For Online E-newspaper
The East African : Aug 9th 2015
40 The EastAfrican BUSINESS AUGUST 8-14,2015 C≥isis in G≥eece and lessons fo≥ EAC COMMENTARY EUGENE NGUMI “The ambition of the bloc must be tempered by smart decision making and right structures.” O n July 6, Greece gave a resounding no in a public referendum to the Eurozone bailout plan that had been the subject of weeks of negotiation. To many, this was not an unexpected result after several years of painful austerity and recession. The wider ongoing Eurozone crisis directly affects East Africa because the EU is the region’s largest trading partners and source of investment. More than that, however, the Eurozone crisis and the ongoing Greek tragedy hold a number of lessons for Africa’s trading blocs, particularly the East African Community (EAC). In 2013, the respective presi- dents of the constituent countries of the EAC signed the Monetary Union Protocol, which set in motion the creation of an East African Monetary Union. This mirrors the process that the EU went through over the course of the 1990s leading to the creation of the Eurozone. The Greece crisis has exposed the weaknesses of the Eurozone’s structure, from which there are three key lessons for the EAC if it is to avoid similar crises in years to come. Monetary and fiscal union must go together The Eurozone is a peculiar eco- nomic experiment; a monetary and customs union with neither a fiscal union nor strong fiscal coordination. This peculiarity has been a major contributor to the Greece crisis, exacerbating fundamental imbalances in the EU. The euro arrangement has meant that Greece cannot use a fundamental economic lever — the value of its currency — to alleviate economic pressure while the lack of a fiscal union means that fiscal transfers are not automatic stabilisers but painfully negotiated, heavily conditioned bailout packages. If the EAC follows this path, crisis will almost be guaranteed. The various economies that make up the region have different strengths and weaknesses which will eventually cause monetary tension. The EAC should thus create some form of fiscal union with structures for the co-ordination of fiscal policy in tandem with monetary policy in order to redress any imbalances. A key aspect of this would be the creation of a structural adjustment fund or transfer mechanism that would avoid protracted Greece-like crises. Participatory decision making A key aspect of the Greece crisis that was a factor in the referendum is how little say the Greek people and government has had in deciding its economic policy. Decision making in the Eurozone is dominated by its As the EAC grows in scope and influence, constituent populations must be involved more to ensure their buy-in. Picture: File biggest economy, Germany. The EAC, much like the EU, has been driven by high level engagement at a presidential and ministerial level. As the EAC grows in scope and influence, constituent populations must be involved more to ensure their buy-in. Furthermore, each country must have an equal say in the decision making process — it cannot be dominated by the region’s largest economies (Kenya and Tanzania). As it is, the EAC has already had the tension of domination play out, with Tanzania often hesitating to implement protocols due to fears of inordinate benefits to Kenya. A perception of equity will need to be created for the monetary union plans to succeed. Debt must be controlled Greece’s problems are rooted in debt. With a debt to GDP ratio of 177 per cent, Greece cannot meet its obligations. The debt picture of the EAC is much more positive; Kenya has the highest debt to GDP ratio in the region, approximately 50 per cent. While this does not pose an immediate threat, debt levels around the region have been steadily rising over the past several years, as the region invests heavily in development projects. In a monetary union, a debt crisis in one country affects all the countries —depressing regional growth and development. The EAC must establish structures that keep debt at a sustainable level. The EAC is the most ambitious regional integration project on the African continent. Unlike the Eurozone, it has been careful and deliberate (some would argue too much so) in the pace and extent of integration. It has the potential to create one of the largest and most dynamic economic zones in Africa, especially if the region fulfils expectations as the most exciting growth centre on the continent. However, the ambition of the EAC must be tempered by smart decision making and right structures and mechanisms. The Greece crisis provides a perfect case study of the potential problems of regional integration. If the EAC learns from this crisis, it could forge a successful future and become a case study in how to pursue regional integration. If not, it will only be a matter of time before an East African economic crisis unfolds. Eugene Ngumi is an associ- ate consultant at africapractice, a leading pan-African advisory firm. Cou≥t halts KRA’s new clea≥ance softwa≥e By CHRISTABEL LIGAMI Special Correspondent THE HIGH Court in Nairobi has stopped the purchase of an electronic Customs clearance software by the Kenya Revenue Authority in a landmark case experts say will guide public agancies in outsourcing contracts to third parties who fund projects. In its July 28 ruling, the court ordered KRA and its procuring agent TradeMark East Africa not to instal the $8.2 million Integrated Customs Management System (iCMS) until a dispute filed by the losing bidder, Webb Fontaine Group, is determined. The tender was won by Bulls Ms. ICMS was to replace the Simba System, which cannot be interfaced with those of other revenue bodies in East Africa. Kenya’s Public Procurement Oversight Au- ICMS was to replace KRA’s Simba system, which cannot be interfaced with those of other revenue bodies in east Africa. Picture: File thority (PPOA) recently dismissed an appeal by Webb Fontaine for review of the TMEA tendering on a technicality even though it said there were tendering flaws. “Kenya’s public private partnership (PPP) Act arrangement is being challenged by the multiple laws on implementing key government projects funded and procured by private companies,” said PPOA board chairman Enock Kirungi. He said that the board could not stop the procurement process, as that was beyond its mandate. “The main issue was that KRA did not trans- fer the procurement mandate to TMEA as its procuring agent as required by the PPP Act.” The PPP Act requires that for a private entity to conduct a tendering/procurement process for a public entity, the public institution has to transfer such a mandate to the private entity in agreement form. “In this case, the board could not have ques- tioned TMEA’s mandate if KRA entered into such an agreement with it,” noted Mr Kirungi. Julius Musyoki, KRA Commissioner for Customs and Border Controls said the taxman would appeal the ruling. Besides the PPP Act 2013, there are several other statutes that regulate PPPs including Public Procurement and Disposal Act, 2005, the Privatisation Act, 2005, the Constitution of Kenya 2010, the County Government Act, Government Contracts Act, Public Finance Management Act and the Transition to Devolved Governments Act. “There is a need to review, rationalise and harmonise these laws in favour of a consolidated and comprehensive statute for PPP arrangements,” said Mr Kirungi. A PPP is a partnership between the public sector and the private sector for the purpose of delivering a project or a service traditionally provided by the public sector. It is especially utilised in the transport, energy, roads, telecommunication and water sectors globally. The concept is relatively new in Kenya. Kenya has been engaging the private sec- tor to fill this funding gap and improve public services under the PPP framework. The PPP framework is provided under the Public Private Partnerships Act, 2013. The Act applies to every contract that deals with financing, construction, operation, equipping and maintenance of a project. It also regulates the provision of public services delivered through a public private partnership. However, the private party undertaking to perform a public function or provide a service on behalf of the contracting party, receives a benefit for performing a public function either in compensation from a public fund or fees/ charges to consumers or both and is liable for risks arising from the performance of the function in the agreement.
Aug 2nd 2015
Aug 16th 2015