Kenya and the US formally launched negotiations on July 8, 2020 to seal a Free Trade Agreement (FTA). It will be the first of its kind in sub-Saharan Africa. It is expected that this deal will form a model for other African countries upon the expiry of the African Growth and Opportunities Act (Agoa) in 2025.
Free trade policies in general provide for free movement of goods and services between countries. This approach is based on the argument that enhanced trade increases wealth and is therefore a good thing for both Kenya and the US.
In order to understand and appreciate how the country could benefit from such an agreement, it is important to first understand the genesis and context that has informed Kenya’s decision to proceed with the FTA.
First, the numbers. Total exports to the US from Kenya in 2019 were valued at $667 million where nearly 70 per cent ($453.73 million) were apparel items. Other goods exported included edible fruit and nuts valued at $74 million; coffee, tea and spices (coffee, $50 million); and special other (returns) ($55 million). This made Kenya the number one apparel exporter in sub-Saharan Africa to the US.
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Although Kenya may not feature as one of the top 10 importers for the US market, the textile and apparel industry has the potential to alleviate the unemployment crisis in the country.
According to a 2018 study by Kenya Association of Manufacturers and Kenya Business Guide, EPZ-based manufacturers employ 52,000 people. The local sector directly employs about 21,000 people in formal sector and over 30,000 informally. The two sub-sectors cumulatively employ over 200,000 indirectly. Further, 40,000 cotton farmers are currently engaged.
During these discussions, reference has been made to the Agoa. Many feel that as opposed to negotiating an FTA, Kenya should instead join forces with other countries and negotiate for an extension of terms.
Currently, Agoa gives 39 sub-Saharan African countries duty-free access to the American market. However, since the Aooa came into place, more sub-Saharan exports have headed to the EU, China and India than to America.
Moreover, while negotiating as a bloc has a host of advantages, it also has its own complexities and disadvantages. For instance, while the EAC agreed to push for changes to the Agoa agreement in 2015, a number of EAC states - Rwanda, Tanzania and Uganda - employed tactics to delay the US talks.
Another case in point is when some EAC member states were unwilling to first sign the Economic Partnership Agreement (EPA) with the EU. Kenya signed and ratified the EPA, which guarantees duty-free and quota-free access of EAC products to the EU market in October 2016, after nine years of negotiations.
As a result of the delay, Kenyan horticulture, which accounts for about 20 per cent of the country’s exports to the European market, was the hardest hit by the delay in signing the EPA.
While taking note of the opportunities arising and the justification offered for Kenya’s decision to go it alone, there have been valid concerns raised from different quotas with some calling for a halt in negotiations and for a more protectionist approach.
On the other hand, the onus lies on the citizenry and to private sector to organise and acquaint themselves with the discussions and take advantage of the public participation opportunities to ensure that appropriate safeguards are in place to protect MSMEs especially. For instance, vigilance is needed to ensure that the policies such as “Buy Kenya, Build Kenya” affirmative action provisions in the Local Content and Public Procurement and Asset Disposal law are not undone by the proposed FTA.
In this regard, and cognisant of the critical role that the private sector plays in trade and investment, Kepsa has constituted a consortium dubbed the Kenya Private Sector Consortium/Working Group. Its purpose is to bring together industry and business member organisations to galvanise and focus local private sector input into the process, ensuring that is truly representative and meaningful.
At the end of the day, what would be most beneficial to both countries is an FTA that is coherent in policy for development; inclusive, adaptive and reflective of the socio-economic differences of their people; socially, economically and environmentally impactful and takes cognisance and is respectful of regional integration goals, strategies, national constitutions and all international and regional agreements and instruments.
Ms Karuga is CEO, Kenya Private Sector Alliance