By James Karuhanga
The business community is willing to support the East African Community (EAC) integration process, but problems like lack of “aftercare services” are affecting the potential and growth of enterprises and hence their contribution to regional development, business leaders have said.
According to Lilian Awinja, the executive director of the East African Business Council (EABC), there is urgent need for interventions and a clear action plan to address such issues and “put manufacturers in the region on a growth path”.
“One of the challenges we (EACBC) have noticed is that we welcome companies to come and invest in the region. However, we only ‘take care’ of them when they land, but rarely follow up after this,” Awinja said.
“We are not worried about companies once they have set up and don’t work on the issues that arise later on. We worry more about bringing in more investors than taking good care of the companies that we already have.”
So, the care we give companies after they have set up shop in the EAC bloc is not satisfactory and this affects their growth and contribution to regional growth and job-creation, she added.
The result of poor or insufficient after care, she observed, is that the region has companies that operate below capacity.
Awinja was speaking on the sideline of the three-day second East African Manufacturing Business Summit that ended on Thursday in Kigali.
The EABC chief said many firms are operating at just two per cent of their installed capacity “when they can produce at a higher rate” and, for example, produce enough food for the region or create more jobs.
“I am sure the manufacturing sector can contribute more than the current 10 per cent to regional GDP. This is too low and requires urgent intervention by member states to address the challenges faced by sector players like cost of power to drive its growth,” Awinja said.
Why aftercare services
The United Nations Conference on Trade and Development (UNCTAD) launched its “Investment Advisory Series” in the recent past that provide practical advice and case studies of best policy practices for attracting and benefiting from foreign direct investment.
One of the series defines the term “aftercare” as the range of activities from post-establishment facilitation services to developmental support to new firms to retain the investment, as well encourage follow-on investment to achieve greater local economic impact.
It is driven by the view of what transnational corporations (TNCs) need in the present and the future, and what the host economy needs from international companies in its territory, the publication notes.
Accordingly, this is achieved through the development of a structured service offer that includes administrative, operational and strategic support to TNCs.
Supporting these approaches, Atma Prakash, the senior sales and marketing manager of Sulfo Rwanda Industries, told Business Times that an industry is like a baby and “should be well-nourished in its nascent stage”.
“An industry is like a baby and it must be well-nourished when it is growing. Though it grows slowly, there will be a point when no more care is necessary and it can grow by itself. In the case of investment, the government is the parent and it has to support the industry for it to grow well and become competitive,” Prakash said.
He cited support information on export markets as an example of the “nourishment” by governments. He added that when a new company comes into the market and their products is widely accepted, but others start counterfeiting them, this will hurt the firm. “Only governments can protect new industries from these types of activities as part of aftercare service. There are many things involved in aftercare for industries that EAC government should address,” he added.
Policy-makers faulted
Ali Mufuruki, a leading Tanzanian businessman and founder of Infotech Investment Group, with interests in a number of sectors, told Business Times that the industrial sector in the region is still young and hasn’t attracted many investors.
He, however, blamed that on the lack of commitment on the part of policy-makers in many government agencies across the bloc,saying this was hurting the regional industrialisation project.
Policy-makers, he said, were not excited about the regional industrialisation project because “they do not see immediate individual benefits.”
If a government official was developing policies for a given private sector investor, it would make more relevance to them as they know why they are drafting the policy and for whom.
However, when Americans make policies for American industries, he observed, they see citizens owning those industries.
“But here you make industrial policies for other people – Lebanese, Chinese, Britons and citizens are largely ignored. This is bad and costly as it focuses on short-term individual gains,” he said.
He said the practice is fuelled by corruption and greedy on part of some policy-makers. “For instance, an official could be working on your documents, but suddenly turns their attention to those willing to offer them commission,” said the Tanzanian millionaire.
“Therefore, since we are not committed and do not feel ownership of this project as East Africans both in the private sector and government, this kind of lackluster attention to firms coming to invest in the region will continue.” The businessman said many new investors are abandoned by policy-makers shortly after they start operations “because nobody cares”.
Guarded optimism
Despite these challenges, Mufuruki remains optimistic.
“I think that we will be doing the next generation, our children, a disservice if we don’t change the status quo. I am part of the problem. That’s why I challenge other people, but I also challenge myself,” he noted.
The EAC, Mufuruki said, has huge potential for growth.
“If we don’t grow it now, it’s going to be difficult in the future. Though I am optimistic, I am not underestimating the magnitude of the challenges we face.”
Other challenges
Awinja said the high cost of doing business in the region was hurting manufacturers. She said issues such as access to electricity, high taxes and the high cost of air transport need urgent attention from political leaders.
Studies have shown that EAC has one of the highest freight and transport charges that erode global competitiveness for its exports and imports.
Transport costs are 60 per cent higher in the region compared to the West. Studies indicate that, globally, a 10 per cent decline in transport costs is likely to increase trade by 25 per cent and because Africa and East Africa, in particular, have generally higher transport charges it could lead to more trade.
For the manufacturing Sector, Awinja says, high transport charges from key ports of entry, Mombasa and Dar es Salaam, mean that raw materials are transported at much higher charges and eventually increase cost of production.