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An analysis of Kenya’s trade and economic profile

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An analysis of Kenya’s trade and economic profile

An analysis of Kenya’s trade and economic profile

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The objective of this paper is to firstly set the background for a discussion and analysis of Kenya and its merchandise trading background before presenting a more detailed analysis of this trade and possible implications for Kenya of wider trade and economic integration. Kenya is different from most medium to larger African economies in that it has significant intra-African trade and, conversely, while China is growing as an import source, China does not figure as an export destination.

Kenya’s exports to the rest of the world grew on average by 13% on a year-to-year basis, from $1.8 billion in 2001 to $6.1 billion in 2014. Traditionally, Kenya mainly exports to the European Union (EU), although its 25% share of exports during 2014 declined from 43.8% in 2001. The majority of Kenya’s top 20 exported products primarily featured agricultural and related products (38% of the total). Kenya’s imports from the rest of the world grew at an average year-on-year rate of 17%, from $2.8 billion in 2001 to $19.7 billion in 2014. While imports from its traditional partners (the EU and the US) increased over the period, their shares in Kenya’s imports from the world decreased. Meanwhile, imports from China increased rapidly to register as the biggest import source in 2014.  Petroleum is the largest single import.

The main trading partners in the Tripartite Free Trade Agreement (TFTA) were South Africa, Tanzania, Uganda, Egypt and Rwanda, who collectively supplied 91.12% of the total import values from TFTA in 2014, with South Africa and Tanzania collectively providing 60%. Some 45% of Kenya’s global exports were destined for its TFTA counterparts, with Zambia as the largest export destination. The top three products exported to TFTA were petroleum oils, tea and silicates.

The paper reports on intra-Regional Economic Communities (REC) trading in East Africa and how this is confused by the overlapping membership issue. Within the East African Community (EAC) Kenya is the largest intra-EAC exporter with a share that varies around one-half while Uganda, Rwanda and Tanzania have similar shares of around 15% to 20%. For intra-EAC imports, Uganda, Tanzania, Rwanda and Kenya are all importing around half a billion dollars locally and only Burundi is lagging. By percentage shares of individual imports, Burundi and Rwanda are sourcing around one-quarter locally while Tanzania and Kenya in particular are importing only very modestly from the region. Within the EAC only Tanzania’s intra-EAC exports stay the same if we assume that Kenya, Uganda, Rwanda and Burundi would be able to trade under Common Market for Eastern and Southern Africa (COMESA) and/or Southern African Development Community (SADC) preferences. An annex is provided with details of this intra-EAC trade.

The paper reports on tralac computer simulation work on African trade liberalisation and reforms. The results for tariff elimination on intra-African trade are promising, but the real news is in confirming that these barriers are not as significant as the various trade-related barriers outside of tariffs. Especially impressive results were forecast by simulating a modest 20% reduction in the costs associated with the particular African problem of transit-time delays at customs, terminals and internal land transportation. These gains are significantly above both just intra-African tariff elimination and what may be thought of as the more traditional non-tariff barriers (NTBs). The overall results from time in transit costs especially support the current emphasis on projects such as the WTO infrastructural supports to Africa. The policy implications are clear: while cooperation will enhance the gains, much of the benefits will result from unilateral actions and regional cooperation that would not need the long and drawn-out processes associated with FTA negotiations.

Kenya has much to gain from all three areas of intra-African tariff elimination and reductions in NTBs along with reductions in the time of goods in transit. Importantly, many of these gains can be realised by Kenya through unilateral action that does not require negotiations with partners. Most of Kenya’s gains from tariff elimination across Africa result from gains in the Kenyan sugar sector. This is because tariff elimination forces a reduction in the inefficient sugar sector resulting in resources being used elsewhere in the economy and leading to cheaper sugar for consumers. This result from the sugar sector is not unexpected, as Kenya’s sugar industry has long been highly protected; the paper examines the sector in detail. There are, however, significant tariff losses to both Kenya and Tanzania from trade liberalisation within Africa.

Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.


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