Regional Integration: Positioning Botswana as a regional economic hub Experiences from Kenya

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Regional Integration: Positioning Botswana as a regional

economic hub

Experiences from Kenya

Presentation by Cyrille Nabutola to BITC20th November 2013

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REGIONAL INTEGRATION – BITC 2013

Index

1. Introduction2. Overview of integration3. Global trends4. The Kenyan Experience5. Leveraging Botswana for success6. Conclusion

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Introduction – A brief overview of EPZA

• Established in 1990 as a semi-autonomous state corporation to promote, facilitate and create and enabling business environment for investments in Kenya’s free economic zones;

• Implement an incentivized programme for export oriented investments. Transitioning to Special Economic Zones.

• Performance status in year 2012:• Over 40,000 Kenyans employed by EPZ firms (direct) and 160,000

indirectly.• 48 zones established hosting 90 enterprise across different sectors

with investments exceeded USD 447 Mn.• Annual EPZ exports topped USD 470 Mn.• Supporting USD 211 Mn. in domestic expenditure.• Attracted investors from over 15 countries drawn from the Americas,

Asia, Australia, Europe, and Africa.

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Introduction - What is integration?

• These are deliberate programmes based on agreements among governments of 2 or more countries that offer common approaches and treatment usually of a preferential nature on a variety of socio-political and economic issues.

• My presentation will focus on regional integration and more specifically on issues of economic integration. These are typically characterized by trade, monetary and fiscal policies jointly developed, adopted and applied by member countries.

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Introduction – Why do countries seek integration?

Some key reasons:

1. Market and resource benefits – access to a wider market base, manufactured products and factors of production e.g. Egypt selling into Kenya & Ethiopia;

2. Investment benefits – attraction of investments from member countries (intra) as well as from third countries targeting wider market base encompassing member countries e.g. S.A. investors in Botswana & Tanzania;

3. Economies of scale – access to larger markets and raw materials allow for upscale of production, lower costs and attendant benefits e.g. Tanzanian cotton used in Kenya;

4. Logistical advantages – access to transport corridors and seaports for cargo and people movement e.g. Uganda, Rwanda & Burundi through Kenya.

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Overview of integration# Levels of

IntegrationCharacteristics

1 Global Agreements at WTO, UN levels.

2 Regional Preferential treatment agreements among member and partner countries e.g. SADC.

3 Bilateral Preferential treatment between 2 countries e.g. U.S. and South Korea covering vehicle imports.

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Overview of integration (…continued)# Stages of Economic


1 FTA (Free Trade Area) No tax tariffs between member countries and member countries imposing their own external tariffs on non-member countries e.g. NAFTA (North America Free Trade Area).

2 Customs Union No tax tariffs between member countries and member countries adopting and imposing common external tariffs on non-member countries e.g. EAC (East Africa Community)

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Overview of integration (…continued)# Stages of Economic


3 Common Market Free movement of products and factors of production/resources between member countries, no tax tariffs between member countries and member countries adopt and impose common external tariffs on non-member countries e.g. EU.

4 Economic Union Common market + common currency; Coordinated fiscal and monetary policy among member countries i.e. EMU (Economic and Monetary Union) e.g. EU countries that have adopted the Euro.

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Global Trends (Europe)

The European Union (EU):

• Established through Treaty of Maastricht (1992);

• 28 member countries with a combined population of 509 million (7% of the world’s population);

• EU GDP in 2012 was USD. 17.4 trillion (US’s USD. 15.7 trillion); Accounted for 20% of global trade, 16.4% of global imports (2011) and 15.4% of global exports (2011). Two thirds of EU trade was among member countries;

• Challenges include global recession and economic issues among member countries (Greece, Spain, Portugal, etc.);

• Emergence of new economic powerhouses e.g. Turkey with GDP of USD. 1.4 trillion and Poland with GDP of USD. 0.9 trillion.

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Global Trends (Asia)

The Association of South East Asian Nations(ASEAN):

• Established through Treaty originally by five nations i.e. Indonesia, Malaysia, the Philippines, Singapore and Thailand (1967),

• 10 member countries with a combined population of 670 million (9 % of the world’s population);

• ASEAN GDP in 2012 was USD. 3.6 trillion (US’s USD. 15.7 trillion). Attracted USD. 111.4 billion in FDI in 2012 (China 121.1 billion). Accounted for 30% of global trade (2011). 25.4% of ASEAN trade was among member countries;

• Challenges include: political, economic and social diversity among member countries (democracy, border disputes, unemployment, etc.);

• Emergence of new economic powerhouses e.g. Indonesia with GDP of USD. 1.2 trillion and Thailand with GDP of USD. 0.6 trillion.

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Global Trends (Africa)

The Common Market for Eastern and Central Africa (COMESA):

• As a successor to the Preferential Trade Area (PTA) established in 1981, COMESA was established in 1994,


• COMESA GDP in 2012 was USD. 0.7 trillion (US’s USD. 15.7 trillion). Attracted USD. 9.3 billion in FDI in 2012 (China 111.4 billion). Accounted for less than 2% of global trade in 2012. 8% of COMESA trade was among member countries accounting valued at USD. 18.4 billion in 2011;

• Challenges include: Infrastructure, political and economic issues among member countries;

• Key players in intra-COMESA trade in 2011 were Kenya with an export market share of 20%, Egypt with an export market share of 16% and D.R. Congo with an export market share of 12.4%.

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Global Trends (Africa)The East African Community (EAC):

• Initially established in the 1970s, but collapsed due to political wrangles among member countries. Current EAC took form in 2010 through signing of EAC protocol;


• EAC GDP in 2012 was USD. 0.8 trillion (US’s USD. 15.7 trillion). Attracted USD. 1.7 billion in FDI in 2011 (Africa USD. 55 Billion or 3.5% of global total). Accounted for less than 1% of global trade in 2012;

• 13% of EAC trade was among member countries valued at US$. 4.5 billion in 2011;

• Challenges include: Infrastructure, security and economic issues among member countries;

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Global Trends (Africa)The Sothern Africa Development Community (SADC):

• Begun as Southern Africa Development Community Conference in 1980 and was converted into a development community in 1992. SACU was established in 1910 .

• SADC has 15 member countries with a combined population of 234 million (4 % of the world’s population). SACU covers 5 countries (Botswana, Lesotho, Namibia, South Africa and Namibia).

• SADC GDP in 2010 was USD. 0.6 trillion (US’s USD. 15.7 trillion);

• Attracted USD. 9.3 billion in FDI in 2012 (China 111.4 billion). Accounted for less than 2% of global trade in 2012 valued at USD. 353.6 billion in 2011. 4% of SACU trade was among member countries;

• Challenges include: Infrastructure, political and economic issues among member countries;

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Global Trends (Africa)Into the future:

• Tripartite discussions currently being held towards merging COMESA, EAC and SADC into one mega trade block;

• Benefits will include a much larger market, resource pool, increased competition, increased investment inflows/outflows and increased intra-Africa trade;

• Major challenges will include resolving trade disputes, non-tariff barriers especially on food and agri-products, and monitoring of value addition in member countries to qualify for rules of origin thresh-hold;

• Integration will no doubt include ECOWAS in West Africa at some point.

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Kenya

Some Quick Facts:• Gained independence in 1963,• New constitution in 2010, 47

county governments,• Area 582,650 Sq. Km.,• President H.E. Uhuru Kenyatta

(elected 2013),• Pop. 43 million (2012 est.),• GDP PPP US$ 37.34 Bn. (2012

est.),• Gateway to East & Central

Africa,• Capital Nairobi (pop. 4,000,000).

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Some Quick Facts:• Gained independence in 1966,• 9 administrative districts,• Area 581,730 Sq. Km.,• President Lt. Gen. Seretse

Khama Ian Khama (elected since 2008),

• Pop. 2 million (2012 est.),• GDP PPP US$ 14.41 Bn. (2012

est.),• At the heart of southern Africa,• Capital Gaborone (pop.

225,000).

Botswana

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The Kenyan experience

Key Benefits:

• By 2012, Kenya’s exports had a market share of 20% in COMESA and 57% in EAC. Kenya was Uganda’s largest FDI source and Uganda was Kenya’s major export market;

• Kenyan companies and MNCs continue to expand into the region tapping into a wider pool of resources, opening branches, subsidiaries and forming strategic alliances. Many Kenyan professionals in EAC/COMESA countries;

• Kenya has leveraged on its strategic location, infrastructure and business ecosystem towards becoming the economic hub for the region;

• Embarked on the Lamu Port South Sudan Ethiopia (LAPSSET) project considered Africa’s most ambitious infrastructure project will create a Rail, Road and Oil Pipeline network that will link the Indian Ocean on Kenya’s coast with the Atlantic Ocean on Cameroun’s coast.

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The Kenyan experience

Major Challenges:

• Under the terms of the EAC agreement, Kenyan exporters had to endure five years of paying higher tax tariffs on regional exports giving their neighbouring competitors an edge;

• Differences in interpretation of the protocol and customs’ regulations by institutions in member countries remain a major challenge creating artificial non-tariff barriers;

• Poor infrastructure and connectivity within the region continues to increase cost of doing business among member countries;

• Security concerns, conflict and political instability in some countries within the trading blocks remain a challenge for traders & investors;

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Examples of Kenyan regional success storiesCompany Sector Trading Blocks Active

Brookside Dairies Milk & Dairy Products EAC + COMESA + SADC

Bamburi Cement Cement & Cement Products

EAC + COMESA + SADC

East Africa Breweries Alcoholic Beverages EAC + COMESA + SADC

Equity Bank Banking & Financial Services

EAC + COMESA + SADC

KenolKobil Petroleum products EAC + COMESA + SADC

Kenya Airways Airline (Passenger & Cargo)

EAC + COMESA + SADC + ECOWAS + Asia + Europe

KCB Bank Banking & Financial Services

EAC + COMESA + SADC

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Leveraging Botswana for success

Strategic issues:

• What are Botswana’s current comparative and competitive advantages over her neighbours?

• Which industrial clusters and sectors will be strategic for Botswana in its future trade with regional partners?

• What resources are required to realize Botswana’s strategic goals and how will those resources be developed?

• What partnerships and linkages can Botswana develop across the regional trading blocks for success?

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Opportunities for consideration:

• Economic vibrancy can only be achieved by attracting economic activity through investment, trade and tourism – case of Dubai.

• Botswana has a vibrant beef industry, what about leather and what opportunities are there for it on the continent?

• Botswana can be the regional hub for shopping and conventions - what kind of incentives and infrastructure would be required to make that happen?

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Opportunities for consideration:

• Can Botswana’s leverage on investments in ICT and the knowledge economy to create high quality jobs – case of Rwanda?

• Can Botswana supply reliable and affordable electricity to countries across Africa?

• How does Botswana’s investment in infrastructure work for the region?

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Thanks for listening

www.epzakenya.com

Regional Integration: Positioning Botswana as a regional economic hub Experiences from Kenya

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