KAMPALA: The private sector in the East African Community has blamed the banking industry in the region for doing little to promote trade and investment, which has kept the region’s development slow.
The investors say banks have not helped them access the financing needed to boost trade to catch up with the rest of the region.
In Africa, the East African Community’s intra-regional trade accounts for about 19 percent of its total trade, just behind the Southern African Development Community’s 23 percent.
However, it does better than Western Africa’s ECOWAS and Central Africa’s ECCAS, which stand at 12 percent and less than 6 percent, respectively.
Peter Mathuki, who is the Secretary General of the EAC, has made it his job to make sure that trade within the EAC makes up at least half of all trade by 2025.
Intra-regional trade is preferred because it gives more returns to the countries, including creating more jobs within and enhancing revenues.
At the dialogue by the EAC Secretariat and the East African Business Council, the EABC Executive Director, John Bosco Kaliisa, said the East African business community lags far behind others as far as taking up credit for trade and investment.
He, however, says that it has more to do with the complexities of the credit system and the little information that the private sector has about the banking system.
The theme of the dialogue was “Trade Finance in EAC: Barriers and Opportunities for the Private Sector.” One goal of the dialogue was to help the private sector in the region be better prepared to take advantage of the opportunities in the African Continental Free Trade Area.
Rashid Kibowa, the EAC Director of Trade, agreed that the banks are not interested enough in the private sector, which is a setback to the community’s aspirations to grow trade.
Kibowa says that as the EAC expands with the admission of new countries, it will not make sense if the business environment is not improved as well, especially as access to credit remains expensive.
Some reports have indicated that many people in the region are less interested in getting credit from the financial system for various reasons.
However, according to Kibowa, a lot can be done, especially by improving the competitiveness of the economies and the digitalization of trade operations, which can help boost the uptake of trade finance in the EAC.
He says, for example, that the level of infrastructure development in the region, which slows trade, means money is tied up for a long time, and this, in turn, further slows down trade.
Nathan Gashayija, the Executive Director of the Eastern African Trade and Business Services Hub, says that business owners, especially those who run small and medium-sized businesses, are afraid of how complicated it is to borrow money from a bank.
These include the interest rates, the collateral, bureaucracy, and products that do not have relevance to them, among others. He says the entrepreneurs fear the possibility of defaulting and what that would mean to them and their businesses.
The EABC Chairman, Nicholas Nesbit, says financial instruments for trade are not well understood by business people, and this is responsible for the low demand for credit.
However, Dr. Margie Kigozi, proprietor of Crown Beverages in Uganda, urged the private sector leaders to sensitise SMEs on the available financing options and the opportunities created by the digital transformation of the financial sector.
Some of these innovations that have made it easier to get money are online financial products and agency banking.
Dr. Kigozi also wants the realisation of an East African Financial System, which she thinks will improve accessibility but also calls for enhanced regulation to ensure the protection of the users.
The banking industry says that the main factors behind the limited access to finance in East Africa are the rate of default, which makes the lenders more cautious, as well as the high cost of money and the unfavourable operating conditions.
The digitization of the economy and industry, in particular, is helping both the banks and the public get around some of these problems.
They include online operations, which make it cheaper to do business; agency banking; and easing the collateral requirements.
Gashayija urges the banks to introduce products that are more tailor-made for SMEs to encourage them to go for credit.