NAIROBI: Trade relations between Kenya and China have been skewed in favour of the Asian nation, a new report has shown.
A policy research working paper by the World Bank Group paints a picture of an imbalanced exchange in which China tends to get the upper hand.
The Chinese have a huge presence in Kenya (and Africa at large), especially in infrastructure and construction. But Chinese firms have not invested in Kenya, the World Bank said.
This means they lag behind companies from traditional trading partners, such as the United Kingdom, in terms of foreign direct investment (FDI) stock. This situation is not unique to Kenya; it is seen across sub-Saharan Africa.
Kenya’s exports to China have also been dismal. The research paper, titled Deal or No Deal: Strictly Business for China in Kenya?, attributed this to the fact that Kenya is not a commodity-driven economy like its sub-Saharan Africa peers.
And while China is currently Kenya’s largest trading partner, Chinese imports far exceed what Kenya sells to the world’s second-largest economy. Imports from China have dramatically increased from 12 per cent in 2012 to 23 per cent in 2014.
Further, according to the report, “many imports from the UAE [United Arab Emirates] are re-exported manufactured products, such as phones, computer monitors or jewellery, originally from China or India.”
And while China — which has a lucrative market with its more than one billion people — is Kenya’s biggest import market, it is not among the top 10 export destinations, which include the European Union, Uganda, the United States and Tanzania.
Kenya sends only 1 per cent of its exports to China, which include raw hides and skins, scrap metal, coffee and tea. And because Kenya’s agricultural sector lacks competitive advantage in China’s main food market, it has been difficult to increase sales of more local produce.
The report says that even more telling is the fact that Kenya exports less to China than to economies of a similar size. For every $100 (Sh10,170) Kenya exports to an economy similar to the Asian nation’s, it only exports $82 (Sh8,340) to China.
Kenya’s exports, however, are affected by distance, which is why it exports more to its East African neighbours than to China, which is 9,201 kilometres away. Unfortunately, the nearest markets are not always the most lucrative.
Kenyan consumers have also benefitted from cheap Chinese products that have flooded the local market. From 2012 to 2014, the World Bank researchers found, consumers enjoyed a 10 per cent dip in unit prices on manufactured goods, and a 7 per cent lower unit price on chemicals.
However, there are concerns that local producers might be losing out, and by extension, the country’s industrialisation efforts could be scuttled.
“Indeed, there are already fears that Chinese imports could lead to de-industrialisation,” said the World Bank. Without industrialisation, the manufacturing industry, whose growth has been unimpressive in recent years, could be hit further.
“Many suspect a premature decline of industry because manufacturing growth was only 3.4 per cent in 2014, down from 5.6 per cent in 2013,” said the report.
Kenya’s manufacturing is at 10 per cent of gross domestic product, half the 20 per cent the country needs to turn Vision 2030 into reality.
Chinese imports have already hurt textile and clothing production, a sector that provides 20 per cent of all formal manufacturing employment in Kenya. According to the report, 60 per cent of second-hand clothes and shoes are from China and Hong Kong.
Steel manufacturers have also complained of being forced out of business by cheap steel from China. Other Chinese exports to Kenya include rubber and plastics, products that Kenya produces.
The report adds that although Chinese contractors employ a local workforce as high as 70 per cent, they have not done a good job in knowledge transfer, offering only “basic skills, safety and hygiene training”.
But the World Bank acknowledges Chinese companies have offered “critical financing in sectors that traditional investors overlook”, such construction and infrastructure, avoided for being corruption prone.
The report, however, says most Chinese companies cite corruption as the main obstacle to doing business in Kenya.