Kenya’s Trade Deals must be coherent and Underpinned on SMEs

Global realignments of world powers have necessitated re-evaluation of trade agreements with their strategic partners across board especially in emerging markets. Kenya finds itself in the eye of a storm compelled to have trade conversations with China, United States, United Kingdom, European Union all of whom are better leveraged due to bigger markets and stronger economies.

Any trade conversation between a larger economy and a small one is bound to be asymmetrical and skewed towards the bigger economy and this is precisely where Kenya finds itself.

Kenya’s export to the developed economies has largely been agricultural and horticultural products such as tree nuts, cocoa, tea, coffee under AGOA to the US market with little to no high value products.

Recent announcement for bi-lateral trade negotiations between Kenya and US as well as Kenya and UK have been welcomed but its clear the objective for the developed parties is geopolitics as well as providing markets for their industries and not necessarily to empower Kenya as such.

Kenyan policy makers must adopt a comprehensive strategy by taking complete stock of products and services offered by SMEs who are the backbone of the economy and matching it to global markets starting with Africa.

This approach would mean that Kenya must seek agreements that are not only sustainable in the long run but also valuable to Kenyan SMEs. For example, AGOA expires in 2025 and Kenya’s is not sure of the US congress will renew it hence the need to fastrack bi lateral agreement with the US as a risk mitigation measure against textile and apparel as well as part of the agricultural sector that stands to bear the greatest loss.

Kenya in its solitary bilateral trade pursuits with developed nations may gain in the short term by saving a few low value industries but risks long term sustainable value of SMEs that would have been generated from synergies under the continental free trade area despite implementation challenges.

Ironically the biggest risk Kenya faces is not the inability to access EU, US or UK markets but the generation of a larger percentage of revenue through export from a few players as well as lack of value addition of Kenyan raw materials leading to sub optimal value generation.

For example, Kenya’s coconut export in 2018 stood at slightly over 4 Million USD which was counterbalanced with coconut product imports largely from India of 8 Million USD leading to a net import of 4 Million USD

Due to power dynamics, Kenya stands a better chance of getting a better deal negotiating with the EU,US,UK among other developed countries under the umbrella of the Africa continental Free trade area in the long run due to economies of scale although it runs the risk of loosing market for its current low value products in the short term.

To manage the short-term risk Kenya must map redundant market for its products under AGOA and other similar agreements but most importantly Kenya must build its capabilities to add value to its products by attracting the right mix of strategic investments into these high growth value chains that match global demand in world markets.

https://viffaconsult.co.ke/kenyas-trade-deals-must-be-coherent-and-underpinned-on-smes/