Caution, anxiety reign as Common Market is born

MOHAMED KAZINGUMBE

CAUTION was the watchword among local experts as the East African Common Market finally came into being yesterday, July 1, 2010. This follows the initialling of the Common Market Protocol by the five East African Community Heads of State in Arusha on November 20, 2009.

The Protocol finally became law in the sub-region after ratification in the interim by the Parliaments of the EAC member states of Kenya, Uganda, Rwanda, Burundi and Tanzania.

The Common Market concept assumes reality on the ground amid intense soul searching among activist groups and other players in the social, economic and political fields as to its implications for local industries and job opportunities.

Commenting on the matter, Prof. Mwesiga Baregu of St. Augustine University said “the Protocol was signed chiefly for political reasons – for the Heads of State to show audiences at home their commitment to regional integration!”

In the event, he issued a warning that “Heads of State and the EAC Secretariat need to ensure that they thoroughly work on issues which  will crop up in the new economic and legal environment, starting from the grassroots level.”

Speaking in a telephone interview, Baregu expressed “support with caution for the new arrangements,” and demanded that stakeholders “work to ensure that the Protocol truly facilitates the equal promotion of industries to process commodities produced in the region.”

Noting that EAC member states produce more or less similar goods, the good professor said “this makes it difficult for them to integrate their agricultural or industrial sectors. All that the EAC partner states need to avoid is repeating the mistakes which led to the collapse of the first EAC in 1977,” he emphasized.

The Common Market Protocol seeks to harmonise individual economic activity whereby regulations and a common infrastructure help to ease the cost of doing business, he said.

The Common Market represents the second stage of regional integration processes after the Customs Union Protocol of 2005 attained maturity as a fully-fledged regime on January 1, 2010.

The EAC Secretariat said in a statement early this week that “the Common Market Protocol was a significant step towards achieving the next milestones in the integration processes, namely Monetary Union and, finally, a Political Federation.”

The Common Market Protocol enshrines the 'four freedoms' principle, namely the free movement of people, services, labour and capital.

In that regard, for example, “residents of the region are entitled to work in any member state without the need of a work permit; so, they can get jobs in any country. Such an arrangement is expected to enhance skills transfer and encourage labour mobility, experts contend.

“This,” the statement says, “will significantly boost trade and investments and make the region more productive and prosperous!”
 
The Protocol is intended to be applied progressively in accordance with the relevant laws of the Community and those of the Partner States.

It says that, “despite the collapse of the first EAC, there was continual demand from the people of the region to revive the Community, as people in the region have broadly-felt common interests.”

Work on reactivating the structures of cooperation among the three founder members of of the Community – Kenya, Uganda and Tanzania – began after the immediate past president of Tanzania (1995-2005), Benjamin Mkapa, came into office. In early 1996, Mkapa toured the two other partner states, following which a Protocol to set up a new EAC Secretariat was agreed. It, however, took another three years for the cooperation structure to start taking shape.

While a proposal arising from a Tripartite Commission headed by Kenya Attorney-General Amos Wako in 2004 recommended accelerated Political Federation by late 2012, the fast-tracking proposal fell out with public opinion especially in Tanzania.

After derailing the idea of a fast-tracked Federation, it was agreed that the Common Market rolls into action in mid-2010, and a Monetary Union by mid-2012.

At present, the projection for Political Federation is tentatively put at around 2020. This notwithstanding, however, critics say that date is overambitious, and a Political Federation may not be realized on account of the fact that the political situation in each of the five partner states remains too unstable to risk exporting problems to neighbouring states under the guise of a political federation!

Nonetheless, the faltering negotiations for an economic partnership agreement (EPA) with the European Union – which is tentatively slated for signing next November – could be just the push that EAC cooperation needs, especially when it comes to difficult negotiations for a Monetary Union, experts believe.

When an EAC-EU EPA is in place, chances for divergent policy positions could diminish considerably, and more significantly than in a locally-administered EAC Common Market Protocol, one analyst says.

Already, the setting up of a Common Market and penetration of personnel makes member states sensitive to what happens in a neighbouring state... Which roughly equals partial political federation!

Prof. Baregu, for instance, has urged the EAC secretary-general, Juma Mwapachu, to send a probe team to report on the just held 'Yes-No,' one horse presidential election race in Burundi, after Opposition parties withdrew saying the poll would not be free and fair.

Veteran Burundi dissident Agathon Rwasa of the Front for National Liberation (FLN) went into hiding and many believe he is now in the Congo – thus raising the risk of a return to civil strife that was painstakingly negotiated out of the way, with all the military-organized parties joining the interim government in the earlier part of this decade.

MNAKU MBANI

After slight gains over the past few weeks, indices at the Dar es Salaam Stock Exchange (DSE) continued to fall as investors remained skeptical on account of unpredictable market behaviour.

The Tanzania Share Index (TSI) which shows the performance of local listed companies closed at 898.91 points on Wednesday's close, lower than 899.60 points recorded a week earlier.

DSE reports show that the All Share Index closed at 1172.44 points on Wednesday, slightly lower than 1173.62 points the same day last week.

However, on an annual basis-to June 15 this year, the DSEI shrank by 1.60 per cent while the TSI had more noticeably declined, going down by 4.20 per cent, market analysis indicated.

“Most investors are skeptical about the volatility of the market,” says Alfaxad Masambu, a dealer at Rasilimali Ltd, brokers of the DSE.

He said individual investors are more worried that institutional investors, with the factor of holding general elections later in October adding to the worries.

This happens mostly among individual investors, whose purpose into the market are always to maximize profit, mainly during dividends payment.

“Politicians are among potential investors in the equity market, but the election spendings this time around would affect their investment ability,” he further noted.

Locally based Asian investors are also worried over pressures relating to the polls, that there are dangers of peace being disturbed, he said.

Worried individual investors tend to hold back cash until the polls fog is cleared, with some traveling abroad until the polls are concluded and everything returns to normal.

Dividends by listed companies were also a factor, as many small investors seeking dividends are discouraged when company policy changes and withholds payment of dividends, he said.

Usually listed firms offer up to half of their post-tax profits as dividends when no policy change has been decided, the dealer elaborated.

“It is evident that managements of companies listed at the stock market do not value minority shareholders when it comes into planning and decision making,” he said, noting that the small portfolio holders seek the dividends first, note enhanced capitalization for the company.

The turn up of  individual investors to the market is a result of low dividends disbursed by listed companies, despite having performed at their best in 2009.

“We have seen some companies announcing their financial results for 2009, but some have announced lower dividends in relation to earning per share and overall profits the companies made,” he stated.

“Individual investors usually leave the market when they find the dividends paid out as lower than expectations, and often join the market when dividends are high,” the dealer elaborated.

Corporate investors enter into the equity market as a long-term investment portfolio and they seem to be recovering from the global downturn and bank sector crisis, he said.

However, Masambu noted that some potential institutional investors, mainly pension funds, face other financial obligations such as investments in real estate.

Dealers say their involvement in those project has cut their direct involvement in equity markets, which has weakened the market.

The DSE shows that prices of all listed companies except TOL, Tatepa, Nicol and Kenya Airways recorded better performance during the year  under review.

Tanzania Cigarette Company led with the highest return (year-to-date) with 12.22 per cent followed by Swissport and Twiga with 7.14 per cent and 6.10 per cent respectively.

On a monthly basis, Twiga had the highest return of 1.16 per cent and TCC had 1.0 per cent while on a weekly basis, only Twiga clocked  a return of 1.16 per cent following a slight increase of its share price.