South Sudan EAC entry key for regional integration, Kenyan businesses

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South Sudan became the youngest, and sixth member of the East African Community (EAC), when it’s President, Salva Kiir Mayardit signed the accession treaty and requisite protocols in Dar es Salaam, at an event witnessed by the current EAC Chair, Tanzania’s new reformist president, John Pombe Magufuli on Friday April 16, 2016.

This event was poignant in history and meaning for the region. South Sudan has had a chequered, albeit conflict-prone history prior to gaining independence in July 2011 after voting in a referendum to secede from the Sudan. Its independence has been wracked by a war that started in December 2013, and that has killed at least 50,000 people and displaced two million people according to aid sources. However, there is a silver lining all this as the cessation of hostilities brokered by IGAD last year is getting traction and it is expected that it will transition to a government of national unity this week after the negotiated settlement between the two protagonists, President Kiir and Dr Riek Machar. Stakes are high but regional leaders are optimistic that the two leaders will respect the terms of the agreement and work together towards bringing the benefits of the ideals of the EAC, and the benefits of regional integration to the long-suffering South Sudanese people.

What are the benefits of South Sudan joining the EAC? These are many and varied, and whereas its parliament has to ratify the EAC Treaty and protocols, which, understandably, may take time as this is a legislative process, there are quick gains and low hanging fruits that the nation, Kenya and the region should capitalize on, especially in regards to tariff and non-tariff barriers to trade are concerned.

Since 2011, Uganda has emerged as South Sudan’s biggest trading partner in the region, exporting goods worth US$280 million at the peak of trade ties in 2013, but this fell to US$260 million in 2014 on the back of the conflict. Kenya, on the other hand, despite having a played a key role in brokering peace-talks and the transition in South Sudan, has lagged behind Uganda inspite of major Kenyan firms having a major presence in Banking, Financial Services, ICT, Cement, steel, Construction and Fast Moving Consumer Goods (FMCG), through local firms like KCB Bank Holdings, Equity Bank, Co-operative Bank, CfCStanbic, and UAP insurance firm. Hordes of formal and informal Kenyan traders and skilled workers had prior to the breakout of war in December 2013 invested millions in the largely informal trade and have incurred losses running into billions in the hiatus. Four Kenyan banks – KCB Bank Holdings, Equity, Co-op Bank and CfCStanbic made a combined loss of Sh14.5 billion in 2015 alone from their South Sudan subsidiaries.

These new developments should provide impetus to a return to normalcy in the country, and with the country now a part of the EAC Common market, this should lift the trade and labour barriers hitherto encountered – from long visa application processes to expensive duty levied on imports from Kenya. Like has been done with Uganda, Rwanda and Tanzania, the creation and operationalization of one-stop border posts and trade-facilitation through TradeMark East Africa (TMEA) should fasten the clearance of goods at border points and bring down costs for the traders. These benefits are expected to be passed onto the consumers and lower costs should drive up volumes.

Through the ongoing investment climate and business reform measures being undertaken by the Government of South Sudan (GoSS), the registration and operations of firms and businesses will be harmonized with other EAC countries, and bench-marked to global standards, thereby significantly lowering business set-up and transaction costs, easing business processes, protecting private-property, providing fair arbitration and settlement processes in the case of disputes, and increasing the numbers and diversity of the private-sector through formalization. It is envisaged that a formalized, easily administered tax administration system will be established and the budget, and budgetary processes must be in congruence with the EAC framework, thereby eliminating double taxation, and rent-seeking.

Following on the above, and learning from the huge losses running into billions that Kenyan firms and traders experienced last year when the South Sudan Central bank devalued the South Sudan Pound by 84pc, the foreign currency access and convertibility ban will be lifted and a business-friendly free floating rate adopted, which will shield against foreign exchange losses and ease the capital controls that barred firms from repatriating their profits back home, a huge disincentive for investors and traders in the country.

The other big win for businesses and traders is that the EAC framework envisages the free movement of labour and capital, and with South Sudan in dire need of both human and physical infrastructure, this should open up the market to skilled Kenyans workers and private firms to contribute towards build the nation’s capacity without the threat of expatriation back.

The other gain will be on the infrastructure front. The US$24 billion Lamu Port South Sudan Ethiopia (LAPSSET) corridor program has a new lease of life after a lull over feasibility of project components and willingness on the partner states to commence work, partly in part on the conflict in the South Sudan. With South Sudan now in the EAC fold, it is all systems go for the Northern Corridor Integration Programs (NCIP) under the Northern Corridor Transit & Transport Coordination Authority’s (NCTTCA) partner states of Kenya, Rwanda and Uganda, as this land-locked nation needs to fast-track its infrastructure investment to open up investment opportunities in this corridor. This development should also contribute towards resolving the impasse about the regional oil-pipeline route to evacuate oil from the albertine rift oil reserves through Hoima, Uganda, and offer both South Sudan and Kenya an alternative route the ports of Lamu, Mombasa or Tanga, whichever will be more feasible, economically viable and cost-effective.

In an increasingly competitive global economy, no single country on its own is able to compete alone, hence South Sudan’s liberalization of foreign exchange controls, to enhance in-country and cross-border transactions, trade finance and tap global banking opportunities through increased regional integration is the right way to go. Further reforms needed in bringing down barriers include improving the business environment, market and physical infrastructure to reduce transaction costs and drive up volumes, rule of law, security and property rights, an Anti-money laundering law to curb illicit capital movements, establishment of a primary and secondary securities market and integrating these with the mooted EAC Securities exchange, and ultimately tangible moves towards a common currency and a political federation.

We will be on the right side of history. A deeper and broader EAC market, underpinned by matching skillsets, world-class goods, products and services in our key value-proposition investment sectors like agriculture, infrastructure, extractives, ICT and financial services will deliver the EAC promise of lifting millions out of poverty and delivering the promise of a generation.

However, there is a caveat. Apart from diversifying from over-reliance on oil exports, the warring factions in the South Sudan, and their supporters must rise up to the occasion and temper their words and actions to tame belligerent elements that have tarnished the nation’s image and consigned it to a perennial state of war and penury. In this day and age, when nations are aspiring to deliver on democracy and economy, we trust that the EAC leaders will lead by example on the prerequisites of trade and development – peace, a stable macro-economic environment, and inclusive governance. Only then can South Sudan, and the region, reap this dividend!

(Gikang’a is the East African MD, and Co-Founder, KEAMSCO, a New York, Bremen and Nairobi-based Management Consulting & Business Advisory Firm – [email protected])

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