such as tax incentives, are unnecessary. Rather, what they consider to be crucial is for the government to facilitate access to foreign markets. The Government of Kenya could, through its trade supporting institutions, and in collaboration with business and professional associations and the private sector, develop a services export strategy and play an important role in helping to reduce the barriers that Kenyan service firms face in their export development efforts.
- Service Exports at the Regional Level
Remove remaining trade in services barriers. Examples of these barriers include restrictions on the free movement of labor, including visa and immigration laws and regulations, and labor policies preventing the mobility of professionals. The EAC Common Market Protocol has initiated the integration process in services in East Africa. All five EAC partner states have scheduled commitments in seven services sectors, and have adopted the annexes on removing restrictions, on the free movement of workers and on the right of establishment. But barriers affecting trade, investment and labor mobility remain in place.
Encourage regional education-related reforms to address skills-shortages and skills-mismatches. This could take the form of establishing regional education hubs, in order to address the fragmented market.
Align regulatory and supervisory frameworks and reporting requirements in financial services. Banks surveyed cite single licensing as an important aid to further integration. Adopting single-licensing will have to be accompanied by mutual recognition among regulators, and this will require that national regulators converge around some broadly defined international principles. It is also important to buildup regionally compatible financial infrastructure.
Kenya, Tanzania and Uganda have already made substantial progress in integrating their real time gross settlement systems. Rwanda and Burundi also need to align their payments systems with the regional system. Deepening links between financial institutions warrants a similar deepening of cooperation between supervisors. Home-host supervisory communication, and consolidated supervisions are important, to ensure that weaknesses in one financial institution/market, do not put the regional financial system at risk.
Recognize professional qualifications in professional services. The free movement of EAC professionals across the borders needs to be complemented by the recognition of their qualifications. The implementation of full-fledged mutual recognition agreements that cover areas such as education, examinations, experience, conduct and ethics, professional development and re-certification, scope of practice, and local knowledge, would likely benefit Kenyan service firms (as well as firms in neighboring countries), in their exports of services to the region. The five EAC partner states have taken the first steps towards mutual recognition in professional service, in the context of the EAC Common Market negotiations – they have already signed MRAs in accounting and architectural services, and additional MRAs are expected to follow in engineering and other sectors.
* Policy recommendations: extracted from "Deepening Kenya’s integration in the East African Community", a special focus in the Kenya Economic Update, published 18 June 2012. The 25 page report can be accessed here. The full report, Kenya Economic Update, can be accessed here.