Focus Media, Kigali
Comesa Compensates Country for Losses Resulting From EAC Integration
7 October 2009
In a move to compensate revenue losses accrued by Rwanda as a result of having a common external tariff after the adoption of the EAC customs union protocol, the Common Market for Eastern and Southern Africa (Comesa) will disburse â‚¬10.3 million (Frw 8.8 billion) through budget support for the fiscal year 2009/10.
The move makes Rwanda the second country to get compensation after Burundi was reimbursed â‚¬4.4 million Euros (7.7 billion Burundian Francs) a fortnight ago.
The disbursement, which was conducted through the Comesa adjustment facility, represents 65% of the total revenue loss from custom duties and related taxes.
According to Sindiso Ngwenya, the Comesa secretary general, the consideration and approval of requests from both Burundi and Rwanda took place in May this year and signified the first decision ever made under the Comesa fund for the disbursement of adjustment support to which the EU channels its support through Comesa’s own regional mechanisms rather than the usual project approach.
He pointed out that Comesa adjustment facility was set up to address loss of public revenue and economic and social adjustment costs. "The support aims to improve efficiency of domestic markets, business environment, facilitating the reallocation of labor resources and capital and assisting firms in meeting the cost of compliance to the new obligations," Dr. Ngwenya said.
He also indicated that the funds provided by the adjustment facility will improve the competitiveness of industries so that they are able to take advantage of new market opportunities through support to productive infrastructure and investments in developing new products, processes and technologies.
The European Union has injected â‚¬78 million into the facility, including the â‚¬14.7 million for Rwanda and Burundi. Dr Ngwenya said that an agreement had been struck between EU and member states to contribute â‚¬2 billion to facilitate the integration process where both parties would raise â‚¬1 billion each.
Vibrant private sector
Minister of Finance James Musoni pointed out that regional integration would lead to a more liberal and vibrant private sector through a broad market access.
To emphasize the benefits of integration, Musoni pointed out that one third of the US$ 300 million export revenue came from Comesa, and out of US$ 900 million worth of imports a third also came from Comesa. "The numbers indicate the bulk of trade within Comesa as a result of integration," Musoni said.
While in the short term Rwanda is expected to lose revenue due to the EAC integration process, Musoni remained optimistic that in the medium term, the benefits of integration will exceed the short term setbacks. "The Comesa reimbursement funds will assist Rwanda in closing the fiscal gap created by integration," he emphasized.
He indicated that according to projections Rwanda will rise above the losses in a period of five years, and pointed out that the time Rwanda spends incurring losses would depend on the bulk of trade and investment inflows.
To allay the concerns that the compensation fund was less than the losses the country would be making, Eugene Torero, the deputy commissioner of Rwanda Revenue Authority (RRA), said that the funds from Comesa were enough to mitigate loss of revenue.
"Much of our revenue does not come from the borders, as there are numerous taxes that are paid within the country; so the compensation fund is more or less equivalent to the losses in terms of revenue," Torero said.