Why Kenya is unable to exploit Agoa deal

By Luke Anami

Nine years since the Africa Growth and Opportunity Act (Agoa) was enacted, Kenya is yet to fully benefit from the legislation.

Although the country’s slow pace of economic reforms and growth are largely to blame, US stringent import policies have also undermined the benefits.

The Ministry of Trade says Kenya’s volume of exports to the US have been minimal. For instance, in 2006, export to the US amounted to Sh21 billion and Sh19.3 billion in 2007 against imports of Sh24.7 billion in 2006 and Sh44.5 billion in 2007.

The slow pace of economic growth has denied Kenya the ability to benefit from Agoa.

"Lack of proper information, as well as the negative image of our continent, African economies are yet to attract a fair share of global capital inflows," said President Kibaki during the Second East African Investment Conference held in Nairobi last week.

"Currently the African continent is able to attract only three per cent of total global capital inflows."

The President, however, pointed out that the image of Africa that focuses on strife, war and starvation is no longer tenable.

Reform measures

"On the contrary, the implementation of a wide range of reform measures has not only improved the trade and investment environment in Africa, but has also resulted in improved economic performance," President Kibaki said.

At the advent of major economic reforms in 2002, it was acknowledged that rapid economic growth would be achieved through job creation, increased productivity in agriculture, widespread rural non-farm activities, a dynamic informal sector and a vibrant manufacturing sector.

These were expected to have widespread impact on economies.

Despite these attempts, achievement of sustainable economic growth continues to be elusive. Growth has stagnated and employment opportunities decreased.

Manufacturing has not emerged as the leading sector as envisaged in the various development strategies. It has over time developed into an inefficient and uncompetitive sector dominated by traditional, light and low technology industries, which relied on imported intermediate inputs.

"Kenya’s production costs are high, making manufacturing processes expensive and therefore uncompetitive in the long run," Mr Vimal Shah, the Kenya Association of Manufacturers said during the investment conference.

"Labour, power and infrastructural costs are still very high. These are the things that need to be urgently addressed. "

The sector has, therefore, not created strong domestic linkages, and has remained predominantly an enclave sector, which has lacked dynamic deepening effects on the economy.

Sectoral emphasis has been on agriculture and manufacturing, but both have underperformed therefore failing to play significant roles in economic growth. The slow growth could be explained by low investment and high population growth rates. Further, the country’s sectors are not competitive.

Lack of competitiveness is mainly attributed to supply constraints such as poor transport and communication, high utility costs, lack of skilled labour force, governance bureaucracies, corruption and bad governance.

Supply contracts

The textile industry is one of the leading players in the Agoa arena, with firms located in the export processing zones having supply contracts with US buyers.

However, lack of adequate cotton, poor infrastructural facilities and high cost of electricity make textiles from Africa less competitive, compared to those from China and India.

While the Government is making efforts to revive the cotton industry, progress has been slow and frustrating. A large bulk of lint used by textile firms within export processing zones is imported from neighbouring countries at great cost.

"Even though there has been hope that transition into use of locally produced fabric would reduce reliance on imported fabric, the uncompetitive nature of African manufactured fabrics compared to well established textile firms from Asia, principally China, makes it expensive to manufacture our own fabrics," Mr Joseph Kosure, Export Processing Zones Authority acting chief executive said. Enhanced market access to the US — a key feature of Agoa — remains a "critical component" for Africa's long-term economic growth and development, says long-time Africa trade facilitator and attorney Anthony Carroll.

Market access

"In the nine years since Agoa's enactment, it has been determined that "market access is not enough," Carroll, a member of the Corporate Council on Africa and Vice-President of Manchester Trade Ltd, a Washington-based consulting firm specializing in international trade and investment said.

While most of the 6,500 product lines that Kenya is allowed to export to the US under the facility are agricultural, industry players complain that the US Department of Agriculture (USDA) clearance procedure remains grindingly slow. According an industry lobby, Fresh Produce Exporters Association of Kenya, USDA still clears fresh produce on a case-by-case basis, a claim that may be vindicated by the fact that only 20 items from Kenya are exported to the largest market almost a decade since the preferential trade instrument was launched by former US President Bill Clinton.

In March this year, USDA launched COOL, a traceability guideline requiring that selected products entering US should bear package labels specifying their country of origin.