Why an open Chinese market not a ticket to success for local firms

When President Uhuru Kenyatta went to Shanghai for the China International Import Expo recently, he knew well that his wish of having China open its market to Kenyan exports was a wild one.

The lucrative 1.4 billion Chinese market is not really up for grabs by every other exporter, at least of all exporters of such produce as tea and coffee and manufactured goods that China also produces.  

Lately, Government officials have taken to whining about the widening trade imbalance between China and Kenya, arguing that the world’s second-largest economy has to return the favour by buying from the country.

China, aptly described as the factory of the world, has been lambasted for flooding every market, including the US with cheap products at the expense of budding local industries.

From the manufacture of plastics in the sprawling Industrial Area to jua kali artisans around Kamukunji, Nairobi, the voices of dissent against Sino-invasion have never been louder.

Fearing that the resistance might build up to a breaking point, China quickly organised an import expo aimed at offering developing countries preferential terms when accessing its market.

It will take long for countries like Kenya to start seeing the gains.

However, the two countries last week signed a Memorandum of Understating (MOU) on Sanitary and Phytosanitary (SPS) measures.

The MoU signed between the Ministry of Agriculture, Livestock and Fisheries and The General Administration of Customs of the People’s Republic of China is expected to pave way for market access for Kenyan agricultural products into the Chinese market.

 Some of the products that Kenya intends to export to China under this agreement include fruits, nuts, avocados, legumes, flowers, vegetables, stevia, meat, leather and leather products, among others.

“The signing of the SPS MOU is an outcome of the strong political message on strengthening bilateral trade relations between the two countries following the direct engagements of Mr Kenyatta and Xi Jinping, President of the People’s Republic of China at the sidelines of the ongoing China International Import Exhibition,” read a statement from the State Department for Trade.

But it is not going to be a smooth-sail.  The challenges that have made Kenya’s entry into the Chinese market hard to crack have not gone away.

“Kenya exports little to China because it is an oil importer and relatively resource-scarce. With fewer natural resources, Kenya has been unable to take advantage of the commodity boom from China’s growth,” said a World Bank paper, titled; Deal or No Deal: Strictly Business for China in Kenya?

“What’s more, the growth does nothing for Kenya’s agricultural sector because it lacks a comparative advantage in China’s main food imports (wheat, corn, beef, soybeans), making it difficult for Kenya to increase its exports of agricultural products,” added the report done by Apurva Sanghi and Dylan Johnson.

Moreover, as a report by management firm McKinsey noted that it is a lack of tact on African leaders that has led to the skewed relationship with most African countries.

China has expressed interest in cultivating more balanced partnerships with African countries, with the view that more strategic direction from “African countries, backed by stronger African governance, is in the interests of the long-term sustainability of the Africa-China relationship.

The 2017 report quoted a Chinese diplomat saying: “We have been clear on how we’d like to see our relationships in Africa evolve. What would be tremendously helpful for us is if we could get that same level of clarity from our African counterparts.”

 The American firm noted that the most important step African governments could take is to simply define what they want from the Africa-China relationship and to draw up some simple steps for getting there.

“Eighty per cent of the African leaders we surveyed said that their organisations currently lack a China strategy,” read the report themed, Dance of the Lions and Dragons.

This is evident even from President Uhuru Kenyatta’s recent ping-pong on fish imports from China.

The President had earlier asked Trade officials to find a way of barring Chinese imports including fish, only for him to state he had been misquoted. Lack of tact has meant that Kenya has continued to not just import more from China, but also incur huge debts from the Asian economy.

In 2016, for example, while Kenya shipped out animal hides to China and India valued at Sh2 billion, it imported from the two Asian countries finished leather products, such as those being sold expensively at the House of Leather at a cost of Sh3.1 billion.

This as Kenya also exported tanned leather and animal skins valued at Sh4.7 billion, compared to imports of leather products valued at more than Sh12 billion, including trunks and cases worth Sh8.8 billion from China.

The case of Kenya exporting jobs even as a large fraction of its population remains jobless is not unique to the leather industry, though it has been more emotive in the latter.

The country has spurned an opportunity to revamp its manufacturing industry through value-addition in some of its agricultural produce such as tea, coffee, fish or even tomatoes.

This situation has seen the manufacturing sector stagnate at 10 per cent of gross domestic product for more than a decade.

When Zhou Yuxiao, a Sino-African relations envoy visited Kenya last month, he defended the trade imbalance, noting that at this juncture it was “unavoidable.”

He said that in the first phase of industrialisation where Kenya is, the country will have no choice but to import investments, technology and equipment. “So at this period, you might suffer trade imbalance,” said Zhou.