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July 10, 2013

Tanzania, Kenya Compete for Trade with Landlocked Neighbors

by Mohammed Yusuf

Tanzania is giving Kenya stiff competition in building trade with their landlocked East African neighbors, as business people in the region complain about deficiencies with Kenya’s port at Mombasa.  The effort by Tanzania has prompted Kenya’s newly elected president to move quickly in response. 

Access to the ocean gives Kenya and Tanzania a big trade advantage over their neighbors Uganda, Rwanda, Burundi, Zambia, and the eastern Democratic Republic of Congo (DRC), which all have to transit goods through the Indian Ocean ports of Mombasa, Kenya and Dar es Salaam, Tanzania.

Importers in landlocked countries like Uganda and Rwanda have openly spoken about their frustration with the ports and the high cost of transporting goods across regional borders.

According to a new report published by the World Bank, Tanzania and Kenya could boost their annual gross domestic product by up to $1.8 billion and $830 million respectively by taking measures to improve the efficiency of the ports.

In recent months Tanzania has worked especially hard to improve its game in the competition for the regional import market.

Everest Kayondo, head of Kampala City Traders Association, said Tanzania is offering enticing incentives to Ugandan businesses, including tax breaks for goods transported by road.

“It [Tanzania] has come up with some attractive measures like not asking bonds for our goods if they are ferried by train, so they are saying it will do it as if it’s a domestic cargo,” said Kayondo.

However, Weru Macharia, an independent foreign relations analyst in Nairobi, said the Tanzanian tax incentives will be useless if the country does not improve its road system.

“So I think it’s a good move from Tanzania and its going to be advantageous to the Ugandan businessmen but I think Kenya may also follow the same route,  So it depends now on how or who is going to be much more attractive because if you levy the taxes of the day then you also have to have proper and good infrastructure,” said Macharia.

Road construction

In an effort to encourage businesses in landlocked countries to use roads to transport their goods to the sea, the Tanzanian government has finished constructing a new road from Dar es Salaam on the coast to Mutukula on the border with Uganda.

​​Last month, newly-elected Kenyan President Uhuru Kenyatta reacted by visiting Uganda and Burundi to convince their leaders his country is also ready to improve its port and make other offers to encourage trade.

Everest Kayondo of the Kampala City Traders said each country will act in its own self-interest.

“Kenya, they will accept a policy as long as it favors them but the moment it’s not conducive to their business community they will sort of block it,” said Kayondo.

Analyst Weru Macharia argues Kenya is behaving that way because it feels it has leverage, but with Tanzania coming on strongly things might change.

“The complaints may be valid, but you don’t expect any country to be humanitarian in terms of trade and commerce.  So its upon them to see Tanzania coming in and there may be more at stake for Kenya, which might probably be more flexible in terms of dealing with Ugandan businessmen,” said Macharia.

In May, the World Trade Organization (WTO) director-general, on his visit to the region, said East African governments must improve their roads, ports and trade procedures if the region is to reach its full economic potential.