IMPROVED BUSINESS COMPETITIVENESS

Approximately 17% of TradeMark East Africa (TMEA)’s budget supports Improved Business Competitiveness (IBC) as a key building block for increased trade competitiveness, improved trade, and poverty reduction. TradeMark East Africa (TMEA) seeks to improve business competitiveness in East Africa through enhancing business regulations for trade, improving export capability and developing efficient trade logistics services.

IBC presents the demand side to TradeMark East Africa (TMEA)’s work – addressing firm level engagement and interventions for the equitable distribution of benefits. Private Sector Development is concentrated under IBC in order to reduce an over focus on public-sector dominated bodies and help business influence reforms in the public sector. In addition, IBC provides strong opportunities for TradeMark East Africa (TMEA) to engage specifically in poverty reduction as initiatives can address specific sectors with high numbers of poor and target reforms to SMEs. Addressing softer side issues like standards and NTBs, IBC directly complements TradeMark East Africa (TMEA)’s work on physical infrastructure (customs, border posts etc) and provides advocacy opportunities for the private sector and civil society across the breadth of the Theory Of Change.

improved-business-competitiveness

RATIONALE

The Global Competitiveness Report defines competitiveness as ‘’ the set of institutions, policies, and factors that determine the level of productivity of a country….’’ and argues that, because a more competitive economy is one that is likely to grow faster over time, ‘’…it is therefore imperative that competitiveness features high on the economic reform agenda of both advanced and emerging and developing economies.’’ . Enhancing global competitiveness is a key element for trade competitiveness and enhanced trade and a significant feature of the East African Community strategic plan. Reforms and the right set of investments to enhance competitiveness are crucial for the economic transformations and sustainable higher growth over the longer term.

Current national and regional policy thrusts are shifting towards private sector development for economic growth, job creation and poverty reduction. Globalisation has sharpened competition. Firms in East Africa are increasingly challenged to take advantage of new resources and markets while dealing with intense and growing global and regional competition. Governments, meanwhile, are confronted with the task of designing and implementing supportive policies and strategies.

Links to trade

Competitive, safe, reliable and cost-effective goods and services are a key prerequisite for enhancing an industry’s competitiveness and export market share in tradable goods and services. Enhancing trade requires that regulatory regimes are transparent, coherent, and comprehensive; that competition policies are enforced; and that market participants can take full advantage of competitive markets open to trade and investment. Quality and productivity improvements are required to enhance the competitiveness of enterprises, and their ability to access global supply chains and networks. An enabling environment for the private sector can contribute to rapid and sustained pro-poor growth, however, their contributions are largely determined by the operating environment. As border barriers fall, the negative impact of domestic regulations within the EAC is increasingly evident, placing unnecessary restrictions on flows of goods and services.

Assessments have demonstrated that better regulations and laws, in addition to improving infrastructure, can increase GDP growth rates by up to 2%age points per annum, and It is therefore increasingly important to support changes to the business environment. Business and government need to intensify their partnership to build and strengthen competitiveness in order that businesses change their behaviours for increased levels of investment, innovation, and job creation and government policy making is responsive to the needs of business.

Enhanced Business Regulation for Trade

Building business competitiveness – particularly for export markets – must involve governments and trade support institutions working with the private sector and supporting competitiveness with a coherent strategy. Translating this strategy into success depends on a close and active partnership between business and government and the development of a supportive business environment. This component addresses specific business regulations and processes for trade to reduce high costs of trading through:

• Transparency: addressing transparency concerns that add to the cost of trade by increasing access to market and trade information, enhancing ICT and ensuring functioning mechanisms for transparency and accountability.

• Private Sector led policy formulation: addressing improved processes for traders; advocacy on key issues such as competition, standards, tax, CET, SCT and the inclusiveness of the benefits from trade and transport facilitation and private sector development; promoting effective dialogue on EAC issues between and among the private sector, civil society and the public sector; and maintaining a focus on innovative and potentially transformational business ideas that achieve the TradeMark East Africa (TMEA) trade growth objectives.

• Improved Processes for Traders (especially women): ensuring gender-responsive infrastructure projects addressing the needs of informal women cross border traders; improving processes for informal women cross border traders and facilitating the development of women’s networks at the borders.

Improved Export Capability

It is well established that developing export capacity is a critical driver of firm level competitiveness and productivity . According to DFID’s report on Economic Development for Shared Prosperity and Poverty Reduction: ‘’. in order for growth to have the largest effect on sustained poverty reduction, donors should be focusing on…. export sectors (goods and services) to create deep and durable markets and diversification of economies to create inclusive growth.’’

Export capacity development activities that focus on sectors and markets where smaller producers and the poor are better represented can have real and sustainable pro-poor trade impacts. Within the smaller landlocked countries, export led growth is a key priority to drive productivity . Increasing the capacity to export involves a number of factors including through trade enabling standards and services and enhancing the export orientation of firms.

Efficient Trade Logistics Services

In a recent study, estimates for Kenya, Tanzania and Uganda placed the average cost of trade logistics services at the equivalent of a tax of between 25 and 40% on value added . It has been posited that improving logistics performance and facilitating trade can increase trade impacts of lowering remaining border barriers by a factor of two or more.

Reforms supporting agile, lean and efficient supply chains through seamless trade facilitation systems and services will bring significant benefits to firms help boost competitiveness and increase export potential.

Strategic outcome Examples of contributing projects Examples of the type of contribution expected (end of project outcomes)
Enhanced Business Regulation for Trade East Africa Business Council institutional and advocacy support; Transparency International advocacy on bribery on the northern corridor; CUTS implementation of EAC competition law and policy; Regional Tax Harmonisation; KAM tax and quality compliance advocacy; KEPSA investment climate; EASSI empowerment of WICBT. • Increased transparency in trade processes.

• Enhanced potential for cross-border trade and investment in both goods and services.

• Streamlined regulations for traders.

Improved Export Capability. Tradelinks; Backwards Linkages; EA Gap Certification; Tourism Platform; Professional Services Platform; Standards Platform; EATTA Tea Product Quality Standards •Increased export orientation and survival rates for private sector.

•Higher aggregate exports.

•Harmonised priority standards.

•Effective coordination by bureaux of standards.

•Improve understanding of standards and requirements.

•Improved environment for cross-border trade in the EAC region.

Efficient Trade Logistics Services LIFT/TRAC Challenge Funds; Kenya Shippers Council trade logistics and investment climate; Trade Logistics Hub; FEAFFA Freight Forwarders capacity development and logistics value chain study implementation. • More efficient transport services evidenced by greater competition and innovation

• Reduction in transport cost and time in the EAC