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The East African : July 7th 2014
The EastAfrican 32 UNATTRACTIVE TO INVESTORS OUTLOOK JULY 5-11,2014 Kenya now tu≥ns to Tanzania fo≥ maize By ALLAN OLINGO The EastAfrican KENYA signed a memorandum of understanding last week with Tanzania for importation of 200,000 tonnes of maize to address a gap caused by crop failure in the ongoing harvesting season. The maize is expected to be bought at Ksh2,650 ($30) per 90kg bag, helping contain a steady surge in prices since drought reduced the long-rains output by an estimated 10 million bags. Kenya’s Agriculture Cabi- Insurance Regulatory Authority officials at the NSSF Customer Connect week in Kampala in May. Picture: Morgan Mbabazi Uganda insurance firms say added tax could slow growth Finance Ministe≥ announced the ≥emoval of the 18 pe≥ cent value added tax exemption e≠ective July 1 By JULIUS BARIGABA The EastAfrican T he latest increase in taxes on insurance services in Uganda could impact negatively on an already struggling industry and make the country unattractive to investors. Finance Minister Maria Kiwanuka announced the removal of the 18 per cent value added tax exemption on insurance services effective July 1. Last year, the government hit the industry with a 700 per cent increase in stamp duty for third party motor vehicle insurance. Industry sources in Kam- pala said there should be a 12-month deferral of VAT on insurance services to enable a smooth transition, arguing that “the industry by and large was not consulted by Ministry of Finance” prior to imposition of the tax. This goes against normal budget practice where Treasury consults captains of industry once the budgeting cycle begins early in the financial year, ahead of announcing new tax measures. The insurance business in Uganda operates at variance with its peers in East Africa, which enjoy more favourable tax regimes with one tax — either VAT or stamp duty — chargeable. At 0.65 per cent, Uganda’s insurance coverage is the region’s lowest compared with Kenya’s 3.2 per cent, Rwanda at 2.3 per cent and Tanzania, at 0.9 per cent. However, the bigger con- cern is that these taxes will not only stifle Uganda’s competitiveness but are also a breakaway from harmonisation of the EAC markets, Azim Tharani, the vice chair of the Uganda Insurance Association (UIA), said. Additional taxes may fur- ther depress penetration and hamper the growth of insurance firms and the overall sector if potential investors opt for other EAC markets. The majority of companies in Uganda’s insurance industry are foreign owned — four of the top 10 firms are Kenyan or Tanzanian; only one locally-owned firm, Statewide Insurance, features among the top 10 with a 3.09 per cent market share, data from the Insurance Regulatory Authority (IRA) shows. The chief executive of- Increased cost already impacting negatively on the industry.” Miriam Magala, CEO Uganda Insurance Association ficer of UIA Miriam Magala recently said the increased cost of insurance is already impacting negatively on the industry. Last year’s performance was characterised by low uptake of third party motor insurance due to a jump from Ush5000 ($2) to Ush35,000 ($14), with the tax exceeding the actual premium paid on the policy. Although the IRA report- ed a 30 per cent growth in premiums for 2013, with the industry writing Ush456.86 billion ($177.1 million), much of this growth was driven by premiums of the five health management organisations (HMOs) that were included for the first time in the insurance industry’s statistics. “What this means is that whereas 30 per cent was reported by the IRA, critically looked at, general insurance performance was actually only 12.2 per cent,” said Faith Ekudu, the spokesperson of UIA, adding that this figure compares poorly with previous performances of 19.34 per cent in 2012, and 21.2 per cent in 2011. The aggregated taxes on the industry mean that insurance premium will now be taxed in excess of 20 per cent — broken down as $14 stamp duty, 18 per cent VAT, an insurance training levy of 0.5 per cent of gross premium insurance policies that clients pay and the mandatory 1.5 per cent levy by the regulator on each player. Because the insurance sec- tor in Uganda is dominated by regional and multination- LOW COVERAGE At 0.65 per cent, Uganda’s insurance coverage is the region’s lowest compared with Kenya’s 3.2 per cent, Rwanda at 2.3 per cent and Tanzania at 0.9 per cent. Uganda’s National Insurance Corporation Ltd, commonly referred to as National Insurance Corporation (NIC) has disclosed plans to be listed on the Nairobi Securities Exchange. NIC will now become the second company from Uganda, after Umeme, to cross-list on the Nairobi bourse. al firms, officials say executives and investors around East Africa are watching the developments keenly to see how much the taxes will hurt Uganda’s underwriting business, whose penetration has stagnated at 0.65 per cent for the past five years. Earlier this year, the Africa Market Review: Gearing up for Sustained Growth report ranked Kenya among the top African markets in terms of profitability for insurance companies seeking expansion opportunities. The report noted that alongside Ghana and Nigeria, Kenya, whose premiums have been growing by double digits and rising by 24.5 per cent, was among the most attractive sub Saharan African markets. Kenya’s Agriculture Cabinet Secretary Felix Koskei (left) and Minister for Agriculture, Food Security and Co-operatives of Tanzania Christopher Chiza brief the media on the agreement on maize importation on July 3. Picture: Salaton Njau net Secretary Felix Koskei said the maize would reach consumers at Ksh2,950 ($34) per bag. Prices in retail outlets have reached Ksh3,200 ($37) per bag, against the administrative producer price of Ksh3,000 ($34.7) per bag. In February, Kenya said it would import up to 3 million bags through crossborder trade with Uganda and Tanzania to alleviate a shortage before the ongoing harvest. “A total of 200,000 tonnes will be delivered to Kenya in instalments, with the first one of 50,000 to be delivered next week,” Tanzania’s Minister for Agriculture, Food Security and Co-operatives Christopher Chiza said. Kenya said the Tanzania imports should alleviate shortages and discourage increases in prices of maize flour, the leading staple. “We will be monitoring millers in the country and will not allow them to hike flour prices when we deliver maize to them at low prices,” Mr Koskei said. He added that a good maize harvest in the North Rift from mid-August would stabilise supplies. Tanzania has 5.3 million tonnes of maize in store. Currently maize in Tanzania is selling at Tsh46,800 ($29) per 90kg bag. According to the Famine Early Warning System, a 90 kg bag of maize costs $24 in Uganda, $27 in Rwanda and $31 in Burundi. Uganda and Tanzania traditionally supplement maize production in Kenya through cross-border trade, but in recent years this been constrained by competing export destinations. Since 2011, Uganda has been exporting up to 60 per cent of its maize to South Sudan, owing to the high demand and good prices there. This year, the exports are expected to increase in the wake of fighting in South Sudan that has effected agricultural production in the country. Tanzania has recently found a ready market in nearby Malawi that has been facing an acute shortage since 2012. In 2011, Tanzania banned food exports in a bid to safeguard the country’s food security. The directive was lifted in October last year, allowing traders to export surpluses to neighbouring countries. Last month, Kenya’s Na- tional Cereals and Produce Board (NCPB) said it was holding 2.5 million bags of maize, adding that delayed settlement of Ksh5.9 billion ($68 million) owed to it by the government had made it difficult to buy maize from farmers this year. Maize production in the North Rift, the country’s food basket, is expected to decline by 20 per cent this season due to erratic low rainfall during planting season that led to poor germination.
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