Tax and Fiscal Governance: Is VAT milking the broken tax cow dry? An analysis of tax trends and impacts on EAC small traders and citizens, with a case of the recent traders’ boycotts in Uganda

With dwindling foreign aid, it appears the governments in East Africa have resorted to squeezing everywhere to raise some dime. Taxation may be good however, when the extremes are beyond reasonableness, countries are bound to break the back of the economies they aspire to build. Could the recent demonstrations in Kampala show a mismatch of tax policy and that the tax cow may be now broken or is it a case of misunderstanding of the tax system and the dividends of taxation?

By Robert Ssuuna, Researcher, Trainer, and Consultant,

Governance and Economic Policy Centre

@ Tax policy @ Tax justice @africataxproffessionals @fiscalgovernance

KAMPALA, UGANDA – APRIL 17TH 2018.
People go about their everyday business in Kikuubo, one of Kampala’s busiest trading areas.

Recently media in Uganda has been inundated by the stand-off between the Government and traders in the Central Business District of Kampala’s Capital Uganda locally known as Kikuubo with traders choosing to close shops in protest. The protest which later spread to other cities like Jinja, Mityana, and Masaka was triggered by the implementation of the Electronic Fiscal Receipt and Invoicing System (EFRIS) by the Uganda Revenue Authority.

According to the Taxman, the solution is intended to address concerns related to Value Added Tax (VAT) fraud.  VAT is known as an indirect tax charged by businesses at each stage of the production and distribution chain up to the retail stage of goods and services. VAT was introduced in 1996 replacing the sales tax and has since proved a reliable source of revenue contributing 30% of Total Tax Revenues on average and 4.4% of GDP[1]. To understand how well the VAT regime is managed in the country we use two main metrics, these are;-

  • VAT productivity which is the VAT revenue yield to GDP divided by the nominal VAT tax rate. VAT productivity measures how much each percentage point of the standard VAT rate collects in terms of GDP as given by the following ratio.
  • VAT Productivity= VAT Revenue/ GDP (Standard VAT rate)
  • VAT C-Efficiency which measures the VAT revenue performance and overall efficiency of the VAT system in an economy. The efficiency ratio is given by VAT revenue yield to the approximated proxy (Final Consumption) divided by the VAT tax rat It follows that, if VAT compliance was perfect, actual revenue over potential revenue, would be one. C-efficiency ratio is given as:- 
  • VAT-C Efficiency = Actual VAT revenue/(Final Consumption)(Standard VAT Rate)

Where actual VAT Revenue implies Total VAT collections less VAT refunds.

Using the above indicators,  we establish that in 2023 Uganda registered VAT productivity of   22%  while the VAT C-efficiency ratio  stood at 21% way below the African averages of 27.6% and 37.8% respectively (ATO, 2023)

Lower VAT productivity and C-Efficiency ratios imply a higher difference between real and declared revenues and consequently few economic agents meet their VAT obligations.

From the simple results indicated above, one might argue that the Government is justified to institute both policy and administrative mechanisms to address the low VAT productivity and VAT C- efficiency. One such intervention is the introduction of the EFRIS.

The system manages business transactions, tracks stock movements, automatically applies VAT-inclusive taxes (which directly affect informal traders’ profits), issues precise and traceable invoices, and promptly reports sales data to the revenue authority in real time. Through automated cross-checks the URA can more effectively match buyer and seller invoices, thereby preventing taxpayers from claiming input VAT credits without corresponding reports from sellers. Theoretically, this system tackles tax evasion in two main ways: Firstly, by creating a more accurate digital trail, it enhances URA’s monitoring capabilities and raises the likelihood of detecting evasion. Secondly, by offering clearer transaction records and facilitating pre-filled tax returns, it encourages voluntary compliance by simplifying the tax filing process. So one wonders why traders and the Government fail to agree on such a solution given the associated benefits.

From the informal trader’s perspective,  EFRIS exposes them to the risk of “premature formalization,” where their tax compliance costs, including penalties for non-compliance, escalate faster than any benefits gained from their efforts to sustain themselves. Traders believe that any measure that decreases the amount of money they have to spend freely is essentially a tax.

The challenges posed by the EFRIS system stem from concerns about reduced incomes caused by lower sales due to increased prices resulting from VAT on purchases made by informal sector operators, particularly Kikubo Traders, from formal sector operators. Additionally, there’s a decrease in income from their imports. These worries are intensified by URA’s strict enforcement tactics and the looming possibility of facing full taxation scrutiny from tax authorities. Critical issues associated with EFRIS are:-

First, is the general lack of awareness among the trading community on what EFRIS is,  its objectives, benefits, and associated challenges despite URA’s investment in taxpayer education since 2021 when the solution was rolled out.  It is no surprise that some traders regard this as another tax. Some of the traders also clearly seem not aware of how the VAT mechanism operates especially the Input versus output approach.

The second factor is the mode of implementation and per-requisites for the EFRIS. Traders are worried about the costs associated with  EFRIS. These include among others, hiring accountants or at least personnel with electronic numerical literacy, purchase of software, internet, purchase of the EFRIS gadgets, etc. Although all these are allowable expenses under the Income Tax Act, in the medium term they eat into traders’ working capital. To curtail these, the EFRIS regulations prescribe penalties for non-issuance of receipts generated by EFRIS and nonuse of EFRIS gadgets. The penalties are from UGX 6,000,000 and  UGX 8,000,000 respectively ( USD1700&USD 2200).

Third, is the VAT threshold. Currently, EFRIS is a requirement for only VAT-registered taxpayers with annual gross sales of UGX 150,000,000 (USD 42000).  The initial registration threshold was set at shs.20 million, and then increased to shs.50 million in November 1996, following a strike by traders. The threshold was further increased to shs.150 million in 2015, and it was argued, that including small businesses in the tax net by setting a very low VAT registration threshold can drain the limited resources available to the tax authority for administration, and yet the revenue potential is insignificant because of the low turnover and low-value addition. This is because VAT tends to impose high compliance costs on small informal traders who generally do not have sufficient resources to keep proper records of their transactions and comply with accounting rules.

With the depreciation of the UGX against the dollar since 2015, traders argue that the VAT registration threshold should be increased at least to UGX 1Bn to reflect current economic trends. Traders are also concerned that non-VAT qualifying suppliers are being denied by large supermarkets and departmental stores if they do not prove adherence to EFRIS requirements. This locks small-scale traders out of the supply chain affecting their earnings.

Finally, we note that traders are using the demonstration on EFRIS to buttress other perennial issues affecting their operations and contributing to taxpayer apathy. These include unclear application of import duties and valuation for used clothing (a blend of advalorem and specific duties), protracted VAT refund processes, general poor public service delivery, and glaring corruption scandals by politically exposed persons.

It must however be noted that the issue of VAT has been a concern of small traders across the East African Member states. The recent Ugandan demonstrations perhaps are a manifestation of the weaknesses and challenges of Tax policy and administration across the region.VAT is generally considered a regressive tax and one whose implementation has always been a source of concern and perhaps should be evaluated. 

VAT protest trends across East Africa

A man protesting Kenya’s Finance Bill 2023 is tackled by security outside Kenya’s Parliamentary Buildings in Nairobi, June 13th 2023. Courtesy Photo-Bizina

The litany of small traders’ strikes started last year (May 2023)  in Tanzania when the traders in Kariakoo, Tanzania’s, and perhaps East, Central, and Southern Africa’s largest commercial hub locked up their shops in protest over what was considered as taxation. Among the multiple taxes and levies protested was VAT. The traders wanted this reduced to 16% among others.   This later picked momentum with strikes and protests in Kenya, when the government proposed in its 2023 Finance Bill to increase the VAT, particularly on fuel products from an earlier 8% to 16%. To date, the Kenyan business community is not happy with this increase and has been complaining that a higher VAT increases the costs of living to the citizens,  doing business in Kenya and is detrimental to Kenya’s industrialization agenda.

In its 2024 Finance Bill,  the Kenyan government has proposed to introduce VAT on bread, which is largely viewed as a staple breakfast food for Kenyans.  If the proposal sails through parliament, bread, which is currently on a list of items that are zero-rated for VAT purposes— including flour, milk, and sanitary products— will attract the 16 percent tax that will see the commodity increase by at least Sh10 for 400-gram loaf. The government argues that levying bread with VAT is necessary because its zero rating was misplaced since it benefits the middle class who shop in supermarkets rather than the targeted low-income households.

Kenyans are generally not happy with this and if it is passed there could be another round of protests from different sections of what is already considered an ‘over-taxed’ Kenyan taxpayer.

Therefore the following measures should be taken to ensure that the Governments continue to milk the cow without breaking it,

  1. Invest in Taxpayer education and awareness should be a continuous process
  2. Improve accountability for the use of taxpayer money by improving the quality of public services and apprehending the corrupt to encourage voluntary compliance.
  3. Improve tax administrative efficiencies by continuously equipping URA staff with skills and ensuring that the staff numbers are adequate to manage the tax register.
  4. When introducing new systems such as EFRIS, tax administration should invest in reasonably wider consultation and ensure the participation of all those likely to be affected by the system from the design stage.
  5. Invest in agricultural commercialization, productivity, and industrialization to ensure that the majority of the agricultural sector actors are within the money economy to broaden the tax base.
  6. The government must develop a proper Tax policy to guide taxation and predictability of tax administration

 

Forthcoming Expert Webinar on Taxation and Tax Policy in East Africa

To discuss  and dissect this further we have organised an expert webinar on this subject will be coming up on the 30th May, 2024.  Please register to attend via the links below:

Title: Tax and Fiscal Governance: Is VAT milking the broken tax cow dry? An analysis of tax trends and impacts on small traders and citizens in EAC

Date: 30th May, 2024

Time: 11:00 AM to 12:30 PM EAT/ 10AMCAT
 
Meeting ID: 857 8760 2335
Passcode: 897276

[1] Author computation based on Revenue Statistics from the URA

The Petals of Blood: Dissecting the contagion effect of Sudan war on South Sudan and EAC with lessons on governance and state failure

The Sudan war has been raging for almost a year, with catastrophic effects now spreading beyond Sudan’s borders, affecting its neighboring South Sudan and the East Africa Community (EAC) in many ways.

By Moses Kulaba, Governance and Economic Policy Centre & James Boboya, Institute of Social Policy and Research (ISCPR), South Sudan

According to the United Nations, since it started, the war has now destabilized the entire region, leading to the deaths of more than 5,000 Sudanese and displacing millions both within the African nation and across seven national borders.[1]  Sudan is now home to the highest number of internally displaced anywhere in the world, with at least 7.1 million uprooted.[2] More than 6 million Sudanese are suffering from famine, and these numbers are growing every day.  The health system has broken down, and more than 1,200 children have died from malnutrition and lack of essential care. [3]The UN now describes the Sudan conflict as a forgotten humanitarian disaster, while the International Crisis Group has warned that Sudan’s future, and much else, is at stake.

Lest we forget, within a short period, the third largest nation in Africa, with a size of more than 1.8886 million square kilometers and at least 46 million people, has no properly functioning government, and all state institutions have collapsed with the effects of its meltdown spilling over to its neighbors, particularly South Sudan.

South Sudan is host to thousands of Sudanese refugees forced across the border into South Sudan, exerting social and economic pressure on an already fragile state that was already sinking under the burden of its own civil war and internal conflicts.

The Norwegian Refugee Council (NRC) reports that more than 500,000 people have now fled from the war in Sudan to South Sudan. [1]This means that over 30 percent of all the refugees, asylum seekers, and ethnic South Sudanese were forced to flee Sudan since the war exploded in April 2023 for protection in one of the poorest places on earth. “South Sudan, that has itself recently come out of decades of war, was facing a dire humanitarian situation before the war in Sudan erupted. It already had nine million people in need of humanitarian aid, and almost 60 per cent of the population facing high levels of food insecurity.

As of 28 January 2024, more than 528,000 ethnic South Sudanese, Sudanese refugees, and other third-country nationals had crossed at entry points along the South Sudan border into Abyei Administrative Area, Upper Nile, Unity, Northern, and Western Bahr El Ghazal. The majority, 81 percent, entered at Jodrah before making their way to the transit center in Renk. Ethnic South Sudanese who have crossed the border from Sudan are commonly referred to as “returnees.” Still, in reality, many of them were born in Sudan and have never been in South Sudan, and therefore have no kinship connection in host communities.

The conflict has spilled deeper into other East African countries, with thousands seeking refuge and safety from it. The education system collapsed, sending thousands of learners back home and hundreds who could afford to flee exile to continue their studies. Some of these were admitted to Rwandan and Tanzanian Universities.

The Sudan and South Sudan experiment was a governance disaster in the waiting and perhaps serves as a lesson of how a firm grip on power, corruption, and misgovernance can ultimately lead to catastrophic state failure and collapse.

Donald Kasongi, Executive Director of Governance Links and a former senior officer with the Accord, a regional conflict organization, describes the post-Garang South Sudan and post-Bashir Sudan as a protracted governance failure. The diverse strategic roles of Khartoum, Beijing, and Washington in the Sweet South Sudanese oil are now evident.  So far, none is a victor.

The role of external interests in shaping national discourse has been at play. Sudan is caught between the interests of the West and the Middle East and China, with both interested in controlling access to Sudan’s resources, cultural wealth, and strategic positioning as a buffer between the North and South. Before the war, Sudan identified itself with the Islamic world and pronounced itself as an Islamic state. Despite this alignment, the OIC and the larger Islamic world has not come to its help. Sudan remains an isolated state left to collapse at its fate.

In South Sudan, the Garang vision of a strong independent nation was lost. After his demise most of the post Garang political elites or military war generals became pre-occupied on restoring the lost years at war by amassing wealth through corruption and sharing out of the limited resources from the oil resources. As a consequence, a strong nation is yet to be built. They had won the war but lost their country. The same mistake plays out in Sudan. Perhaps the conflict is a lesson on what it means to lose what is so dear to one- A country.

In short, the transition in both countries (Sudan and South Sudan) were not well managed and what we see are petals of blood from toxic flowers of bad governance which have flourished like a forest planted along the banks of the river Nile.

According to James Boboya, the Executive Director of the South worrisome. The raging war has made South Sudan’s oil exports via Port Sudan difficult. Oil exports have collapsed by more than half from 160,000 barrels per day in 2022 to 140,000 barrels per day in 2023. This was more than half of the previous peak of 350,000 barrels per day before civil war broke out in 2013.[2] The South Sudanese dollar collapsed in value. There is a financial crunch and the South Sudanese government has not paid its public and civil servants for months. There is a risk of insurrection and demonstrations by public servants that will be likely joined by the military. This would plunge South Sudan into chaos and total collapse just like its Northern neighbor.

Moreover, this conflict and its associated effects comes in an election year for South Sudan.  The general elections are viewed as a watershed moment which may see a transition from President Salva Keir to a new cadre of leadership. With the economic crunch, South Sudan may not be able to organize and fund a credible general election. This will be not good for South Sudan’s democracy and desired future.

With the world’s media focused on the Russia-Ukraine war and the Israel-Gaza wars, little is covered about the Sudan conflicts nor the total economic catastrophe that South Sudan faces.

If not addressed, the Sudan war will be soon inside the borders of the EAC. Can the EAC afford to stand by and watch longer as its member state, collapses.  Mediation efforts led by Kenya and Djbouti were postponed last year. Direct talks between Abdel Fattah al-Burhan, Sudan’s army chief and de facto head of state, and General Mohamed Hamdan Dagalo, known as Hemedti, head of the RSF paramilitaries remain futile.  What can South Sudan and the EAC do now to avert further catastrophe?

During a joint webinar organized by the Governance and Economic Policy Center (GEPC) and the Institute of Social Policy and Research (ISCR) in South Sudan in April, a distinguished panel of experts discussed and enabled us to understand the contradictions and magnitude of this war with implications and lessons on extractive governance, and state collapse drawn for East Africa and Africa generally, can be taken to avert the situation and its contagion effect on the EAC and Africa generally. The panelists and participants highlighted some key lessons and takeaways that can be drawn from the conflict.

Key lessons and takeaways

Ethnicization of politics and governance can lead to a spiral of violence and catastrophic state collapse, especially when the strong ruling elite and regime finally lose control of power.

A previously united Sudan started getting balkanized when the ruling elites started practicing the politics of ethnicity and religion pitting the largely Muslims in the northern and western parts of the country against their Christian southerners.  The Christians were portrayed as slightly inferior, denied political and economic opportunity, and subjected to forced Islamisation, and inhumane conditions such as slavery. Faced with what was considered unbecoming conditions the Southerners opted for a rebellion and demand for independence. The first and second Sudanese civil war (including the Sudanese Peoples Liberation Movement (SPLM/A) were born and the political dynamics in Sudan changed for decades after. New factions such as the Sudanese Liberation Army (SLA) and the Justice Equality Movement (JEM) emerged and Sudan never remained the same.  Sentiments for cessation and independence in Darfur flared and faced with an insurgency, President Omar enlisted militias including the Janjaweed to quell the rebellions. Around 10,000 were killed and over 2.5 million displaced. The balkanisation of Sudan was continuing to play out.

Militarisation of politics erodes democratic values and principles which can take decades to rebuild.

Omar Bashir came to power in 1989 when, as a brigadier general in the Sudanese Army, he led a group of officers in a military coup that ousted the democratically elected government of Prime Minister Sadiq al-Mahdi after it began negotiations with rebels in the south. Omar Bashir subsequently replaced President Ahmed al-Mirghani as head of state and ruled with the military closely fused into the politics and governance of Sudan.

The military elites elevated to power during President Omar Bashir’s government enjoyed privileged positions.  Even with his overthrow in 2019, these generals maintained a firm grip on the Transition Military Council and the Civil-Military Sovereignty Council.  These are less likely to accept any position below total control of the central authority. The net effect is that the return to full civilian and democratic rule of state governance in an entrenched militarized political environment such as Sudan can or may take decades to be rebuilt.

Vulnerability to geopolitical manipulation and fiddle diddle can be a driver to political instability and eventual weak governance

Both Sudan and South Sudan have been victims of well-orchestrated geopolitical game plans from external powers interested in taking control of the rich natural resources wealth that these countries possess. Sudan and South Sudan have vast oil deposits and forestry products.  With eyes focused on these resources external powers succeeded in playing one community against another and one country against the other and successfully throwing the region into an abyss of endless crisis. Religion was used as a tool to play the North against the South and continues to be used in some segments of the Sudanese and South Sudanese communities.

Key Takeaways

  1. The East African Community (EAC) governments cannot afford to take a wait-and-see attitude. The problems facing Sudan and South Sudan are latently present in several other EAC countries. For this reason, therefore without taking lessons from Sudan and South Sudan other countries can also easily erupt in the future, bringing down the entire EAC. The EAC has therefore an obligation to ramp up support for the resumption of the peace process and finding lasting solutions for peace and tranquility in the two countries. For this to happen there has to be trust and objectivity of the actors to the crisis and the EAC mediators. 
  1. Stop ethnicization and militarization of politics and state governance: The Sudan experience demonstrates this, whereby the collapse of President Omar Bashir’s strong grip on power let loose the lid off a can of worms that had eaten the state to its collapse. Similar conditions of ethnic rivalry in state governance have created uncertainty about guaranteed stability in South Sudan. In some other EAC member states there have been attempts to elevate dominant ethnic groups to power and military influence in state politics built around one strong leader. The Sudan experience demonstrates that the absence of such a strong leader holding the center together can lead to a lacuna, leading to a trail of conflict and instability leading governance to fall apart and eventual state collapse.
  1. The EAC countries must stop viewing at South Sudan as merely a market but as an independent viable state whose stability is good for the entire region. According to the EAC trade statistics, South Sudan was the leading market for goods from Uganda and Kenya. With a total population of 11 million and a collapsed agricultural and industrial base, South Sudan has provided a ready market for agricultural goods and manufactured goods from Uganda and Kenya. According to UN Comtrade Data Uganda exported goods worth USD483.9Mln and Kenya’s exports to South Sudan were worth USD170Mln. Uganda’s exports to Sudan also increased by 154% from around USD48Mln in 2016 to USD123Mln in 2022.  With the eyes largely focused on trade opportunities, there can be a tendency to lose track of the human suffering that the people in these countries face. Also, the jostle for geopolitical control over trade deals can overwhelm the genuine solidarity intentions of good neighbors. The EAC members should focus on the stability of these countries. 
  1. The International Community Must not give up on Sudan and South Sudan. Despite the donor fatigue and reports of corruption, the international community has a moral obligation to continue engaging with the protagonists in the war, facilitating the avenues for a peaceful resolution of the conflict and providing humanitarian aid to the suffering people. The Sudan and South Sudan conflict must be treated with equal measure with the Ukraine-Russia, Israel, and Gaza conflicts. The EAC must scale up diplomatic efforts and be an Anchor in Chief in this process, coordinating and connecting Sudan, South Sudan to the world. 
  1. The EAC media and Civil society must continue highlighting the suffering in Sudan and South Sudan. With the Israel and Gaza war ongoing, the Sudan and South Sudan stories that were largely covered by the Western media have since died out.  There has been little coverage given within the EAC of the recent developments in this war and how it is affecting its neighbors. Moreover, with limited internet connectivity and restrictive conditions, communication advocacy from inside Sudan and South Sudan is quite difficult.  The media and civil society in the EAC therefore must speak loud on behalf of their Sudanese counterparts

 

[1] War in Sudan displaces over 500,000 to South Sudanhttps://www.nrc.no/news/2024/january/sudan-refugees-to-south-sudan/#:~:text=%E2%80%9CMore%20than%20500%2C000%20people%20have,the%20poorest%20places%20on%20earth.

[2] The East African Business Khartoum unable to ensure smooth export of South Sudan oil https://www.theeastafrican.co.ke/tea/business/khartoum-unable-to-ensure-smooth-export-of-south-sudanese-oil-4564064

[1] Sudan conflict: ‘Our lives have become a piece of hell’ https://www.bbc.com/news/world-africa-67438018

[2] War in Sudan: more than 7 million displaced – UNhttps://www.africanews.com/2023/12/22/war-in-sudan-more-than-7-million-displaced-un//

[3] More than 1,200 children have died in the past 5 months in conflict-wrecked Sudan, the UN sayshttps://apnews.com/article/sudan-conflict-military-rsf-children-measles-malnutrition-ec7bb2a1f49d74e7b5f01afa12f16d99

Oil and Energy Transition: Why Sudan conflict provides new hope for EACOP

The Sudan conflict is a catastrophe that must be stopped but its unintended consequences provide new optimism for the East African Crude Oil Pipeline (EACOP).

By Moses Kulaba, Governance and Economic Policy Center

With the constant fighting and insecurity along the pipeline and its pumping stations, the South Sudanese government is now open to exploring new opportunities via EACOP to guarantee its future oil exports.

On March 16th the government of Sudan admitted that it cannot guarantee the smooth export of oil from South Sudan, as a year of war has made it difficult to maintain or even protect the pipeline to Port Sudan.

In a letter to major oil companies involved in the oil production and export, Sudan’s Minister of Energy and Petroleum Dr Mohieldin Nam Mohamed Said admitted that the war had made it difficult to provide any guarantees for safety.

He acknowledged that the conflict was hampering the flow of oil to Port Sudan, as it took time to repair pipelines ruptured during the fighting. In addition, there was a telecommunications breakdown between the pumping stations (PS4) and PS5 in Sudan, which were shut down in the midst of heavy fighting. The area was an active military zone and access for repairs was not guaranteed.

As a response the South Sudanese government had declared a force majeure, making production and export impossible and thereby revamping suggestions to explore new possible safer routes for South Sudan’s oil.

The war in Sudan added to the challenges South Sudan faces in maximizing its only major resource – oil – to fund a financially constrained government and other operations.  As a consequence of the war, South Sudan’s oil production fell from 160,000 barrels per day in 2022 to 140,000 barrels per day in 2023. This is was more than half of the previous peak of 350,000 barrels per day before civil war broke out in 2013.

Talks to have South Sudan pump its oil south wards had all along been explored and presented as part of Uganda’s grand plan to make the EACOP an East African project by connecting and supplying all the EAC member states with oil and gas.

Under this grand plan and initial drawings, the Oil pipeline would radiate from its nerve center in Hoima with an artery of pipelines running northwards to South Sudan, westwards to the Democratic Republic of Congo (DRC), eastwards to connect Kenya’s oil from Turkana and southwards with an arm extended to Rwanda and long route via Tanzania to Tanga port.

Map showing initially considered alternative EACOP routes

But the progress of this was partly hampered by Uganda’s fall out with the Kenyan route and the existing agreements signed between Khartoum and Juba during the independence talks. Provisions in these required among others a concession that Sudan will retain territorial control of some oil rich territories and that South Sudan would continue exporting its oil via Port Sudan. By doing this, the government in Khartoum would maintain some revenues from the oil sector that had been largely lost with South Sudan’s cessation and independence.

I remember in a private conversation with a friend from Sudan some years ago he confided that during one meeting with   Sudanese youth and young professionals, President Omar Bashir, before his overthrow, had admitted that he was not sure about the economic future of Sudan without South Sudan. He clearly predicted a catastrophic economic meltdown leading to chaos and that was why Sudan had to maintain a grip on South Sudan. The oil pipeline was a win-win infrastructure politically and economically anchoring the two countries as good neighbors.

By Sudan admitting that the safety cannot be guaranteed and reconstruction of the damaged infrastructure will take longer than usual provides South Sudan with a legitimate cause to start exploring new safe routes for its oil.

An oil route from Juba southward would be beneficial to South Sudan, the EACOP but also good for the East African Community as a region. South Sudan derives 90% of its revenues from oil exports and would like to have a constant flow of this oil to sustain its economy. EACOP would guarantee that flow. South Sudan would also have access to other EACOP related infrastructure such as the refinery and international airport for other logistical needs.

An extended pipeline from Hoima northwards to connect with the oil from South Sudan would increase volumes of oil pumped out of EACOP by at least 150,000 to 200,000 barrels per day, increasing EACOP’s profitability and attractiveness to investors.

Moreover, with its oil, South Sudan would become a major regional player with a stronger voice in EAC matters perhaps more than it is today. The pipeline would bring Sudan in the north closer to the EAC, increasing its prospects for joining the EAC and thus facilitating the region’s expansion ambitions.

There could be some differences in the chemical composition and technical aspects of the two oils (Uganda and South Sudan) with perhaps one being waxier than the other but these complexities can be handled through technical re-engineering and design of the oil pipeline.

The EACOP has always been a controversial project with environmental activists and anti-oil crusaders campaigning against its construction.  Environmentalists argued that the world’s longest heated pipeline will have serious environmental impacts and contribute to global warming. The future profitability of the pipeline was also questioned given the global push towards a transition away from fossil-based system and uncertainty about the future of oil as an energy source.

None the less, plans for construction of the pipeline are ongoing.  Land compensations in Uganda and Tanzania was completed. An advance consignment of pipes was delivered and a coating and insulating plant for the pipelines was commissioned and already operational in Tanzania, paving way for the pipeline construction and ground laying to commence before end of 2024.

The conflict in Sudan therefore provides more impetus to the project as it opens a new door for possible access and increased volumes from South Sudan’s oil and taping into already existing markets can be guaranteed.

The future of oil as a dominant fuel in the global energy system is a controversial subject and a debate exists whether it makes sense to construct new oil pipelines and infrastructure.  

However, the crisis and the significance of oil in driving South Sudan’s economy comes at a time when there are all indications that major global super powers such as the United States and United Kingdom are backtracking on their commitments to end and move away from fossil or oil as source of energy.

Despite the announcements made at the COP27 and 28, in his maiden speech to Parliament, King Charles in November 2023 announced that the UK government will issue new licensing rounds for exploration and drilling of oil and gas in the North Sea. The rounds will go ahead each year so long as the UK remains a net importer of oil and gas and if emissions from UK-based production remain lower than those associated with imports.

In the US, Republicans have maintained a firm support for oil and Donald Trump, the most preferred Republican nominee for President has vowed to overturn any existing legislation and commitments made by the Democrats against the fossil energy sector, by signing an executive order to issue new rounds oil and gas drilling.  According to Trump this would be his first executive order immediately signed, if he was elected to power in November of 2024. Clearly, the US political will is divided and the future US policy terrain on oil and gas cannot be guaranteed.

Quietly, the leading oil producers are strongly supporting continued pumping of oil. Despite global campaigns, large oil producers are still skeptical that renewables can replace oil in the medium term and by 2050. They believe that the focus should be on decarbonizing oil and not ending its supply and use all together. Ending use of oil would be returning the world to stone age error, one Middle East leader remarked at COP28 before backtracking after coming under intense criticism. The approved language at COP28 was phase down and not phaseout. Oil therefore may have a longer lifetime than earlier anticipated.

Despite the catastrophe that the war has caused, that we all condemn, Uganda and Tanzania should exploit the opportunity it provides to ramp up and conclude talks with South Sudan on the viability of exporting its oil via EACOP.

How EAC can benefit from its Critical or Transitional Minerals

The EAC has vast deposits of minerals critical to driving technology to support the green industrial revolution and yet the region lacks a proper framework to govern and maximize benefit from this mineral potential.  Our analysis shows that all is not lost. There is still an opportunity for the EAC to reorganize and take a share from the increasing critical or transitional minerals demand.

By Moses Kulaba, Governance and Economic Policy Center

@critical minerals @mineralsgovernance @eac 

What is the EAC’s regional problem?

Critical or transitional minerals are loosely defined as mineral commodities that have important uses to industrial technology to support the transition to a clean energy future, have no viable substitutes, yet face potential disruption in supply. These minerals include (but limited to); Graphite, Coltan, Nickel, Tungsten, Tantalum, Tin, Lithium, Manganese, Magnesium, palladium, Platinum, Beryllium, copper, fluorspar, Holmium Niobium, Rhodium, Titanium, Zinc etc. The EAC has vast deposits of some these and yet the region lacks a proper framework to govern and maximize benefit from this mineral potential.

Minerals as a national resource vs regional resource

The issue of mineral is politically sensitive. It lies at the intersection of national pride and sovereignty. Minerals are considered as a national resource whose value cannot be discussed or shared at regional level. Most countries have chosen to address mineral issues at a national level, carefully safeguarding what they consider their national interests.

Unfortunately, by taking this route, EAC mineral rich countries have exposed themselves to weaker negotiation power, and fallen easy prey to the divide and rule game played by some quick profit accumulation seeking multinational mining companies.  These mining companies take on each country as an independent jurisdiction, setting each up for competition against the other and demanding exorbitant favorable terms to invest.  The net effect is that EAC mineral rich countries have weaker negotiating powers and signed off bad deals. It is perhaps for this reasons that the EAC has selected to focus on protecting aquatic and terrestrial ecosystems such as forests and mountains in shared areas.

Raging political instability and counter accusations for harboring insurgents.  East Africa’s mineral rich regions face raging political instability, with each member states accusing the other of supporting and harboring hostile insurgent’s, violation territorial sovereignty and plundering of the abundant mineral resources.  For example, the DRC accuses Rwanda of supporting the M23 in Eastern Congo while Rwanda has constantly accused the DRC of harboring the FDRL. Similarly, Uganda’s Ailed Democratic Forces (ADF) rebels have found refuge in the DRC.  Burundi accuses Rwanda of supporting hostile rebel groups against the Burundi government. As a consequence, EAC’s mineral rich regions have failed to secure maximum economic benefits from its mineral wealth. Efforts to jointly pacify the region through a military intervention by the East Africa Regional Standby Force failed miserably with the force withdrawn at the end of 2023.

Failure to curb cross border smuggling and illicit minerals trade.  The UNCTAD data from COMTRADE and other online sources show a big difference between reported mineral exports and imports data from receiving countries. For example, in 2021 the DRC reported exporting a net weight of cobalt of 898,869 kg valued at USD 3,277,615 while China reported importing a net weight of 190032 kg valued at valued at USD92,065, 332 in the same period. The difference between the reported export value by the DRC and the reported import value by China was a whooping USD 88,784,717. There are large disparities between the DRC’s minerals trade data with Dubai and similarly Kenya’s mineral trade data with Dubai.

Yet, the vice has continued unabated. The recent arrests of fake gold traders in Nairobi’s upscale Kileleshwa suburb confirms that illicit mineral business is rife in the region. Illicit minerals are crossing borders undocumented, with cartels exploiting the weaknesses in the border control mechanisms to make shoddy deals worth millions of dollars. The arrested illegal mineral traders had fake Uganda Revenue Authority (URA) documents and stamps showing that Uganda was the source country. There are reports that DRC’s gold and coltan is smuggled through Rwanda and Uganda. Rwanda , a fairly none rich mineral country is a large mineral exporter. According to government reports, Rwanda’s annual mineral export earnings in 2023 was USD1.1billion reflecting a 43% increase from USD772bln in 2022. Clearly illegal trade is denying the EAC millions of dollars in economic benefits.

Lack of regional harmonization of the extractive sector regulatory framework. There were attempts to develop a model minerals legislation but all these efforts suffered a silent death. As expressed by one of the EAC members of parliament, Arusha has become a cemetery of good policy intentions. Good at expressing desire and slow at action and implementation.

Poor geological survey data, compared to superior data sets in possession of mineral companies. This has often tilted the negotiation power balance in favor of the companies, leading to signing off poor deals by mineral rich host countries.

What opportunities exist?

 Maximizing on current EAC partners trade in minerals and mineral based products.

According to EAC regional statistics, the trade by EAC partner states in minerals fuels, mineral oils, products of their distillation, bituminous substances and mineral waxes were the most traded with a value of USD810.7million dollars in 2022. This was followed by trade in natural or cultural pearls, precious or semi-precious stones, precious metals valued at USD588.3million. Trade in nuclear reactors, boilers, machinery and mechanical appliances thereof ranked third with a value of USD238million[1]

This therefore shows there are a raw material and there is a market for mineral based products even within the EAC.  Scaled value addition and intra trade in minerals and mineral based products to serve the existing demand can significantly boost internal regional industrialization, create jobs and economic growth

Leveraging on current and future global critical/transitional minerals demand

With a regional approach, the EAC could benefit from the rapidly expanding demand and prices for green transitional minerals. Since 2020 the global commodity prices for Nickel, Cobalt, Coltan, Lithium and Copper has been on the rise. According industry experts, such as Equity Group’s CEO, Dr James Mwangi, the demand for these minerals can only go up, and prices can only go up because of their limited supply versus the global targets to reduce emissions by 2030. It is for this reason that global consumers such as China, Australia are in the rush to secure supply chains all over the World.  Tech players such as Tesla’s Boss, Elon Musk have equally explored possibilities to establish plants in the DRC and Tanzania so as to secure the raw materials and add value at source. So far, neither the EAC nor its member states have capitalized on these interests to develop a regional road map for investments into the green or transitional minerals subsector. Elon Musk’s investment plans have not materialized.

Use critical/transitional minerals demand to forge new strategic economic relationship

According to the Carnegie foundation, the combination of key mineral endowments in African countries and U.S. objectives to reorient clean energy supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship. In 2022 the US announced its desire to re-establish a new relationship with Africa driven by trade and investment. The EAC can use its abundant critical or transitional minerals potential to negotiate new long-term relationships based on mutual economic benefits away from the traditional donor recipient approach.

Attracting investments in Energy Sector

The EAC has large opportunity for investment into its renewable energy sector. Uranium, a key fuel in nuclear plants and nuclear fission, is found in eight locations in the South Kivu and Katanga provinces in the south of DRC. Tanzania and Uganda have large deposits of Uranium. These clean energy minerals are also backed with hydropower potential of the giant inga dam and Kenya’s geothermal potential.

The EAC commits to development of the energy sector covering both renewable and non-renewable energy sources. This is aimed at facilitating the broader EAC objectives of attracting investments, competitiveness and trade for mutual benefit. Despite this, there has not been joint EAC investment attraction drive purposed towards its regional power potential.  The regional plans to develop the giant inga dam as a flagship Agenda 2023 project contributing to the towards East Africa’s power pool have remained stagnant.

What EAC member states can do

  • Abandon limited nationalistic views and pursue large economic interests, from a regional lens
  • Conduct regional mapping and improve mineral geodata sets
  • Rekindle and accomplish plans to develop regional frameworks for mineral governance
  • Facilitate regional investment campaigns profiling critical minerals and clean energy sources as tier one commodities available for investment for the EAC
  • Stop the guns and think development

What would be the benefits of acting as an EAC region

  1. Joint investment promotions and attraction of the best investors
  2. Increased negotiation power and leverage for better deals
  3. Expanded regional value additional chains and industrial projects driven by large economies of scale. According to global statistics the DRC was the largest cobalt reserve (about 3.6million metric tons yet China was the largest processor(85Mt)
  4. Increased cooperation and opportunities for lasting peace
  5. Expanded economic opportunity and benefit for citizens.

 

[1] https://eac.opendataforafrica.org/

Critical Minerals: EAC destined large critical minerals block, yet benefits remain elusive

With the DRC and Somalia on board and new coltan discoveries made in Kenya, the East Africa Community (EAC) is now destined to become one of the largest critical minerals deposits rich and source region in the world, yet maximizing value and benefits as region remains elusive.

By Moses Kulaba, Governance and Economic Policy Center

@criticalminerals @energytransition

On the 15th December 2023, the Federal Republic of Somalia became a full member of the EAC becoming the 8th country to join this economic block. With its admission following closely on the DRC in 2022, the EAC has a total population of 320 million people with a geographical size of about 5.4million sqkm straddling from the Indian Ocean coastline to the Atlantic coastline.

The EAC now boasts as one of the largest single economic block with large deposits of minerals critical for mitigating climate change by driving the green industrial revolution and transition to clean energy. There are already prospects that Ethiopia and Djibouti will be joining the EAC. If this happens the EAC’s geographical size, population and mineral wealth will expand to rival or overtake other economic regions such as the European Union.

The size of Mineral Deposits combined

According to the EAC reports, the region is endowed with a variety of minerals, including fluorspar, titanium and zirconium, gold, oil, gas, cobalt and nickel, diamonds, copper, coal and iron ore. Such mineral resources present an opportunity for development of the mining industry, which is currently underdeveloped.

Mineral Resources in EAC

Country Precious metal, Gemstones & Semi-Precious Metal Metallic Minerals Industrial minerals
Burundi Gold Tin, Nickel, copper, cobalt, niobium, coltan, vanadium, tungsten Phosphate, Peat
Kenya Gemstones, gold Lead, zircon, iron, titanium Soda ash, flour spar, salt, mica, chaum, oil, coal, diatomite, gypsum, meers, kaolin, rear earth
Rwanda Gold, gemstones Tin, tungsten, tantalum, niobium, columbium pozzolana
Tanzania Gold, diamond, gemstones, silver, PGMs Nickel, bauxite, copper, cobalt, uranium Coal, phosphate, gypsum, pozzolana, soda ash, gas
Uganda Gold, diamond Copper, tin, lead, nickel, cobalt, tungsten, uranium, niobium, tantalum, iron Gypsum, kaolin, salt, vermiculite, pozzolana, marble, soapstone, rear earth, oil
South Sudan Gold, silver Iron, copper, tungsten, zinc, chromium Oil, mica

Source: EAC Vision 2050 and South Sudan Development Strategy

With the pressure of climate change and the 4th industrial revolution driven by a few green minerals, the EAC hosts vast deposits of minerals such as coltan, nickel, tantalum, copper and others vital in driving the green technological revolution to a cleaner energy future.

The admission of the DRC to the EAC was a game changer to the region’s positioning as a global player in the critical and strategic mineral’s space.  According to multiple sources the DRC is the world’s leading producer of cobalt, used in the manufacture of batteries. It is also the world’s fourth-largest producer of copper, used in the assembly of electric cars and the infrastructure of most renewable energy sources. Lithium deposits, estimated at over 130 million tones, are also present in the southeast.

The DRC has most of the mineral ores that produce key components in making computer chips and electric vehicles, technologies that are powering the drive to the future. In a typical computer, copper and gold are key components used in making the monitor, printed circuit boards and chips. Cobalt constitutes 6.45 percent of the materials that make electric vehicle batteries while copper constitutes 25.8 percent. Jointly, copper and cobalt constitute more than a third of EV batteries.

DRC is rich in these minerals, producing 68 percent of the world’s cobalt — the largest globally — and over 1.8 million tons of copper annually. Copper is estimated to gain and maintain more value on longterm compared to other minerals.

Before the DRC and Somalia’s membership, the EAC was already a major player. According to Geological Survey of Tanzania, Tanzania has close to 24 documented critical minerals such as Nickel, Tantalum and sits on the 4th largest premium grade graphite deposits in the world. Between 2005 and 2020, there was an exploration boom relative to other minerals for Tanzania’s Critical Minerals.

Uganda has vast deposits of copper and tungsten in its south western border areas while Rwanda is one of the world’s largest producers of tin, tantalum, and tungsten (3Ts) and coltan. Burundi has copper, cobalt and nickel in 2019, Burundi produced about 2% of the world’s production of tantalum.  Kenya has vast deposits of titanium, a mineral used in the manufacturing of aircraft transportation and solar panel parts. The new discoveries of coltan announced in Embu County in 2024 adds to Kenya’s list of valuable minerals. Although the commercial volumes of the new discoveries are yet to be determined, Kenya’s announcement expands the EAC’s critical or green mineral deposit map and its role in the green energy transition. Somalia, the EAC’s new entrant has some deposits of tantalum, tin and uranium.

These minerals lie along a common geological mineral belt running from Ethiopia and South Sudan downwards across the DRC, Uganda, Kenya, Rwanda, Burundi and Tanzania into Mozambique. The combined volume of these green minerals’ deposits competitively will rival other countries like China, Australia and regions such as the Lithium triangle in Latin America.

Given the global challenges related to climate change and the potential transition to a clean future. Energy Security and Energy transition are among the hottest areas of investment. The dash to secure deposits and supply chains of minerals critical to the development of green technology is on. Many countries endowed with these minerals are seeking to create wealth based on this transition.

Despite this critical mineral resources’ wealth, the EAC has failed so far to leverage and maximize economic benefits as a single region remains elusive. The EAC’s share of global investment in this lucrative extractive sector remains small. The EAC is riddled with extractive policy fragmentation, overriding nationalistic political desires and catastrophic death of joint extractive policy and governance actions.

According to the EAC treaty, the EAC partner states have agreed to take concerted measures to foster co-operation in the joint and efficient management and sustainable utilization of natural resources within the Community. Yet the EAC has no publicly available documented comprehensive regional plan on governing or managing mineral resources. The EAC has focused on management of aquatic and terrestrial ecosystems.  Minerals are categorized as other natural resources.

By treating Minerals as a somewhat lesser regional priority, the EAC is missing out on a huge current and future economic opportunity internally and externally to drive the region to prosperity. We will discuss more about what these opportunities are and how the EAC can benefit in a separate article. Keep reading.

 

Tanzania’s offshore wind and tidal energy potential: How Tanzania can become a wind and tidal power giant

 

Tanzania faces acute electricity energy supply yet with investments in offshore wind and tidal waves projects, the country can turn fortune by generating extra electricity supply and ridding a straight path into a clean energy future.

By Moses Kulaba, Governance and Economic policy center

@climate change , energy transition and COP28 series

According to Global Information Systems (GIS) reports Tanzania has strong offshore winds capable of generating up to 17Gwh and estimated tidal stream power of 133 kW/m.  Yet this potential lies idle and unexploited.

At least 60 % (2/3) of Tanzanians lack access to power and in recent years and months, power rations have worsened, lasting for over 12 hours as the national grid suffers from acute shortages due to overloads and deteriorating infrastructure. The situation is worse in 2023 compared to five years ago and has affected Tanzania’s economic production and growth substantively. According to the world bank the cost of power outages in Tanzania cost businesses about 15% of annual sales and millions of dollars to the national economy.

The energy shortage also affects the semi-autonomous territory and tourist hotspot Zanzibar, which is heavily reliant on the mainland Tanzania for its electricity generation and supply. Both Unguja and Pemba are completely reliant on power purchased from TANESCO through submarine cables of 100 MW and 25 MW capacity, respectively.

Zanzibar lacks its own power generation facilities, and electricity is supplied from mainland Tanzania by the 132kV undersea cable.  The cable has reliability and maintenance challenges sometimes plunging the entire Island into a total power blackout. As a partial mitigation against this risk, Zanzibar Electricity Company (ZECO) maintains 25MW of grid-connected high-speed back-up diesel generators. Most hotels, offices, industries, and various private sector consumers have their own captive emergency diesel generators to supplement in situations of power outage. However, the cost of maintaining these is high and their constant emission of poisonous fumes during operation is dangerous to the environment. Offshore wind and tidal electricity would help Zanzibar wean itself from over reliance on the mainland’s Tanzania National Electricity Supply Company (TANESCO) as the National grid has been perpetually facing power shortages.

As of the year 2021 Tanzania’s total electricity supply was 1605.86 MW. Peak electricity demand in the country is expected to roughly quadruple by 2025 to 4,000 MW. To help meet this demand, Tanzania is targeting installed capacity of 10 GW by 2025. However, maintenance issues and climate change-induced water shortages have caused a 400-megawatt electricity shortfall in Tanzania, triggering power rationing across the country. For many Tanzanians, it is repetitive cycle of darkness. The sun rises and there is no power. It sets and it’s pitch black – in fact, according to government data at least two-thirds of Tanzanians don’t have access to electricity.

Developing of wind shore and tidal waves electricity generation capacity would be a win-win situation for both Zanzibar and Mainland, as it would supplement the much-needed electricity during peak hours and reduce on the heavy burden imposed on the national grid, providing power to many customers who need it.

Moreover, these projects if developed, would be a game changer for the Country’s  energy sector. They would catapult the country long steps ahead of its peers in achieving its energy access goals, and meeting its Nationally Determined Contribution (NDC) Goals on the road to clean energy transition. For this to happen, some deliberate political and policy choices have to be taken.

Why offshore wind and tidal power is important

There are questions about intermittency and whether technology exists to support investment into Tanzania’s offshore wind and tidal wave potential. Our basic analysis suggests that projects of this nature would be viable and worth giving a try.

The United Republic of Tanzania (URT) is the largest country in East Africa, located between longitude 290 and 410 East and Latitude 10 and 120 South. URT has a Territorial Sea of 64,000 km2 and an Exclusive Economic Zone (EEZ) of 223,000 km2, which is about 24 percent of the land area. Tanzania has a total coastline of 1,424 km running along the Indian Ocean, with an average wave energy potential of 7.5KW/m and theoretical potential of 94TWh/y. The coastal population is estimated at 30% of the total population, providing a huge potential for the generated electricity.

Tanzania has both shallow waters close to its coastline which would allow offshore wind projects development under the current technology and an extensive Exclusive Economic Zone (EEZ) off Zanzibar’s shorelines ideal for anchoring deep water floating platforms to allow it to access wind resources at much deeper water depths across its entire EEZ. The government is open and has been encouraging investment in its current EEZ. However its current investment drive has targeted the fisheries sector. With an extended offshore coastline and Exclusive Economic Zone (EEZ) running off Zanzibar, Tanzania has unique advantage compared to its regional neighbors.

From a cost perspective, offshore wind and tidal wave projects are viable. There is much more wind on the shoreline than on land, with an average of speed of more than 50m. Evolution of turbine technology, installation experience has allowed economies of scale and costs of wind power generation has gone down significantly. It is further projected to reduce by 40% over the next decade.

Moreover, the levelized cost of selling power on the market has gone down significantly as economies of scale for wind turbines have grown. The cost of selling electricity has come down to approximately $50/Mwh. Therefore, wind energy now is one of the cheapest generated powers compared to gas combines cycle, coal and considerably cheaper than solar PVs.

Globally, wind generated power is projected to grow as countries ramp up their clean energy generation in line with the road towards net-zero by 2050. This a trend that offshore wind technology will rapidly become cost effective renewable energy technology and a good option that developing countries can consider when developing pathways towards decarbonizing their electricity supply-system.

Tidal energy will also be a good option. Ocean tides are generated by tidal raising forces associated with gravity and centrifugal forces and the earth’s orbiting system or position  relative to the sun and moon. When these two bodies are in balance there are unbalanced forces on the surface of the earth that can push the ocean water left and right, causing tides. Tidal energy is taken from the kinetic energy of these orbiting forces to generate power. The orbits systems and tidal movements can  be predictable years in advance and for this reason, it would be possible to estimate ahead when and how large the tides would be and the possible amount of electrical energy generated would be.

The offshores of Zanzibar lie in the belt with high M2 tides with 1-2-meter-high tidal amplitudes capable of generating a lot of power. Combined wind and tidal power could serve as a major Peaker, supplying offshore wind and tidal generated electricity during the peak hours. Evidence from the United States, United Kingdom and Canada suggests that an integrated energy system of this nature can be a game changer in addressing energy shortages, and driving the country towards a cleaner energy generation

What is required to make it happen?

  1. National Energy Policy and Strategy review and orientation towards offshore wind and tidal wave energy development. This would mean placing offshore wind and tidal wave power generation as part of the national energy systems power mix plan.
  1. Supporting institutional framework by breaking up TANESCO and ZESCO to curve out an independent agency responsible for offshore wind and tidal power. An agency similar to the US Bureau of Ocean Energy Management (BOEM) would be given a focused mandate to develop offshore wind and tidal wave power sector by mobilizing resources (technical and financial), attracting private sector investment and regulation, decreasing developer risks and encouraging inter-agency and stakeholder cooperation.
  1. Another policy direction would require the government to purchase at least given minimum amount of offshore wind and tidal wave capacity. The new agency would be tasked with delivery of such an amount to the National or Zanzibar power grid. This would provide a room for long-term off take Power Purchasing Agreements (PPA), decreasing major sources of uncertainty for project developers.
  1. Government to conduct necessary further research to support offshore and tidal wind projects. This would include update data collection to determine the costs benefit of offshore wind and electric systems configurations, site characterization, and dissemination would be required. Tanzania lacks marketable data.
  1. Political will and determination to explore new energy frontiers and commitments to a clean future. Although there could be some political sensitivities between the mainland and Zanzibar as towards having projects of this kind because the Union matters political configuration, the economic benefits from this potential outweigh the political undertones. To counterbalance, strategic project of this nature could be anchored under the current governments (Union and Zanzibar) blue economy development plans.

 

 

Evaluating East Africa’s economic trends and outlook 2024: What should EAC governments do to reduce further hardships?

The East Africa Community is so far the largest economic block, with 7 members states with a vast territory straddling from the Indian ocean coast to the Atlantic Coast, with a staggering population of estimated 283.7 million citizens, 4.8 million square kilometers of land area and a combined Gross Domestic Product of US$ 305.3 billion[1], the EAC region is a big silent economic giant.  As of November, the UNDP estimated the EAC had 489,766,467 million people (6% of the total world population)[2], making it one of the fastest growing regional economic blocs in the world and number 1 in Africa among subregions ranked by population. Despite this potential, the region faces multiple economic and political setbacks.

In 2023, the EAC faced significant economic meltdown, with depreciating currencies, rising costs of living and political unrests, tainting the prospects for 2024. The rising cost of fuel, high costs of transportation and production, exerted high pressure on the cost of living, with inflation hoovering above 6% and reduced the region’s economic growth to around to about 3.3% in 2023. Already, the tight economic hardship has caused general anxiety across the East Africa region and social-political unrests in some countries such as Kenya.  Governments have experienced a crunch on revenue collections and significant reductions in external aid. They have resorted increasing taxation to shelter the governments against adverse effects of depreciating shilling against the dollar and heavy costs of borrowing which have surged over the past one year.

The latest World Economic Outlook report released in October predicts that the world’s economy will remain on a downward trajectory for the rest of 2023 and 2024, with the rate of growth decelerating to 2.9 percent next year, from this year’s 3.0 percent. Although the World Bank has predicted a positive outlook for East Africa, with a projected growth of 5.7%, amongst ordinary citizens, life is difficult and questions are everywhere. Where have governments gone wrong.

The purpose of this webinar is to facilitate public discussion assessing the current economic trend and government economic performance, with a view of influencing policy priorities, and practical economic choices that governments should make now to cushion its citizen against the rising cost of living and future hardships in 2024.  During this webinar our experts will paint an economic slate of the region and the extent to which socio-economic interventions such the Parish Development Model in Uganda and heavy taxation, can be a solution to the current and future economic quagmire facing the region. Most significantly, they will try to answer whether Kenya is headed to lose its economic mantra and Tanzania could emerge as new economic giant in the region

Expert Speakers

Dr Kasirye Ibrahim, Executive Director, Economic Policy Research Centre (EPRC), Makerere University, Kampala: Uganda’s experience: Are government social interventions such as PDM working to shelter the poor and vulnerable against poverty?

Expert perspectives on Uganda’s economy, the government interventions through projects such as the PDM and a quick glimpse of what 2024 could look like and what practical measures the government should take to avert the increasing economic hardships.

 

Mr Kwame Owino, Chief Executive Officer, Institute of Economic Affairs (IEA), Kenya: Can taxation be a solution and should we expect more taxes moving forward?

Perspectives on Kenya’s economy, the government’s economic hardship interventions and a quick glimpse of what 2024 could look like. With a depreciating shilling, dwindling FDI and choking debt are we likely to see more taxation in Kenya and this gradually snowballing across East Africa? Is there a significant risk that Kenya is or could fall from its pedestal as a major economic hub in the near future?  What practical measures should the government take to avert the increasing economic hardships across the country and the East African region.

Dr Mugisha Rweyemamu, Research Fellow, Economic Social Research Foundation, ESRF-Tanzania: Could Tanzania overtake its regional peers as the new regional economic giant?

Expert perspectives on Tanzania’s economy, the government’s economic hardship interventions and a quick glimpse of what 2024 could look like. With major strides made in attracting tourism, FDI and having a significant cache of valuable Minerals such as gold and green or critical minerals such as Nickel, Tungsten etc., could Tanzania overtake its East African peers to become a major economic hub in the near future?  What practical measures should the government take to avert the increasing economic hardships across the country and the East African region.

Hon: Zittto Kabwe, Economist and President of AcT-Wazalendo Political Party, Tanzania:  What is totally wrong-Could we expect economic-political unrest amongst the youth-What should political actors do to avert a near economic catastrophe and social uprising (Azania Spring) similar to the famous Arab Spring. Is an economic inspired Azania Spring inevitable if things don’t change?

Professional perspectives on the current economic hardships and what governments could do to avert further hardships in 2024. What are governments not getting politically or fundamentally right. In some countries such as Kenya we have seen some socio-political unrests over economic times, are we likely to see this ‘Azania economic springs’ in more countries in 2024?

Moses Kulaba, Convener, Governance and Economic Policy Centre

Can the EAC escape the current global economic meltdown, evade social-economic disruptions to remain soaring above its peers as the strongest economic subregion in Africa. What political-economic choices will make it maintain a comparative and competitive advantage against the tide

 

 

 Date: Thursday, 30th November, 2023

Time:  11AM-12:30 PM EAT

Registration and participation link: https://zoom.us/j/94699182519 

Meeting ID: 946 9918 2519

Passcode:  yJC673

 

[1] https://www.eac.int/overview-of-eac

[2] https://www.worldometers.info/world-population/eastern-africa-population/

TAXING E-COMMERCE IN A RAPID EXPANDING DIGITAL ECONOMY: Managing the delicate balance between DRM, and Employment in East Africa-How do we get right?

Taxation of e-commerce is an emerging area of challenge in tax policy and administration and yet the rapidly expanding digital economy has recorded a proliferation of technological innovations in the form of online business platforms, employing hundreds of youths and women, generating millions of revenues through innovation and e-commerce in Tanzania and East Africa generally.

Many research findings consistently suggest that a deeply integrated and competitive digital market among the EAC countries alone can boost the GDP by about $2.6 billion and create up to 4.5 million new jobs[1].  In Kenya alone, the digital economy is expected to add KSh 1.4 trillion or 9.24% of the GDP to Kenya’s economy by 2025 according to the Accenture, Africa iGDP Forecast. It is one of the fastest-growing sectors in the country with Kenya leading other African countries in terms of the digital economy’s contribution to the GDP at 7.7%, followed by Morocco and South Africa at 6.82% and 6.51% respectively[2]. The online industry contributed Ksh810 billion to Kenya’s GDP (7.7%) in 2020.

Some of the major businesses driving the online industry in Kenya are E-commerce firms such as Copia and Jumia, Fintech products like MPESA, and MShwari, HealthTech platforms like Daktari Africa, and Food-delivery startups. With an emerging army or tech talent and online trading platforms, the trend is upward in all the other East African countries.

And yet online businesses and e-commerce has been found to be a conduit for tax avoidance, evasion, and thus thwarting the government’s Domestic Resource Mobilisation (DRM) efforts.

With crunching national budgets and dwindling external aid, there is a reinvigorated push for governments to ramp up DRM efforts by expanding the tax bases through targeted new sources such as e-commerce.

Clearly, given the economic context at play, suggest that taking this trajectory as a new targeted area of taxation appears to be a delicate one that should be approached with caution.  Revenues should be collected but business and employment must be created and protected. Therefore, there is a need for a balance between the government’s imperative of maximizing DRM and promoting business and job creation for tech nerds, hundreds of digital entrepreneurs, and a bulging unemployed youth.

How can we manage this balance to be met without losing the gains achieved so far, by promoting fair taxation, DRM, and business opportunities to support innovation, business entrepreneurship, employment, and livelihoods required to meet the national development goals? What advances have been made by tax bodies, challenges so far, and concerns from digital entrepreneurs?

Our distinguished speakers at this webinar will dissect this subject with the purpose of creating a space for sensitization and public dialogue with key stakeholders such as Tax authorities and practitioners, private sector and digital entrepreneurs, Financial institutions, Civil Society Organizations, Africa’s economic diplomats, Government Officials and Agencies, development partners, and other interest groups.

They will help us understand the challenges facing this new area of taxation, including tax evasion, avoidance by transboundary online multinationals, and how the governments have integrated fiscal regimes in this year’s National budgets but significantly how do we get it right moving forward?

Our distinguished speakers will be:

1. Ms. Edna Gitachu,  Associate Director and Tax Policy Lead, PWC, Kenya: Budgets of Tough Times; An expert overview of digital taxation in Kenya’s National Budget 2023/24 and practical recommendations of fiscal measures that East African governments could take.

 

2. Ms. Leah Karunde, Tax Expert and Consultant, Tanzania:  Taxing the Invisible Red Hering: Practical Experiences in tackling online businesses and works of art such as television content, online content, marketing, sports betting, transportation, music, etc.

 

 

3. Mr. Francis Kairu, Policy Advisor, Tax Justice Network Africa; The Buffalo in the tent:  Tackling Tax avoidance, evasion, and illicit financial flows by Online Multinationals through e-commerce

 

 

4. Moses Kulaba, Convenor

Date and Time:  Wednesday, July 19, 2023 12:00 PM Nairobi , 11 AM CET and 9AM West Africa Time

Meeting ID: 99027631281   Personal Meeting ID: 321 806 9582

Pass Code:

Registration Link: https://zoom.us/j/99027631281

 

[1] https://www.trademarkafrica.com/news/east-africas-need-for-a-unified-digital-economy/

[2] https://kenyanwallstreet.com/kenya-to-earn-ksh-1-4-trillion-from-digital-economy-by-2025/

 

Financing of the Green Economy and prospects for Africa-Can Green Banks offer a viable alternative?

Achieving Green Economies and a just energy transition for Africa cannot be achieved without financing. It is said there is sufficient liquidity and capital to finance climate change and green economic revolution in Africa. Unfortunately, much is not reaching the African continent. In East Africa, access to financing of clean renewable energy such as solar is limited and expensive for many rural communities and poor households. There is potential for solar energy but the existing government policy, legal and financing have gaps limiting cheap financing and solar uptake for rural communities.

The US experience show successful green and clean energy financing models through Green Banks which can be adopted and replicated in East Africa.  Large and small financial institutions on the African continent have leveraged instruments and facilities towards financing the green economy, but these are largely unknown. Governments such as Tanzania are considering carbon trading mechanisms while others look towards imposing carbon taxes to raise the necessary financing for the next green economy. What are the viable options?

The problem

African countries still face significant challenges in financing their climate transition. While investment needs resulting from NDCs are estimated at $2.8 trillion by 2030, funds invested on the continent still represent a limited share of global green finance flows, and the share covered by the private sector remains limited[1] Governments, local financial institutions and communities find it difficult to mobilise or access financing. Large private sector players are reluctant to invest due to the high cost of capital, small scale of projects and inhibiting policy terrains that make it difficult to attract capital and financing into the green economies. Much of the available financing is not yet reaching the communities and thus scantly creating lasting change.

Viable options?

Green banks have been so far lauded as one of the most innovative policy developments that can be used to support and deployment of clean energy[2]. Green banks are financial institutions established primarily to use innovative financing to accelerate the transition to clean energy and fight climate change[3]. They mix commercial, public, and philanthropic approach to capital making it cheaper to finance new clean energy projects that otherwise couldn’t be built. They are a good vehicle for leveraging finance and directing investment to areas which are needed to scale up the green economy.  They are good tools for driving or achieving public policy with a social enterprise angle[4].

An assessment by the African Development Bank and the Climate Investment Funds revealed the potential of Green Banks in six African countries, namely Benin, Ghana, Mozambique, Tunisia, Uganda, and Zambia.

“The assessment revealed that green banks have significant potential for attracting new sources of catalytic funds when supporting low-carbon, climate-resilient development through blending capital and mobilising local private investment for green investments in Africa,” the AfDB reported.

Multilateral development banks and international financial institutions had a crucial role in enabling local financial institutions to develop a green pipeline of projects and ease their access to resources. It is for this reason that the AfDB has established the Africa Green Bank Initiative (ABI).

The AfDB’s Green Bank Initiative (AGBI) is described as a powerful tool for reducing financing costs and mobilising private sector investments in climate action in Africa. The African Green Bank Initiative will be backed up next year by a $1.5 billion trust fund due to close in 2025. The initiative will bolster the capacity of local financial institutions to build a robust pipeline of bankable green projects, while de-risking investments and entrenching long-term investor confidence toward climate-resilient and low-carbon projects in Africa.  “It will do so through investing in sectors such as energy efficiency and renewable energy, climate-smart agriculture, resilient infrastructure, and nature-based solutions, AfDB states.

According to Akinwumi Adesina, the AfDB President, the establishment of a green finance ecosystem could generate $3 trillion in climate finance opportunities on the continent, while over the period 2020-2030, the financing gap to address climate change is estimated at between $100 billion and $130 billion per year.

Moreover, there are other financing options that are or can be pursued. These include green bonds, green loans, and carbon trading mechanisms.

Coincidentally, all these financing mechanisms have upsides and downsides, which  upon evaluation climate financing justice advocates such as  the CSO network, Pan African Climate Justice Association (PACJA) and government officials like Ms Isatou  Camara of the Gambia are now calling out financial institutions  for a total re-engineering and redesign  of climate financing to ensure that more is structured in the form of grants than loans and that at least 70% of this funding reaches the communities. The loans are expensive, Africa is over indebted and yet investment in renewable energy is an expensive affair for African governments to pursue alone[5]

At national level access to green finance should be relatively cheap, driven by a combination of less profit maximisation goals and more social enterprise imperatives and back by enabling legislative and regulatory framework.

Purpose of the webinar

This webinar is the second in a series of the different webinars that GEPC plans to conduct this year on the different elements on economic governance and climate economics, with anticipation that we can contribute towards expanding knowledge, public discussion, and engagement in these spaces.

But more significantly creating opportunities for business economic opportunity in country, including space for youth and women led young businesses to benefit from the emerging context.

Our distinguished speakers will dissect this subject and help us understand Financing of Green Economy in the context of climate change and transition to clean energy: Prospects for Green banks and other financing mechanisms in East Africa with a view of

Objectives

  1. Increase awareness and knowledge about the current Climate Economics and Financing the Green Economy in Africa
  2. Provide an opportunity for stakeholders to interrogate financing structures, national policy terrains, initiative potential opportunities and inhibitors to success.
  3. Influence key stakeholders such finance institutions and potentially state parties to hasten reforms for success.
  4. Generate a potential opportunity for non-state actors, communities, and small entrepreneurs to benefit from existing financing plans.

Our distinguished speakers will be:

1. Ms Isatou F. Camara, Ministry of Finance and Economic Affairs, The Gambia, Least Developed Countries Group Climate Finance coordinator:  Restructuring of the global financing architecture for green economies-what financial institutions must do.

2. Ms Audrey Cynthia Yamadjako, Africa Green Banks Cordinator, African Development Bank (AfDB)

3.Ms Grace Mdemu, Capital Markets FSD Africa, former Business Development Officer at Africa Guarantee Fund (AGF): Leveraging of capital and opportunities to finance Green Economies in East Africa

4.    Dr Elifuraha Laltaika, Senior Lecturer of Natural Resources Law, Faculty of Law, Tumaini University Makumira, Tanzania:   Leveraging financing to poor and indigenous communities in Tanzania

5. Ms Cynthia Opakas,  Senior Legal Counsel, Green Max Capital , Kenya: Practical experiences on financing the green economy in Kenya and global best practices

6. Moses Kulaba, Convenor

Date and Time:  Wednesday, June 14, 2023 12:00 PM Nairobi , 11 AM CET and 9AM ACCRA Time

Pass Code:059752

Registration Link:  https://zoom.us/j/94532314396 

[1] https://www.afdb.org/en/news-and-events/african-development-bank-launches-model-deploying-green-financing-across-continent-56903

[2] Richard Kauffman, Yale School of Management, Financing Clean Energy Technology

[3] http://coalitionforgreencapital.com/wp-content/uploads/2019/07/GreenBanksintheUS-2018AnnualIndustryReport.pdf

[4]https://gepc.or.tz/make-it-happen-how-green-banks-acceleration-can-light-up-rural-hamlets-in-uganda/

[5] Her Excellence Dr Samia Suluhu Hassan, President of United Republic of Tanzania during her address to African leaders at a side event on the Southern Africa Power Pool (SAPP) organised during the CoP27 in Egypt

AfCFTA: Dissecting the world’s largest Free Trade Area: Challenges and Opportunities for East Africa. Is AfCFTA a window of opportunity or a fallacy?

The AfCFTA entered into force on May 30, 2019. Despite the speed at which this new Africa continental trading block is unloading, there is very limited knowledge amongst ordinary citizens, particularly youth, women, and small business.  There is a fear that AfCFTA may be built on a weak ground, set itself for an uphill task and potential failure

The Africa Continental Free Trade Area (AfCFTA) is so far the world’s largest Free Trade Area bringing together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs). The overall mandate of the AfCFTA is to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion. The AfCFTA is one of the flagship projects of Agenda 2063: The Africa We Want, the African Union’s long-term development strategy for transforming the continent into a global powerhouse[1].

As part of its mandate, the AfCFTA is to eliminate trade barriers and boost intra-Africa trade. It is to advance trade in value-added production across all service sectors of the African Economy. The AfCFTA is expected to contribute to establishing regional value chains in Africa, enabling investment and job creation. The practical implementation of the AfCFTA has the potential to foster industrialisation, job creation, and investment, thus enhancing the competitiveness of Africa in the medium to long term.

The AfCFTA entered into force on May 30, 2019, after 24 Member States deposited their Instruments of Ratification following a series of continuous continental engagements spanning since 2012. By end of February 2023, 54 member states had signed up and 46 already deposited their ratification instruments, paving way for effective implementation of AfCFTA.

The problem

Despite the speed at which this new Africa continental trading block is unloading, there is very limited knowledge amongst ordinary citizens, particularly youth, women, and small business.  There is a fear that AfCFTA may be built on a weak ground, set itself for an uphill task and potential failure.   AfCFTA aims to create a supra regional economic block in an environment where previous efforts to trade and economic  integration  under frameworks such as the Economic Cooperation of West Africa States (ECOWAS), Preferential Trade Area and Common Market for Eastern and Southern Africa (PTA- COMESA), Southern Africa Development Cooperation (SADC) and East Africa Community (EAC)  have struggled to survive and fully benefit member states , particularly in expanding opportunities for small businesses, jobs and free movement of labour. Trade barriers still exits and overlapping regional configurations, with multiple membership of states to more than one block have exacerbated problems in implementation and held back member states and citizens from enjoying the benefits of regional economic integration.

From an academic perspective, there is a continuous debate on the role of regional integration and commercial diplomacy as instruments of economic diplomacy on trade export flows among African states. A study by the European University in 2016 show that bilateral diplomatic exchange is a relatively more significant determinant of bilateral exports among African states compared to regional integration. The study found a nuanced interaction between these two instruments of economic diplomacy: the trade-stimulating effect of diplomatic exchange was less pronounced among African countries that shared membership of the same regional block. Generally, this could mean that there exists a trade-off between regional integration and commercial diplomacy in facilitating exports or a lack of complementarity between these two instruments of economic diplomacy[2].

AfCFTA is therefore viewed in some analytical circles as potentially counterproductive, as may potentially open the continent to stiff external competition.  Further, cynics view AfCFTA as a potentially well-orchestrated tactical move suitable for developed economies, to open up Africa as a single market. With AfCFTA in place, its alleged, it will be cheap for large RECs such as the European Union (EU) to easily access Africa’s markets with minimal hinderance, as it may now be easy for large and well-established trading blocs such as the EU to negotiate preferential trade deals with one major African block and not with independent states. This had proven problematic in the past negotiations for trade deals such as the controversial Economic Partnership Agreements (EPAs).

Window of opportunity?

None the less, the AfCFTA is here, providing potentially a land shade moment for Africa to reclaim itself, unlock its trade potential and to take its well-deserved position in the community of nations as an economic giant.

The whole existence of the AfCFTA is to create a single continental market for the free movement of goods, services and investments. The AfCFTA Agreement covers goods and services, intellectual property rights, investments, digital trade and Women and Youth in Trade among other areas. The Secretariat, therefore, works with State Parties to negotiate trade rules and frameworks for eliminating trade barriers while putting in place a Dispute Settlement Mechanism, thereby levelling the ground for increased intra-Africa trade. Could this be a reclaimed window of opportunity for Africa?.

Purpose of the webinar

The purpose of this webinar is to dissect AfCFTA create a space for sensitisation and public dialogue with key stakeholders such as Civil Society Organizations, Africa’s economic diplomats, the Private Sector, Government Officials and Agencies, Partners, and other interest groups; in a bid to create awareness about the AfCFTA Agreement and the potential opportunities it offers, thus, securing their active support in the implementation of the Agreement.

This webinar is a first in a series of the different webinars that GEPC plans to conduct on the different elements of AfCFTA, with anticipation that we can contribute towards expanding knowledge and engagement with AfCFTA in the region and propelling its effective implementation.  But more significantly creating opportunities for business economic opportunity in country, including space for youth and women led young businesses to benefit from this new continental arrangement.

This webinar will be held ahead of marking the 4th Anniversary since the AfCTA came into force on 30th May 2023. The webinar will therefore be a major point for reflection on the aspirations and progress made and in generating views and which can potentially influence its future direction.

Our distinguished panelist speakers

  1. Ms Treasure Maphanga, Chief Operating Officer (COO), Africa E-Trade Group and Former AU Director Trade and Industry
  2. Mr Deus  M. Kibamba, Lecture Tanzania Centre for Foreign Relations
  3. Mr Elibarik Shammy, Programs Manager, Trade Mark  Africa
  4. Ms Jane Nalunga, Executive Director, Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI)
  5. Mr Robert Ssuna,  Tax and Trade Expert and Consultant
  6. Mr Moses Kulaba, Tax Law expert and Economic Diplomat (Convenor)

Tentative Dates: Wednesday, 10th May 2023

Time: 12-13:30 Hrs-EAT/ 11AM CET and 9:00 am Accra Time

To participate please register via: https://zoom.us/meeting/register/tJIsc-ispjwiGdVn1y4w9Jks-h-zs5i9QEzV

Meeting ID: 96141487831. Passcode: 391843

[1] https://au-afcfta.org/

[2] Afesorgbor Sylvanus Kwaku (2016) Economic Diplomacy in Africa: The Impact of Regional Integration versus Bilateral Diplomacy on Bilateral Trade, European University Institute, EUI Working Paper MWP 2016/18