Business people and tax officials are questioning the rationale of the move by the Kenya Revenue Authority.
First, the cash bond â€” equivalent to the value of the imported merchandise â€” is too high for the average business people to raise, on top of paying for the goods and clearing import duties.
And secondly, the traders say the measure contravenes international business practice for goods in transit.
At a meeting last week, importers in Uganda resolved to hedge against Mombasa, first as a protest against the cash bonds, but also to start thinking of alternatives in case of unpredictable government policies, or in the event of electoral violence. Kenya goes to the polls in March next year.
Recently there have been violent ethnic clashes resulting in loss of lives and property in the country. If the violence continues into the election period, it could be catastrophic for Uganda.
â€œWe are opting for Dar es Salaam. We have asked our members to route their imports through Dar. Itâ€™s a longer route; itâ€™s a more costly alternative; but itâ€™s what we will resort to since governmentâ€™s diplomacy does not seem to be making headway. This is the best way to send a message of protest against Kenyaâ€™s policies. Besides, we have not forgotten what happened five years ago,â€ said Kampala City Traders Association spokesman Issa Sekitto, referring to the losses suffered by Ugandan importers during the post- election violence in Kenya in 2007-08.
It will cost importers approximately $1,000 more to transport a 40-foot container from Dar to Kampala, than the $3,800 they are paying from Mombasa to Kampala by road.
It was not possible to get an official response from KRA as the acting commissioner for customs Mercy Njuguna toldÂ The EastAfricanÂ that she was too busy to give an answer, while the entire marketing and public affairs department were reportedly out of the office.
Last year, KRA introduced the cash bonds to hedge against the possibility of dumping of sugar imports transiting through Mombasa to the hinterland, but the Ugandan tradersâ€™ lobby protested, and instead called for escort of the imports to their destination â€” a less costly alternative for importers.
The latest decision, reached on August 29, applies to sugar imports as well as other merchandise, and cars with an engine capacity of 2000 cc or more.
It is understood that KRA suspects Uganda bound goods have often ended up on the Kenyan market â€” a scenario called â€œshort landingâ€, where importers deliver less or no cargo to the final destination. The cash bonds are meant to prevent this.
But the Ugandan business people argue that even if no dumping or short landing happens, and the money paid for the cash bonds is refundable, reclaiming it is an arduous process and a disguised non-tariff barrier which could cripple the Ugandan import sector.
â€œWe have learnt from the experience of the (2007-2008) post-election violence. Compensation is still dragging on five years later for the trucks that were set on fire and the merchandise that was destroyed. Now, as they are going into another election, this measure is resumed. Can one ascertain that money posted in cash bonds will be reclaimed sooner?â€ asked Mr Sekitto.
In March, Kenyan President Mwai Kibaki ordered his Minister of Finance to compensate 12 traders from Uganda and one from Rwanda for the losses they suffered during the post-election violence.
The trucks and goods destroyed were worth about $48 million. Six months later, they are yet to receive their compensation.
But in the long term, this looks like a matter that could hurt Kenya more. At least 85 per cent of Ugandaâ€™s imports come through Mombasa, not including the other hinterland countries that use the Northern Corridor that is fed by the same port to serve the markets in Rwanda, Burundi, South Sudan and Eastern Congo.
Should the Ugandan traders dump Mombasa for Dar es Salaam, the Kenyan tax body as well as the Kenya Ports Authority would lose a major source of revenue.
The other question is what Kenya stands to gain by disrupting the flow of trade. Already, fingers are being pointed at the Kenya Revenue Authority and the Kenya Ports Authority which are being accused of using their vantage points to bully the regionâ€™s lesser economies.
An even bigger issue is if this is line with in the spirit of the East African Community to which Kenya, Uganda, Rwanda and Burundi belong.
All these markets, as well as the northern part of Tanzania, use the Mombasa port and the northern corridor. Leaders of the regional bloc have made repeated calls to do away with non-tariff barriers.
Insisting that the imposition of cash bonds is a matter for which the Kenyan tax body is solely answerable, KPA spokesman Bernard Osero toldÂ The EastAfricanÂ that the issue â€œhad been discussed with all stakeholders including a representative of Ugandan importers in Mombasaâ€, but a resolution was not reached.
Even as they plot their alternative, the traders want intervention at a bilateral level between the ministries of Trade, Finance, EAC and Foreign Affairs of Kenya and Uganda, and if need be, the entire EAC region to get involved.