The massive budgetary allocations by East African countries to infrastructure development are a pointer to the seriousness with which the regional governments are taking this key aspect of the economy.
Together with a raft of proposed changes to taxation legislation, the focus on East Africa as a regional economic hub is clearer now than ever before. So is the growing importance of natural resources in the region in providing a vital source of revenue. This is new ground.
The trend is a pointer to the realisation of the importance of infrastructure and its multiplier effect in the overall economic growth and development of the region.
This year, Kenya has allocated $266.3 million raised from the Railway Development Levy to the construction of the standard gauge railway (SGR) that will connect the country to Uganda and eventually Rwanda. Kenya will also soon commission Terminal 4 at the Jomo Kenyatta International Airport. In addition, the country has also allocated $195 million for the upgrading of Kisumu and Isiolo airports and the construction of three new airports in Mandera, Malindi and Suneka. The country has also allocated over $1.2 billion for the construction and expansion of road networks to ease the movement of goods and services.
Tanzania, on the other hand, has set aside $1.3 billion for procurement of wagons, rehabilitation of the central railway line and for the construction and rehabilitation of roads and bridges. Uganda is looking at reducing congestion in urban areas, cost of transport and transportation of goods and services.
Tanzania has also allocated significant amounts for electricity generation and distribution.
Uganda has increased its budget allocation for infrastructure to $990 million from $965 million. The allocation of more funds towards infrastructure is meant to accelerate the construction of ongoing road projects, new road projects and the upgrading of the railway to standard gauge.
While that is the case, Kenya like the rest of the East African countries has come up with ingenious ways to generate revenue to fund these big projects. All the three countries have proposed changes to their tax regime legislation, which now includes tax on natural resources.
In this year’s budget, Kenya for example has proposed replacement of withholding tax on assignment of rights for oil and gas companies with income tax, which will be a net gain in line with international best practice. There is also a proposal to amend the definition of a permanent establishment for transfer pricing purposes and restriction of expenses of permanent establishments.
Once operational, the laws will require both local and foreign taxpayers to provide the Commissioner with up to date information on the changes in business and corporate structure.
Why are EAC countries re-energising their focus on infrastructure?
That Africa is the next economic hub is now not a secret. Africa has consistently reported economic growth rates higher than most regions of the world.
Africa has enough economic growth potential. In addition to this, the abundance of natural resources only adds to growth prospects.
But perhaps it is the recent discovery of oil and gas and other minerals in East Africa that is the single biggest reason that has seen the sudden re-focus on investment in infrastructure. Without infrastructure, it is almost impossible to exploit these resources.
Rishab Thakrar is a business analyst while Ravinder Sikand is a director, corporate financial Services, at Deloitte East Africa. The views are not necessarily those of Deloitte.