Nairobi, Kenya | THE INDEPENDENT | The private sector has blamed the East African Community banking sector for doing little to promote trade and investment, which has slowed the region’s development.
Investors say banks have failed to help them access the financing needed to boost trade to catch up with the rest of the regions.
In Africa, the East African Community’s intra-regional trade accounts for about 19% of its total trade, just behind the Southern African Development Community’s 23%.
However, it does better than ECOWAS in West Africa and ECCAS in Central Africa, which are respectively at 12% and less than 6%.
EAC Secretary General Peter Mathuki has set himself the task of increasing intra-EAC trade to at least 50% of its total trade by 2025.
Intra-regional trade is preferred because it gives more returns to countries, including creating more jobs internally and increasing incomes.
During the dialogue between the EAC Secretariat and the East African Business Council, EABC Executive Director John Bosco Kaliisa said that the East African business community East was far behind the others in trade and investment credit.
He says, however, that it has more to do with the complexity of the credit system and the little information the private sector has about banking systems.
The dialogue on the theme: Trade Finance in the EAC: Obstacles and Opportunities for the Private Sector, aimed, among other things, to improve the preparedness of the private sector in the region to seize the opportunities of the African Continental Free Trade Area.
Rashid Kibowa, the trade director of EAC, agreed that the banks are not focusing enough on the private sector, which is a setback to the community’s aspirations to develop trade.
Kibowa says that as the EAC expands with the admission of new countries, it will make no sense unless the business environment also improves, especially as access to credit remains expensive.
Some reports have indicated that many people in the region are less interested in obtaining credit from the financial system for various reasons.
However, according to Kibowa, a lot can be done, including improving the competitiveness of economies and the digitalization of trade operations, which can help boost the adoption of trade finance in the EAC.
He says, for example, that the level of infrastructure development in the region, which slows down this trade, means that money is tied up for a long time, which, in turn, further slows down trade.
Commenting on the seemingly low interest rate of borrowing from banks, Nathan Gashayija, executive director of the East Africa Trade and Business Services Centre, says that business people, especially in small and medium companies fear the complexities involved.
These include interest rates, guarantees, bureaucracy and products that are irrelevant to them, among others. For these, he says, entrepreneurs fear the possibility of default and what it would mean for them and their businesses.
EABC President Nicholas Nesbit says financial instruments for trade are not well understood by business people, which explains the low demand for credit.
But Dr Margie Kigozi, owner of Crown Beverages in Uganda, urged private sector leaders to educate SMEs about the financing options available and the opportunities created by the digital transformation of the financial sector.
These innovations that have facilitated access to finance include online financial products and bank branches, among others.
Dr Kigozi also wants the realization of an East African financial system which she says will improve accessibility, but also calls for stronger regulation to ensure user protection.
The banking sector says that the main factors behind the limited access to finance in East Africa are the default rate which makes lenders more cautious, as well as the high cost of money and the unfavorable operating conditions.
The digitization of economies and industry, in particular, helps both banks and the public to overcome some of these bottlenecks.
They include online transactions which make doing business cheaper, bank branches and the relaxation of collateral requirements.
Gashayija urges banks to introduce more suitable products for SMEs to encourage them to use credit.
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