| NAIROBI, June 14
NAIROBI, June 14 East Africa's economies -
Kenya, Uganda, Tanzania and Rwanda - may need to do more than
just present their budgets simultaneously if they are to draw
the foreign investment they need to wean themselves off aid.
The countries are working towards a single currency to
increase trade and harmonise their economies further under the
East African Community, and the partner states agreed in 2005 to
read their budget on the same day.
There has been some progress on a customs union, but the
region remains administratively disparate with differing levels
of population and wealth, but most enjoy political stability.
The bloc is struggling to open up commerce among its member
states due to red-tape at border points and lack of a common
So for now, the four states are betting on the traditional
African fallback of natural resources in the shape of huge
discoveries of oil and gas to attract the higher foreign cash
to boost economic growth rates presently around 5-7 percent.
The countries are striving to achieve double-digit growth in
The oil money will come, but meanwhile growing popuations
craving jobs and difficult lenders exerting political agendas
mean there is a need for immediate cash if budget ambitions are
to be met.
On Thursday, the four finance ministers sought even more
taxes from investors, in a bid to reduce dependancy on fickle
"Foreign donors have a role to play in helping strengthen
economic policies, which in turn help improve the private sector
operating environment. Seeking to reduce donor budget assistance
has implications," said Angus Downie, head of economic research
Kenya's re-introduction of a tax on capital gains on real
estate and marketable securities that was suspended in 1985 was
the most direct hit on investors.
Kenyan stocks have drawn demand from yield-seeking foreign
investors after March's presidential election passed off
peacefully, lifting the main share index over 20
percent, making it the third-best performer in Africa after
Uganda and Nigeria, up some 35 and 34 percent respectively.
"I think it will harm investment, especially in the
short-term," said Melissa Verreynne, an economist at NKC
"(But) given that there are a number of attractive
investment opportunities in the country, the introduction of
capital gains tax is not expected to lead to a substantially
lower investment level in the medium- to long-term."
Kenya's Finance Minister, Henry Rotich, said the tax will
mainly target 'wealthy' member of the society, referring to a
growing middle class that has lifted investments in real estate
and securities in the east Africa's biggest economy.
In Uganda, the withdrawal of donor funding during the
2012/13 fiscal year pushed Finance Minister Maria Kiwanuka to
introduce an array of new taxes on petroleum products, financial
services and telephony service to plug the deficit.
"The increased taxing of the telecom and financial services
sectors makes sense given that these have been the fastest
growing in the economy and the limits on raising direct taxes,"
Mark Bohlund, of IHS Global Insight, said.
Tanzania, a largely conservative country with stiff
regulations on foreign investors and repatriation of earnings,
plans to review mining taxes and royalties upwards.
Bohlund said tax exemptions for foreign investors in
Tanzania has been a big issue and a review at a time when
commodity prices are falling globally could lead to job losses,
similar to the ones witnessed in South Africa.
"Falling commodity prices have already led to reduced
production and job losses in the mining sector and this will be
aggravated if sovereigns push forcefully to increase their
take," Bohlund said.
Rwanda, which plans to finance 40 percent of its budget from
external sources, also said it will introduce a new royalty tax
on minerals to compliment its increased taxes on its fasted
growing sectors, telecom and financial services.
The country successfully issued its first Eurobond in April
after several donors withheld aid support over the alleged
backing of rebels in the neighbouring Democratic Republic of
Congo, a charge Kigali denies.
Finance Minister Claver Gatete told a news conference on
Friday that although investors were clamouring for another debt
offering, it would not issue one just yet..
Downie said increasing investment competitiveness meant
improving the business climate, strengthening the rule of law,
and reducing structural barriers to trade.
"Therefore, while it is positive to read EAC governments are
seeking to improve their competitiveness, it may be too early to
rely on the private sector paying more in taxes and levies
before the improvements start to show, which in turn should make
strengthen businesses operations," he said.