Rwanda’s new levy on goods from outside the EAC to fund projects

Saturday June 13 2015

Construction of the standard gauge railway in

Construction of the standard gauge railway in progress at Tsavo River Super Bridge in Voi, Taita Taveta County, Kenya. PHOTO | FILE | NATION MEDIA GROUP

By BERNA NAMATA

Rwanda will impose a new levy on goods imported from outside the EAC to raise funds for regional infrastructure projects.

The 1.5 per cent charge on all imports into the EAC, referred to as the infrastructure levy, was agreed on by finance ministers from member states during pre-budget consultations held in Nairobi in last year.

Uganda and Kenya are already charging the levy; Tanzania and Burundi requested for time to consult before releasing a timeframe for implementing the levy.

Rwanda is targeting to collect Rwf10.6 billion ($15 million) from the levy in the new financial year, although it will continue to collect the fees in the coming years mainly for regional projects including the central corridor.

Although the funds will be devoted to regional infrastructure projects agreed on under the Northern corridor initiative, priority will be given to the standard gauge railway (SGR) project.

Completion of the railway is expected to significantly reduce the cost of freight and doing business within the region, particularly for landlocked countries. Other regional projects to be funded include energy networking infrastructure such as electricity grids and oil pipelines.

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“This (SGR) is one of the projects that is being prioritised,” Rwanda Finance Minister Claver Gatete told The EastAfrican.

The country needs Rwf1.2 billion ($1.7 million) to finance the Gatuna-Kigali segment of the 2,000-km SGR to connect Rwanda and Uganda to the Kenyan port of Mombasa. Feasibility studies of the project are expected to be completed by the end of July.

Mr Gatete said the country is considering external concessional loans to bridge the shortfall in financing for the other projects.

“Our debt to GDP ratio is 26 per cent, and we still have room because our target is 50 per cent. One of the sources is the China Exim Bank, which has given a signal that this is one of the areas that they would be interested in,” he said.

Uganda and Rwanda have selected the firm China Civil Engineering Construction Corporation to build the Kampala–Kigali railway section.

While China is expected to take the lead in financing the regional project, the region has signed a memorandum of understanding with African Development Bank (AfDB) through its Africa 50 Fund, which assists countries to mobilise private financing, for the project.

African countries are currently in the process of reviewing the first draft of the business proposal of SGR submitted by Africa50 Fund, the new infrastructure vehicle sponsored by the AfDB, which will be used to sell the project to private investors.

Public private partnership

Experts say the project should be structured as a public private partnership to lessen the burden on the budgets of these countries. The SGR is expected to be funded under the same arrangement.

The scope of private sector participation, the project’s financing plan, and the amount of sovereign and non-sovereign investments are also currently under discussion.

While the entire project needs at least $14 billion, AfDB experts have recommended the development of the railway line in co-ordination with new mining opportunities along the line, which they say can cover a substantial portion of the project’s construction costs.

“The effective implementation of transport policies are also key. The reduction and optimisation of construction costs is essential to reduce the burden on governments,” Neside Tas Anvaripour, the business and development director of Africa50, told The EastAfrican recently.

In the fiscal year 2015/16, project loan drawdowns are estimated at Rwf111.8 billion ($157.5 million) slightly higher than the Rwf105.5 billion ($153.2 billion) disbursed in 2014/15.

Large shares of this amount are expected to come from the World Bank, the African Development Bank, and the Arab Funds and will mainly be used for infrastructure projects in energy and road projects.

However, there are exemptions on the levy — including goods that were made or tax exempted from within the EAC, fertilisers and seeds, live animals, and medicine and pharmaceutical products.

It also includes goods such as medical equipment, mosquito nets, industrial machinery and equipment for energy and water sectors.

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