High Employee Turnover can hamper efforts to create investment returns

One of the many challenges that organizations face today, is to hire and retain good employees. An effective employee retention program can have a dramatic impact on organization's performance. Organizations have to grow together with their employees. An organization is only as good as the people it employs.As employees grow so does the business, and its bottom line. Companies normally understate this issue[1]. Most important assets in the organization are its employees, "they are the method by which they provide their service, and they create the first and usually lasting impression with customers, which becomes the cornerstone of the company's reputation." says Peter Criville, president of Shellville Services Inc.

An ineffective employee retention strategy has a bearing on the performance of an organization. It can consistently hamper efforts to create investment returns to the business of an organization. If nothing is done employee turnover, dwindling levels of retention, and the steady outflow of quality workers could result into high business cost for the organization. It is a mistake for companies faced with many challenges, such as increasing competition and decreasing margins, to be mindless on the issue of employee recruitment and retention. This will only end up costing the company more in the long run. Turnover has a direct impact on the success of the business and how consistently and efficiently it operates. It means the difference between success and failure and reputation in the marketplace. 

The cost of employee turn over can range between 1/2 to 4 times an employee's annual wages and benefits. Organizations need to identify top performing team members and develop strategies to ensure they stay in the organization for as long as possible. 

Employee retention has as much to do with how organizations hire and do after.According to Harvard Business Review, 80% of turnover can be attributed to mistakes during the hiring process.Traditional methods of hiring employees only provide a 14% likelihood of a successful job hire (Michigan State University)

Employee turnover needs not to been seen only from the perspective of those already employed. An organization that is not mindful of its employee turnover issues, risks having candidate employees leave even before they fully recruited. Such an organization will end up hiring employees who are not well fit for the job and the culture of the organization.

The importance of retaining top organizational talent cannot be understated. With the rate of employment growth in most economies especially developing economies, more and more jobs are increasingly available especially for the skilled and experience persons. What this means for employees is that it is now easier than ever to leave one's current position in search of greener pastures elsewhere. As competition takes centre stage in a fast growing private sector, employee turnover rates increases due to increased attractive markets for job seekers especially those with some level of experience. Of course where there is high unemployment levels, attracting employees might be simple but attracting quality skills is an uphill battle.

COST OF EMPLOYEE TURNOVER

Although it is neither possible, nor desirable to completely eliminate turnover from an organization, there are very real associated costs which an organization must be mindful about and where possible minimize them. Some of the costs associated with employee turnover are unavoidable and must be expected to occur in the normal course of business.

William G. Bliss in his article "cost of employee turnover" indicates that the costs of time and lost productivity in an effort to replace a staff are no less important than the costs associated with paying cash to vendors for services such as advertising or temporary staff. "These are all very real costs to the employer".

Some costs of employee turnover are obvious and come quickly to mind, but there other costs which equally have serious impact on business that normally are not taken serious by employers.

Turning over one employee can cost around 1/2 of a low skilled hourly workers annual wages plus benefits, while losing a member of upper management level can cost 3 to 5 times his or her annual wages and benefits. For example a firm employing 40 employees each earning $4,250 annually, the costs of turning over 10 of these employees over the course of a year will be at least $212,500. Severance pay can also be a huge part of employee turnover costs. This is especially true with highly skilled employees and high-level management. Such wage costs do have direct linkage to returns on investment.

The obvious costs of employee turnover include expenses on recruitment and or hiring a new staff. When an employee leaves the replacement process- hiring and selection cycle starts again. Significant costs of employee turnover included in this process can be advertising costs of announcing a job opening to the masses, cost of hiring a recruitment agency, background checks, reference checks, drug testing, cost of overtime pay, temporary help and much more. Once decision to hire has been made, the costs of turnover don't stop, but rather continue. Sign on bonuses, relocation costs, and any increases in salary level necessary to attract new talent all add up fast not to mention the time spent by the human resource to orientate and train the new employee.

Some of other costs that are easily quantifiable but are not normally given much consideration include; work overload, new job learning costs, loss of loyal customers, knowledge base losses and information linkages.

Loss of an employee affects the productivity of other employees who temporarily sit-in for their former colleague. William G. Bliss puts this productivity to at least 50% of the person's compensation and benefits cost for each week the position is vacant and other employees are sitting in and to 100% when completely vacant. It takes on average two month to recruit and hire a new employee. During this time productivity can seriously dwindle since the other employees who pick up the tasks and responsibilities. On top of being overloaded which of course diminishes their productivity, are also not necessarily familiar or trained for the task. This drains staff morale and further hurts productivity.

The negative affect on productivity continues even when a new employee is hired, he or she still has to be accustomed with the work. Of course the effect of declining productivity reflects itself in form of reduced business returns though it might be difficult to specifically attribute the cause to the turnover.

There is always a learning curve associated with any job which can be a considerable period of time but varying between individuals. It takes a new employee to catch-up with the rest of the staff. During this time, productivity cannot be as good as it is for the old staff.

Employee turnover can lead to reduced level of customer loyalty. This is significant loss to business. Many employees develop and share a real connection with customers as a result; they enjoy a loyal following of customers with whom they have related. When the employee leaves almost all of his loyal customers might move with him or her. It becomes worse when he or she has crossed to competition. The former employer can pay dearly; customers are sometimes loyal to the employee, not the company. The real cost is with the customer," Criville says. "Customers have a negative perception of a firm that has employees coming and going like a revolving door. Clients prefer to see the same faces every day. They get to know employees and gain a comfort level with them as a result they trust develops, job gets done and the customer pays.

Another serious cost to companies when they lose employees is the loss of organizational knowledge base. G. Bliss puts this loss to 50% of the person's annual salary for one year of service. Many employees are able to become experts in the field they work in and they leave with that knowledge base. They are no longer available to share this knowledge and mentor junior members in the company. In the event that they cross to competition, not only do they go with company valuable secretes, they also transfer the knowledge to the competition. Of course the impact is on business returns even if it might be near to impossible to quantify the actual effect due to the employee/s that left.

Then a staff leaves a manager has to understand what work remains, and how to cover that work until a replacement is found. This action could involve both time and money costs.

WHAT ORGANISATIONS CAN DO TO LIMIT EMPLOYEE TURNOVER

Although turnover is inevitable organization can apply some measures in order to reduce the scope. Some businesses (e.g. food services, accommodation, leisure and hospitality) are more susceptible and do experience higher turnover than others. Turnover is a challenge in these sectors, but it does not mean companies should cripple down.

Most of the turnover causes are around the mistakes in the employee selection process. Companies hire wrong people for the wrong jobs[2]. A Harvard University study attributes up-to 80% of employee turnover to mistakes made during the hiring process. 

A Michigan State University indicates that for a successful job hire; traditional hiring techniques - resume reviews, interviews only provides a 14% accuracy, Reference Checks and Interviews contribute 26% accuracy, while Behavior-based Personality Assessment, Reference Checks and Interviews can contribute 38% accuracy. Meanwhile Abilities , Personality Assessment , Reference Checks, Interviewing can ensure at least 54% accuracy, while Values – Interests, Abilities, Personality Assessment, Reference Checks Interviews and can maximize at 66% accuracy. Finally Personal Attributes - Job Matching + all of the above can contribute 75% accuracy

Michigan State University study shows that effective utilization of powerful personality assessments are shown to increase the likelihood of a successful job hire to 75%.The power of these assessments is stunning and provides a powerful insight into the values, behaviors, and attributes the job candidate possesses. The report offers hope in regards to these horrendous odds of hiring the right employee. This information can then be compared against a Benchmark established for the job position and an informed hiring decision can now be made.

The report indicates that most employers use a combination of application, interviews, resumes and employment reference checks. These methods are best described as subjective. They are highly vulnerable to data distortion or falsification. Resumes are often exaggerated or falsified. Interviews are greatly influenced by "first impressions, appearance halo effects or chemistry". References are usually groomed or coached. They conclude that subjective recruitment and hiring methods provide useful, but limited information. They recommend use of modern recruitment methods like use on-line applications and interviews (this has limitation in a number of developing countries), integrity screenings and executive profile assessments, job matching benchmarks (reasons for existing job, knowledge needed, what cannot be done without it) and background verifications. The information collected is highly accurate and reliable. Screenings and profiles are not as vulnerable to faking or distortion and halo effects. Validity indicators on assessments help to verify the authenticity or candor of the candidate's responses.

The key to recruitment, Wendover says, is to identify and then target the exact employee a company needs. Without that specific knowledge, many organizations end up settling for whoever walks through their doors. "What does not work well is desperate hires, just putting an unqualified warm body into a position," Criville says. "That is a recipe for failure." It is not a good decision to settle for a second-rate employee simply for the sake of filling a position. If a person will not be around for long, why spend money training him or her just to do it all over again? It's probably smarter to pay overtime to current employees to fill the gap and take time finding an employee who makes the grade.

Becky Mollenkamp in her article "Recruiting and Retaining Employees" recommends that making connections with local educators, community leaders and other employers takes time and effort but pays. To her the effort is a more affordable and productive option. In fact, some businesses are so fond of referrals that they pay for them. "We believe good people know good people so we pay referral bonuses," Criville says.

It is important to immediately schedule interviews once candidates for a position have been identified. Timeliness is extremely important," Domboski says. "You can lose a good applicant an hour after they apply."

There are many other things a company can do to create an environment that discourages turnover. It should be noted however that some of these most popular benefits are typically the most expensive. But there are also plenty of free and inexpensive ways to reward and retain employees.

The most obvious way to attract and keep employees is to offer competitive pay. There are also a whole host of desirable benefits, each of which comes with a price tag. According to Becky Mollenkamp a company is more appealing if it offers affordable medical and dental insurance, paid vacation and sick days, a 401k, holiday bonuses, tuition reimbursement, health club membership and incentive programs tied to attendance or safety. These benefits help set the company apart from its competition and allows for recruiting the best candidates available.

Many firms in developing countries emphasize experience as a prerequisite for employee recruitment this means that for the experienced worker the switching costs of seeking new employment are no longer a significant factor in deciding whether or not to leave an organization. The implications for employers should be clear. It is now more important than ever to retain the team members a company.

In his book, Good to Great, Jim Collins highlights on the importance of having the right talent on the organizational bus. Hiring individuals who are truly fit to succeed in the position for hire dramatically increase the chances of that employee being satisfied with his or her work and remaining with the company for an extended period of time.

Clarity on the terms and conditions of work is also important in ensure employee retention. Communicationin the effort to retain employees to has become so important that it almost matches with salary scale itself. Employees need to know their roles, job description, and responsibilities within the organization. Any new company policies or initiatives have to be communicated to all employees to be sure that everyone is on the same page. Nobody wants to feel that they are being left out of the loop. Where there are no clearly defined performance benchmarks, employees will feel frustrated or discouraged. In a performance driven workplace a lack of clarity regarding job duties and expectations can cause fear and anxiety among employees who are unclear of what is expected of them. Even worse outright anger, conflicts and mistakes can occur when employees are not aware of what is expected of them. It makes it also difficult for a supervisor to objectively evaluate performance based on expectations and job duties that are not known. The result is unfair judgments that of course will not go down well with the victimized employees.

Involving employees in decision making is also important in ensuring their retention. In many developing countries most indigenous companies are individually owned. Decision making on critical issues remains in the hands of the directors or owners of the businesses. This has an implication in the level of participation of the employees in decision making. It is incredibly important to include team members in the decision making process, especially when decisions will effect an individual's department or work team. This helps to create a culture of employee involvement and will generate new ideas and perspectives that top management might never think of as important. When employees participate in setting limitations, targets and benchmarks for their performance, it enhances their morale to ensuring they achieve accordingly. However failure to have them participate can cause resistance, resulting into friction and job terminations

Employees are engaged in day today operations of the company and are thus well versed with the dynamics of works. Where work is in sections that are linked and synergized, allowing employees to share their knowledge with others will help the company to harmonize synergies and linkages. This will not only help increase the general performance of the employees, it will also make them appreciate general challenges and even devise means to overcome them. The sharing of information between employees facilitates mentoring and supervision since they are able to pick benchmarks and repercussions from within themselves. Information gap leads employees into mistakes they would never have committed if they were in the know of the traps in place and associated repercussions.

Shortening the feedback loop on employee performance is important to keep the employees in check but with minimal haggling which is a recipe for job terminations. It is important not to wait for an annual performance evaluation in order to get feedback on how an employee is performing. Most team members enjoy frequent feedback about how they are performing. Shortening the feedback loop will help keep performance levels high and will reinforce positive behavior. Feedback does not necessarily need to be scheduled or highly structured; simply stopping by a team member's desk and letting them know they are doing a good job on a current project can do wonders of boosting their morale and help to increase retention.

Employee retention also depends on compensation packages available. An employeewants to feel that he or she is being paid appropriately and fairly for the work he or she does. Employees take it upon themselves to find out what other companies and organizations are offering in terms of salary and benefits. They start knocking at competitor dowers in a situation where they feel they are not being offered competitive compensation packages.

Employers should provide adequate time for the employees to be with their families. Employees have families which are incredibly important to them as it is to their employer. When work begins to put a significant strain on one's family no amount of money will keep an employee around. Companies that do not stress the importance of balancing work and employee's personal life risk losing valuable staff. Incentives given to employees like extended lunch once a week, annual leave, and family reunion parties etc generate employee loyalty to an organization.

Opportunities for growth and development are important in ensuring employee retention. An employee will get bored and begin thinking of leaving the organization if he or she gets stuck in one position for along time with no possibility for advancement or new opportunities. Where there are no opportunities for growth and development in which employees acquire new skills, knowledge and stature, an employee will find that his future is hopeless and will look for that organization where he or she would be a good fit.

An employee will live longer with the company if the job provides career and makes him or her feel like an integral part of the team. Companies need to teach employees about the business and the industry as a whole, organize for them sectoral associates meetings and give them training on how business operates. "Developing an associate to feel self-worth, pride and a sense of belonging to our business is very important," Domboski says. "Since some are working independently or alone, motivation is a key in ensuring employee retention."

In an effort to ensure employee retention, it is also important to reward and recognize employees for their hard work. Employees at all levels in an organization want to know that their efforts are appreciated and recognized[3]. Recognizing employees for their hard work and let them know they are appreciated can be one of the single greatest factors influencing employee retention. Less costly and sometimes more extravagant actions like a short e-mail or stopping at a staff's desk and saying quick "thanks" can really boost morale. Other options include a mention in the company newsletter for outstanding performance or gift coupon to a restaurant or movie theatre, certificates of outstanding performance, performance based promotions - the possibility list is endless.

Employees want to have supervisors who are respectful, responsive, listener, courteous, and friendly. More importantly employees need supervisors who set clear performance expectations, deliver timely solutions and feedback, live up to their word and promises, and provide an environment conducive for growth and development. Failure by supervisors and management to provide this can cause an employee to start looking for greener pastures.

Employees prefer to work in an environment where there is fair and equitable treatment, where there is no favoritism and preferential treatment of individual team members. Inequitable treatment results in animosity and resentment in an organization. It leads to development of untouchables which creates noxious organization culture and foster resentment among team members. This culture gets worse and can create a devastating exodus of valued team members. Flexible scheduling is welcomed by many people, particularly those with childcare or transportation issues. Recognition in all forms, whether it is a simple pat on the back or a small monetary gift, keeps employees motivated.

Exit interviews are powerful tools. Encourage departing employees to honestly state the reasons they are leaving (an impersonal survey may encourage honesty more than a face-to-face interview). Consistent and similar same issues, such as low pay or lack of recognition may signal cause for investigation and need for changes in those areas. "People leave and it's the employer's responsibility to find out the reason why and pursue every avenue to halt future associates from departing." Domboski says

Companies need to prepare for turnover. Managers should constantly assess who is in their workforce, with an eye towards who may be likely to leave and when. If the average employee leaves after 5 years and there are several people who are in their fourth year of employment, chances are that there are a job opening within a year is most likely. Active recruiting and perhaps even doing some premature hiring or adding paid apprentices to a workforce could be a good strategy, where it is anticipated that an employee will leave soon.

It should be noted however that even companies that recruit carefully, offer every possible benefit and have a perfect training program will lose employees. Employee Turnover is a necessary evil; gone are the days employees remained with one company for the rest of their working time. In a global village today, people are more restless. All that the companies can do is to minimize the rate of employee employees leave.

[1] http://www.therainmakergroupinc.com/index.asp  

[2] "Finding the right applicant can be as difficult as looking for a needle in a haystack," says Lynn Domboski, director of human resources for Matrix Integrated Facility Management in Johnson City, N.Y.

[3] Employees Place High Value On Being Appreciated David Saxby,

Obama Promises during Africa visit to Extend and Improve AGOA after 2015

The US President Barack Obama promised during his visit to Senegal to improve the the African Growth and Opportunity Act (AGOA); the US initiative that allows African countries to access the US market on duty free Quota free arrangement. President Obama told joint press conference with his Senegalese counterpart Macky Sall that"AGOA will end in two years time. But I will seek for modalities to renew and improve the law to regenerate more trade and employment opportunities,"

The President's promise is good news indeed given that up to now US authorities had a clear signal that the AGOA will be extended come 2015. Now that the President himself has made the promise we can hope that the AGOA will be extended; after all the arrangement itself is a Presidential Initiative. 

On the face of it, this should be good news to Africa. But of course we know that the President still has to convince Congress before the promise to extend AGAO can become a reality. There is still another huddle to over come. The US may extend the AGOA but the extension of its Waiver at WTO is also required. The extension of the WTO Waiver might turn out to be a serious huddle given that other countries like Cambodia, Bangladesh and Vietnam are also seeking for a similar preferential arrangement from the US. These countries will of course try to broke the extension of the AGOA waiver at WTO on grounds that the initiative is discriminating in nature as it does not cover all developing countries . The AGOA violates the Non discrimination requirement of WTO and that is why it must be provided a waiver at WTO. The current waiver expires with the AGOA in 2015. The likes of Cambodia have already used the WTO platform to express to the US their demand for the AGOA equivalent. It remains to be seen how this will play out. 

In any case the period of extension will also determine the extent to which the AGOA will remain relevant to the economic development needs of Africa. At the moment some schools of thought say that the AGOA has not helped Africa realize economic growth as anticipated by the Act. It is said that the time span for the AGOA has always been a short period so inadequate to attract large scale foreign direct investments. As an example, this school of thought say that US citizens and others from more developed economies have failed to take advantage of this noble AGOA initiative because the arrangement does not provide guarantee returns to long term targeted investments. It is believed that this is so because of AGOA's short time nature and the fact that the initiative itself is unilateral thereby making it difficult for investors to predict its continuity after a certain period. 

In addition, Africa has it own internal challenges relating to the supply side constraints. The challenges explain why since the launch of the AGOA in 2000, not many African countries have significantly taken advantage of the initiative. Save for a few countries-Kenya, Mauritius, Lesotho and Botswana, most of the other countries have not benefited as much. The American market is highly capitalistic with unique market demands. Penetration into the US Market requires clear response mechanism that address the constraints along the value chain and tailor the production systems to the US market needs and requirements. African countries continue to face challenges related to transport infrastructure, limited storage and warehouse facilities, limited investments in value addition, low capacities to comply with standards and rules of origin requirements, ignorance about the market, and un integrated value chains, among others. 

Obama has promised will extend the AGOA but without clear response mechanism to address the above challenges, Africa will not effectively take advantage of the initiative. It should also be recalled that effective implementation of the response mechanism is also dependent on the duration of the AGOA. 

In short, should AGOA be extended? yes. Will Africans benefit much from the extension of the AGOA? yes but only greatly if they are able to address the supply side constraints and attract plausible investments . But duration of the extended period of the AGOA is obviously going to be a key indicator in addressing the above challenges. 

Finally the Least developed get more Eight Years to Implement the TRIPS Agreement and Protect Intellectual Property

WTO has extended, for more eight years, the transition period the for protection of intellectual property by the least developed countries under the TRIPS Agreement. According to the TRIPS agreement, the deadline for the least developed countries to begin implementation was 1 July 2013. WTO members agreed on 11 June 2013 to extend the deadline to 1 July 2021 with a further extension possible when the time comes. This decision followed months of intensive negotiations with a group of countries and worked through consultations.

A number of least developing countries led by Nepal have welcomed the decision indicating that the extension of the transition period for protection of intellectual property will contribute to efforts to meet the target set at the UN conference on least developed countries in May 2011 — for half of these countries to reach the threshold level of development that would allow them to “graduate” from the category by 2020 

However, it remains to be seen whether the least developing countries will actually utilize this transition period. Whereas the transition period for protection of intellectual property is important for this group of countries, history shows that they do not normally utilize the period to improve the status quo.

Whereas the protection of intellectual property has positive linkage to development, the least developed countries have continued to request for stay of application of the TRIPS agreement. This could work against them instead of benefiting them. May be WTO should always ask for a roadmap of activities to be undertaken within the transition period for protection of intellectual property before approving such requests. Protection of intellectual property is a tool for economic development because it is important in stimulating innovations, encouraging scientific research and product development. Above all, protection of intellectual property eliminates free riders thereby promoting motivation and guaranteeing returns to investments. 

This therefore means that the least developing countries should work to protect their innovations rather than staying application of the intellectual property rights agreement. Many of these least developed countries have suffered from free riders especially to the hand of those in the developed economies. The free riders have not only taken advantage of the innovations in the least developed economies they have also gone ahead to protect them as if they were the originators. This transition period for the protection of intellectual property could actually be another harvest time for free riders.

As it is, the transition for period protection of intellectual property gives freedom to the least developing countries to choose whether or not to protect trademarks, patents, copyright, industrial designs, geographical indications or any other form of intellectual property covered by the agreement. Indeed a number of these countries have laws on the protection of intellectual property but they still have difficulties on the implementation process. A number of the least developed countries have not documented their geographical indications, they have fewer personnel with relevant skills, the citizens are not well informed of their rights and obligations and not many have registered their trademarks, patents and copyrights. Where they been able to register their property rights, protection has not been effective due to challenges related to enforcement mechanism. 

With the above challenges in mind, the least developed countries are justified in their quest for stay of application of the TRIPS Agreement until when they have built adequate capacity to be able to implement it. But do these countries have in place a roadmap for addressing these challenges. Have they put in place response strategies and allocated necessary resources to improve on the status quo with a view to implementing the TRIPS at the end of the transition period for protection of intellectual property . Unfortunately, a number of them may still not be ready come 2021.

The fear for some of the least developing countries is that implementation of the TRIPS comes along with obligations which include compensating property rights owners in case their rights are violated. Some others argue that at the lower level of development countries need not to protect intellectual property as this would undermine the transfer and adaptation of the much need technology by the least developed countries. But did the developed countries develop through transfer of technology or through encouraging the development of technology? Which one should be encouraged most? 

The EAC and U.S Techinical Level Makes Progress on Trade and Investment Partnership

The East African Community (EAC) and the United States of America held a technical level meeting on Trade and Investment Partnership (TIP) from 17 to 20 April 2013 in Arusha Tanzania. The EAC-U.S Technical Level meeting made progress on the four components of the Trade and Investment Partnership.  The meeting finalized the Terms of reference for the Commercial Dialogue and made consultations in the other three components, that is the proposed; Investment Treaty, Trade Facilitation and Continued Capacity Building.

The EAC-U.S Technical Level meeting made recommendations on the four components for consideration by the Ministerial meeting scheduled for end of June 2013 at the sidelines of the AGOA Forum in Addis Ababa, Ethiopia.

On the ToRs for EAC-U.S Commercial Dialogue, the EAC-U.S Technical level meeting on Trade and Investment Partnership made recommendations on the scope, objectives and priority areas to be covered under framework. The meeting noted that the objective of the Dialogue should be improving the trade and investment relationship between the EAC and the U.S through private-private sector engagements, private-public engagements and public-public engagements. As regards the scope, the meeting recommended that through the Dialogue, both parties should at the private-private sector level identify policy constraints to trade and investment development and present for consideration by both governments. The EAC-U.S Commercial Dialogue should also promote the business to business engagements including undertaking of business missions, trade fairs and developing joint ventures and business deals. Priority areas for consideration under Commercial Dialogue should include promotion and enhancing trade and investment in Energy, infrastructure, ICT and outsourcing, Trade in Services such financial services and tourism, agro-business, value addition and industrialization. The priority areas are to be presented to the private sector of both parties for further discussion and enrichment.

Regarding Trade Facilitation, the EAC maintained that the EAC-U.S Trade and Investment Partnership should address all barriers to trade and not just customs constraints as proposed by the United States. The Trade Facilitation Model Agreement proposed by the U.S focuses on addressing customs related operations including, Express shipment, advance ruling, transparency, transit procedures, customs valuation procedures and rights of appeal of cargo owners. The EAC maintains that although customs issues are important especially in enabling free and faster movement of goods across the borders, they are not the only constraints to export development especially in trading with the United States. The EAC observes that as a region they also affected by other other constraints such as stringent Sanitary and Phyto-sanitary rules, requirements under the rules of origin, non tariff barriers including the lack of a direct flight to the U.S and the lengthy and costly U.S visa requirements. The U.S insists that the issues being raised by the EAC cannot be included under the Trade Facilitation agreement given that even at the WTO, they are negotiated separately. The parties agreed to consult further and revert with a view to reaching a common understanding.

On the proposed U.S. Model Investment Treaty, the EAC-U.S technical level meeting on Trade and Investment Partnership consulted and made clarifications on the various provisions included in the model. The EAC made observations and sought for clarifications from the U.S. side on various terms and clauses included in the document. The Parties agreed to continue exchanging information on the interpretations of the various areas with a view to reaching a common understanding on the document before negotiations can be launched.

The meeting also covered capacity under the U.S presented to the EAC its trade and investment areas they are or have been supporting. The U.S indicated that they are supporting the Secretariat to implement EAC decisions regarding customs operations relating to one border post, simplified rules of origin and the development interface frameworks to enable data interchange between the Customs Authorities. The U.S Also indicated that they are supporting EAC Partner States at the national in a number of areas including firm level interventions.

EAC on its part appreciated the support U.S is providing to the EAC but called on the U.S to consider broadening the scope of capacity building to enable EAC address some of its other priority areas. The EAC observed that under the TIP, the parties should devise and bring on board new elements to capacity building. The new elements should include development additional priority areas and ensuring effective coordination and delivery of support. Both parties agreed to continue with consultations on the matter with a view to reaching a common position for consideration by the Ministerial meeting in Addis Ababa, Ethiopia.

The 16th COMESA Summit in Kampala to Focus on MSMEs Development

Uganda will host the 16^th Summit of the Common Market for Eastern and Southern Africa (COMESA) Heads of State and Government on 23^rd-24^th November, 2012. The 16^th COMESA Summit will be held under the “Enhancing Intra-COMESA Trade Through MSMEs Development,” as a way of emphasizing the importance and central role that Micro, Small and Medium Enterprises (MSMEs) are playing in the economies of our Member States. This is good news because it shows that the leaders of COMESA are now finally embarking on promoting MSMEs and enabling them to access the intra-regional market.

An EAC study of 2010 indicates that the MSMEs sub-sector is the biggest employer and constitutes about 90% of the private sector in the EAC region with contributions to GDP of 20% in Uganda, 33% in Tanzania and 50% in Kenya. Despite this significance of the MSMEs, the report shows that the subsector is sometimes regarded as constituting survivalist entities operated by school leavers and job seekers awaiting formal employment, retirees, retrenchees or people supplementing their low incomes from formal jobs.

The study also shows that the activities in MSMEs are mostly characterized by easy entry and exit, self-employment with a high proportion of family workers and apprentices, reliance on indigenous resources, small scale of operation with little capital and equipment, high labour intensity, limited adaptation of modern technology, low skills with acquisition of skills mostly outside the formal schooling system, lack of access to organized markets for key resources (financial markets, education and training) and lack of access to supporting services. According to the study the subsector is seen as functioning as a fallback position. This outlook has sometimes not helped to develop MSMEs especially micro into dynamic private sector activities.

It is therefore well-timed for the 16^th COMESA Summit to seize this opportunity and recorgonise the role played by the MSMEs. If implemented, the measures to be put in place by the heads of state should put the COMESA region on the right path to achieving sustainable development. COMESA needs to attain competitive intra-regional trade and investment in order to achieve its development goals. The 16^th COMESA Summit should therefore development measures to support Member States enhancing the capacity of entrepreneurs especially the small and medium enterprises with a view to enabling the region attain market competitiveness supported by high-tech production and inter-connected market systems.

COMESA and the Member States must support the MSMEs to enable them meaningfully become the private sector sought to be the backbone of the economy. Effective measures are required to support the MSMEs in; ensuring that production is aligned to market standards, harmonizing policies and regulations impacting on both internal and cross border trade and investment; facilitating the free and faster flow of goods and services; improving information flow of market opportunities; improving and simplifying access to trade finance; opening and widening portential investment and trade opportunities; enabling transfer of appropriate technology and promoting regional business linkages and transactions, among others

The 16^th COMESA Summit is expected to among others discuss the COMESA Free Trade area, COMESA Customs Union and the EAC, SADC, COMESA Tripartite free trade area. Other issues that are likely to be on the agenda include reports on the directive by the Heads of State to the COMESA to work with member states in the establishment of Science, Technology and Innovation Parks, and priority industry clusters and the development of mechanism for exchange and sharing of experiences amongst Member States

At the sidelines of the Summit, the private sector will hold a business forum under theme “Promoting Intra-COMESA Trade through Micro, Small and Medium Enterprise Development – Seizing Opportunities for Innovation and Prosperity in Business”. The forum presents an opportunity for the private sector form the COMESA region to dialogue and work with Governments in determining policy interventions necessary to create an enabling business environment. This forum should help bring out relevant regulatory reforms and interventions that for COMESA to undertake in promoting the growth and emancipation of small and medium enterprises (SMEs). The forum should also review and come up with clear and robust innovative ideas and conventional ways of strengthening the SMEs in order to attain meaningful intra-regional trade and sustainable regional development.

Progress on the EAC-US Trade and Investment Partnership

The East African Community (EAC) and the United States Government announced on 19th October 2012 the progress under the EAC-U.S. Trade and Investment Partnership (TIP). In their Joint Statement issued on Friday last week, the EAC Ministers of trade and investment in the EAC Partner States and the Deputy United States Trade Representative (USTR) announced that they have taken "important steps" to advance the Partnership.

Releasing the Joint Statement the Minister of Trade, Industry and Cooperative, Hon Amelia Kyambadde who co-chaired the Joint Press Conference noted that the new initiative will support the economic integration of the EAC and enhances the EAC-U.S. trade and investment partnership. The Hon Minister said that the new Partnership is built on the recognition of the important role that trade and investment play in economic and social development including job creation, both in East Africa and the United States.

On his part, the Deputy USTR said that the EAC and the United States agreed on a framework to move forward on the establishment of a Commercial Dialogue, which will be formally launched in late November 2012. Commercial Dialogue is a component under the TIP that establishes a consultative mechanism which will serve as a cornerstone of linking and engaging Governments with the private sector of both Parties. The dialogue will focus on promoting effective public-private partnership, which are a critical mechanism for attracting greater U.S. investments to the EAC region, especially in the area of infrastructure development, supply of services, mineral development and manufacturing. The Dialogue will implement its activities through targeted sector trade missions, activities and events; coordinated programs between U.S. agencies and their EAC counterparts in conjunction with trade associations and the diaspora. The East African Business Council will lead the EAC private sector in engaging with their counterparts in the U.S.  

According to the Joint Statement the EAC and the United States also agreed that their respective technical teams will meet at the soonest possible date for further consultations and negotiation on the other three components of the EAC-U.S Trade and Investment Partnership, that is; a bilateral investment treaty, a trade facilitation agreement and continued capacity building.

The Bilateral Investment Treaty (BIT) aims at;

·        Protecting investments in the territories of either Party where investor rights are not already protected through existing agreements;

• Encouraging the adoption of market-oriented domestic policies that treat private investment in an open, transparent, and non-discriminatory way; and
• Supporting the development and application of international law and standards consistent with the objectives of the cooperation.

The Parties will also negotiate and sign a Trade Facilitation Agreement which will provide for development and implementation of policies that promoted efficiency in the territories of the Parties through reduced transaction costs associated with the enforcement, regulation, and administration of trade policies.

The technical teams will further discuss and agree on the trade capacity building assistance, including identification and agreement of priority areas for support under the Trade and Investment Partnership. The EAC has identified the priority areas for the U.S support under the EAC-U.S Trade and Investment Partnership including the strengthening of region Integration by supporting EAC Partner States on

• Harmonizing customs regulations, improving customs inter-connectivity and harmonization of standards, 
• Development of  an efficient regional payment system, customs and  financial market integration 
• Establishment of an efficient regional infrastructure
• Promotion of technology transfer
• Development of capacity for trade and business development.

Through consultations the EAC will identify more priority areas for support under the EAC-U.S Trade and Investment Partnership. The negotiations may include development of a binding mechanism for delivery and implementation of the program under the capacity building support. 

The EAC Ministers acknowledged that the United States already provides substantial assistance to the EAC Partner States and the Secretariat, including an additional amount of up to $10 million (ten million United States Dollars) that the United States will provide over the next five years to the EAC Secretariat to support regional economic integration.

As the next step, the EAC Ministers and the USTR agreed to advance the EAC-U.S Trade and Investment Partnership within their respective administrations. They also agreed to hold their next Ministerial meeting on the margins of the 2013 AGOA Forum.

The EAC-U.S TIP negotiation process was initiated and announced by the EAC Ministers of Trade and the USTR at the AGOA Forum in Washington D.C. earlier this year. In the first Joint Statement released on 14^th June 2012, the EAC and U.S announced that the new EAC-U.S. Partnership will build on the foundations of the existing trade and investment relationship, including the African Growth and Opportunity Act (AGOA), and the U.S.-EAC Trade and Investment Framework Agreement (TIFA). In addition, the Statement indicates that the TIP will provide new business opportunities to U.S. and EAC firms by reducing trade barriers, improving the business environment, encouraging open investment regimes, and enhancing two-way trade. It is hoped that the EAC-U.S Trade and Investment Partnership arrangement will also serve as a building block towards a more comprehensive trade agreement over the long term.

The EAC-U.S. Trade and Investment Partnership is also an important component of the U.S. Strategy Toward Sub-Saharan Africa, which President Obama announced in June 2012. The Strategy outlines four main pillars which include.

1. Strengthening democratic institutions,
2. Promoting economic development,
3.  Ensuring regional security, and
4. Continuing to improve development assistance initiatives.

The strategy makes clear that the focus of Obama’s plan lies in the first two pillars.

Lesson on High Level Poverty Problems in Africa Vs the U.S. and China

I am sure you have been told that high poverty levels is one of the major problems in Africa. But hold your thought and may be assess it after you have read this post. Should the high level of poverty in Africa be a source of concern to the international community? Should we be worried about the poverty level based on the specific numbers or on the ratios? The total of all people in Uganda (34.5m, 2011) , Botswana (2.09m), Swaziland(1.38m), Namibia (2.16m) would be below the poverty line in America.  A report from Indiana University found out that increasing numbers of Americans are still below the poverty line. In 2006, it was 36.5 million people, by 2010, it was 46.2 million and a further increase was predicted for 2011, given the way the economic crisis has dragged on.

Interestingly all the above African countries are beneficiaries of the support to reduction of poverty from the U.S. in one way or another. One element that you may need to note is that a poor person in the United States is actually poor. In Uganda about 32% (about 11 million people) of the population leave below poverty line, i.e. they earn less than a dollar a day.  But come to think of it, all these people continue to live without external support. In other words, they earn just enough survive marginally. An American in the same position must get supported or he or she will starve. Could it be that the problems in Africa are not well analyzed or if they are, may be they construed to fit some interests?

So why do reach countries continue to support less developed countries on the fight against poverty in Africa when in their countries the situation is staggering also? China has over 100 million people living below the poverty line. Actually all the people in Uganda, Rwanda and Kenya would be below poverty line in China despite its emergence as the world's second largest economy. Yet China continues to pump money to African economies instead of concentrating on elevating its own people out of poverty. Of course the amount of money China is using in country to fight poverty is excessive but I am sure that if they diverted what they are spending in the continent, purportedly to solve problems in Africa, they would have everybody in china above the poverty line.

Could it be that developed countries continue to support Africa such that they too can keep their own poverty levels low? What i do not understand, is why a breadwinner of a household would donate food to a neighbor at the time when his or her own family is starving? Could this happen in a situation where it is also true that the continued survival of the house hold would be guaranteed, only and only, when the purported starving neighbor must also be given aid?   Could it be true that developed countries actually continue to support developing countries as a mechanism to reducing economic imbalances in their home countries?

If we do not consider ratios and instead use absolute numbers, do we come to a conclusion that poverty in Africa is higher than the level in other continents? If in country A there are more people who are actually poor but ratio wise they are fewer in comparison with country B, does that mean that A is better than B?

The other irony which still eludes my mind is the fact the gap between the poor and the rich in the developed countries is also staggeringly high. Again this is one of the reported problems in Africa. But according to a 2010 Federal Reserve Board report, the net worth for all United States households was $53.1trillion. The net worth of the poorest 60% of U.S. households was $1.26 trillion. The net worth for the Forbes 400 was $1.37 trillion.  Therefore, the richest 400 people in the United States have more wealth than the bottom 60%, nearly 160 million people (Forbes, 2010, September 22). But how is this being acceptable by America when in their drive to ensure good governance in the developing countries, this is one of their biggest concerns?

We in the developing countries what lessons do we learn from the above situation. Some school of economist believes that a country requires a middle class for it also to be a middle income country.   It is easier and cost effective to collect taxes from a few than it is from very many people. Fewer but rich can easily be mobilized to support a developmental goal of the country than when they are many. Resources are limited and if they are in the hands of the many they are scattered and will have minimal incidence to the economy and to the individuals owning them. For effective utilization of resources, they must be concentrated and specialized in the production process. For these reasons, a middle class is inevitable and will always be a small fraction of the population. 

Probably the U.S. is following up from the above arguments.  But in Africa the development of a middle class where the so rich are fewer is discouraged. The developed countries are at the helm of discouraging African from pursuing this line. Instead we are advised that in order to solve problems in Africa, we should ensure that everybody averagely wealthier. In other words scatter resources so that almost no one has the ability to form a global corporate company that can influence global market dynamics. Can Africa learn to learn from the development path of their colonial masters?