NAIROBI: Kenya risks killing its own industries through an agreement entered with the European Union (EU), a UN agency has warned.
The Economic Commission for Africa (ECA) has warned that the Economic Partnership Agreement (EPA) entered in October 2014 with the East African countries opens up the local market to competition from European products. “This deal might adversely affect Kenyan industries, however, through increased competition from the European Union,” reads the caution contained in a report compiled by the ECA.
Kenya was forced to sign into the agreement after intense negotiation with its neighbours on what actual benefits it would have, when weighed against costs, which include dumping. Kenya is among 11 countries whose individual profiles were studied and compiled by the UN, and unveiled in the African Development Week, an ongoing conference in Addis Ababa.
Under the agreement, Kenya and the other regional countries have enjoyed quota-free and duty-free market access in Europe.
But in reciprocation, the EAC countries would gradually open up their markets to imports from the more developed nations within the European Union.
It is the fear that the agreement would promote low-value exports that ECA is raising in its warning. “In fact, tariff cuts may undermine structural transformation if they provide greater incentives to export primary products with low value added rather than more sophisticated products such as manufactured goods,” the report authored by Pedro Martins and a team of economists, for the UN, reads.
Kenya, unlike the other regional economies, is not ranked among the least development countries and its exports could therefore not qualify for preferential treatment in developed markets. President Uhuru Kenyatta reluctantly entered the agreement, after expressing his reservations about what the pact would mean for Kenyan firms and households.
“In our view, the approaching expiry of the market access deadline may not be the key issue,” President Kenyatta said months at the height of the negotiations with the EU. He castigated his European counterparts for pushing the region to enter the agreement, and at one time demanded that the negotiators from the EU be ‘flexible’ in their approach.
“What is of concern is how any new arrangement will guarantee market access in a sustainable and progressive manner,” he added, before softening to a last-minute change of mind.
WHY KENYA SIGNED
For a few days after the expiry of a previous agreement on October 1 2014, Kenyan flowers and other fresh produce were locked out of the European markets, to prompt the signing.
Exporters are thought to have lost more than Sh1 billion in that window that also saw heavy taxes slapped on Kenyan produce entering the EU. At the heart of the discontent in the run-up to the deal, Kenya had been clear about export taxes on its produce, which the EU was against – claiming it was distorting trade and prices.
Then Foreign Affairs Permanent Secretary Karanja Kibicho said the East African bloc, whose team of negotiators he was leading, would remain firm on ‘taxes on exports’. Kenya, for instance, levies heavy export taxes on hides and skins, as a way of promoting the development of the leather industry at home.
Such taxes are however considered as tariff barriers by the developed nations, which are the biggest beneficiaries of cheap exports of raw materials – owing to their level of industrialisation. ECA has also reported that the Africa Growth and Opportunity Act that was extended last year till 2025 has helped to boost exports of apparel and clothing from Kenya to US.