Kenya and the United Kingdom had an Economic Partnership Agreement (EPA) signed in December 2020 by their trade ministers, Betty Maina and Ranil Jayawardena, which went into effect on January 1 2021.
The UK has agreed to provide duty-free and quota-free access to goods from Kenya and in exchange, Kenya will gradually relieve tariffs, except on some sensitive goods. It is a consequence of Britain’s exit from the European Union and represents an opportunity for Kenya as it maintains market access for Kenya as the only non-least developed country LDC) in the East Africa Community (EAC). Kenya is now classified as a Lower-Middle Income Country by the World Bank and meanwhile, all other members of EAC will continue to benefit from duty-free quota-free access.
Kenya is the UK’s 73rd largest trading partner and total trade between the two was £1.4 billion in 2019. UK Revenue found that 2,502 VAT-registered British businesses exported goods to Kenya and around 433 imported goods from Kenya.
Top 5 UK goods exports to Kenya (in £ million): Vehicles other than railway or tramway stock(67) machinery and mechanical appliances (63), pharmaceutical products (27), electrical machinery and equipment (25), paper and paperboard (19).
Top 5 UK goods imports from Kenya (in £ million): Coffee, tea and spices – mostly black tea(121) edible vegetables – mostly green beans (79), live trees and plants – mostly cut flowers(54), machinery and mechanical appliances (21), preparations of veg, fruit or nuts (7). The UK also note that some Kenyan flowers sold to UK consumers may not be counted as they arrive via flower auctions in the Netherlands.
UK exports to Kenya will be reclassified from being EU-originating to UK-originating and UK goods transiting through the EU will lose this designation. UK companies also simply can’t label a product as being from the UK, it has to meet some composition criteria.
Goals: There will be more favourable trade treatment by the UK for Kenya exports over third countries. Kenya will promote UK private investments and already, the UK is the largest foreign investor in Kenya with over 220 British companies having an investment portfolio estimated at £2.7 billion (Shs 385 billion) and trade between the two countries at Shs 70-90 billion. The Ministry notes that Kenya has continuously enjoyed a favourable trade balance since 2016. The highest was Shs 8.6 billion in 2018 when the value of Kenya’s exports was Shs 40.2 billion, relative to imports valued at Shs 31.6 billion.
Expansion: The agreement can be reviewed every five years. If a country denounces the agreement, the effect will happen one year later. The agreement is open to all East Africa Community partner states and will be updated to reflect ascension when it is approved by other EAC countries. The UK includes Great Britain, Northern Island, Gibraltar, Channel Islands and the Isle of Man.
Wiggle Room: If a country has balance of payment difficulties, it may adopt some measures regarding the trade of goods in a non-discriminatory way and for a limited duration. Already the UK accepts that elimination of tariffs will be a challenge for Kenya.
Scope: The agreement does not cover taxes, security matters such as arms & wars, or other trade negotiations under the WTO.
Governance of the agreement will be by an EPA council (of Ministers), a committee of senior officials (of Permanent Secretaries), and a consultative committee (of the private sector & civil society).
Some sectors cited: Trade on fish (tuna, marine and inland), standards, sustainable agriculture, rural development. The UK will work to make Kenya goods more competitive including by training of staff. Also, a vessel monitoring system will be mandatory for sea-facing nations in the EAC.
The document is open for “public participation” and Kenya’s Parliament has now invited public views into the Economic Partnership Agreement between Kenya and the United Kingdom. Views are to be emailed to the Clerk at Parliament by February 11.
Today Barclays Africa economists gave their forecasts on Africa and specifically Kenya for the year 2017 at an event that featured several roundtables sessions.
Populism: During 2016 the world changed in terms of two surprising votes in the US and the UK that reflected an inward focus. The votes in those countries were driven by populations who felt that their politicians were not pushing their agendas on matters such as trade and immigration. Also while incomes of the rich & poor have been improving, those of the middle class have stayed stable or declined.
US President-elect Trump is expected to reduce the US corporate tax rate which may woo companies to bring back some of the $2 trillion profits sitting outside the US.
Banks are seen as making too much money and not playing their part in society – this has resulted in things like the interest rate cap law in Kenya.
Reaching Entrepreneurs: There are 40-50 million emerging SME’s in Africa but only 1/5 of them have access to capital, and this is because banks ask for collateral
Banks operate in cash driven economies and many entrepreneurs don’t want to share information. Banks also have to collect a lot of documentation that bothers customers.
Barclays is committed to making sure there’s no systemic risk from their exit from Africa, and that its customers will continue to get good service in all the 10 markets
Barclays has a platform called Rise with centers in London, New York, Cape Town, Mumbai, Tel Aviv where they partner with companies on ideas to be implemented.
Africa: The continent is now becoming a bit more fragile, and for the first time in a decade, Africa is going to grow at a slower pace than the global average 3.5% (but if you exclude South Africa and Nigeria), the growth is still above average for most
African countries have been spending much more than their revenue and the years of deficits have eroded Africas strong starting point. Going forward, African countries will face higher financing cost and lower capital inflows.
Brexit Impact: 45% of FDI into Africa comes from Europe and Kenya gets 23% from the UK. But the pound has continued to weaken since the vote and this will result in reduced global demand for African exports, less tourism from UK/EU, and reduced remittances from African migrants
Kenya: The shilling currency has been weakening at a lower rate than its peers. This could make exports expensive and widens the current account deficit. It’s possible that the Kenya shilling could depreciate to 110/$ over the next 12 months. This is mainly due to the expected dollar strength against all currencies. Kenya has strong exchange reserves and can tap an IMF precautionary fund to cushion shocks.
East Africa: Trade lags the rest of the world. Since East African borders “opened up” around 2010, Kenya’s exports to the EAC have only increased by 8% compared to 50% to the rest of the world.
Britain’s decision to exit the European Union (EU), as announced from the results of Thursday’s landmark “Brexit” referendum has been a hot topic around the world. 33.6 Million Britons flocked to the polling booths on Thursday with the ‘leave’ campaign marginally taking the victory with a 52%-48% vote. There is however a general consensus of uncertainty with what the UK’s (United Kingdom) decision holds for the future, with particular relevance to what it means for Kenya.
Britain is a key ally, as well as Kenya’s third largest export market with the value of exports at Sh40 Billion in 2015. The Central Bank of Kenya has already stated that it is ready to intervene and minimize disruption in money markets. Kunal Ajmera, COO of Grant Thornton Kenya provides an insight into how Britain’s decision to leave affects trade decisions and tourism in Kenya:
Britain was not just any member of the EU but also one of the largest contributors and it’s most prosperous. Depending on how things unfold in the coming years other members may also demand for a referendum and this would ultimately weaken the EU substantially.
The EU spends about 100 million euros per year on development co-operation in Kenya. With uncertainties over Europe due to Brexit we may see a reduced funding in coming years. We could see funding in key projects start to be cut.
Investors anywhere in the world hate uncertainty and anxiety. Brexit leaves many questions unanswered and it will can take more than a year to get some clarity. Until that happens global economy, money markets and stock exchange may go through volatility and general negativity as we are currently seeing happen.
It is highly likely that US Dollar($) will gain strength against major currencies in the world and GBP(£) will lose its value, the initial figures show that on the day of the results alone, the GBP slumped to a thirty year low, falling as much as 11% in the hours after the result. This therefore means that the Kenyan Shilling will be under increased pressure. It would be wise for businesses in Kenya to hedge against a future raise in dollar value.
The UK is Kenya’s largest tourist source market. At its peak Kenya received 198,000 tourists from UK in 2013. The tourist arrival numbers from the UK have only just started to increase in last few months after years of travel advisory and terror threats. However with GBP weakening due to Brexit, it will cost the British tourists more to travel to Kenya and we may see reduced number of arrivals from UK in near future.
Kenya exports a substantial number of products to the UK every year. The UK is the second largest export market for Kenya after Uganda. So far these exports were governed by EU trade laws. With UK exiting the EU, Kenya may need to re-negotiate the terms for export and this may take even a year resulting in to disruption and uncertainty.
In the immediate short term, the UK is bound to have slower economic growth or even recession due to the Brexit referendum. This will also affect how it trades with other countries in the world. Since the UK is one of Kenya’s biggest trading partner, businesses in Kenya that export to the UK are bound to be nervous and must prepare for slump in business.
However, Kunal offers consolation by highlighting the potential in this decision. He states, “It’s not all doom and gloom. Brexit also presents new set of opportunities. EU laws on import and export are some of the most stringent in the world especially with agriculture, dairy, and meat items. The UK can now decide its own rules for import and export, new products may become eligible. It is worth noting that Kenya’s largest export to UK is agriculture/horticulture products.”
For further insight into the Brexit developments and its implications keep following Grant Thornton Kenya on twitter and Facebook.
Yesterday there was a debate in Nairobi on the UK’s referendum on EU membership, on which there will be a vote in the UK (and Gibraltar) on June 23. Europe is the second largest destination for Kenya’s exports (after the rest of Africa) and the UK is second in Europe with about Kshs 40 billion of exports from Kenya, slightly behind Netherlands (a destination for flowers). Overall, the UK is the fourth largest destination of Kenya’s exports (after Uganda, Netherlands, the US), and it imports about the same amount from the UK (Kshs 42 billion).
The debate was sponsored by the St. Paul’s Property Trust and had Aly Khan Satchu (as the moderator), Graham Shaw (Brexiter) arguing for Britain to exit) and Chris Foot (Remainer) arguing for Britain to remain in the EU).
Reasons to BREXIT
If #BREXIT doesn’t happen now, Britain will beholden to unelected decision-makers in Brussels for the next 40 years. Other countries will soon have similar votes.
The (bureaucratic) EU has 5 laws on pillow cases, 109 on pillows, and 12,000 on milk.
Germany bailed out Greece, and the EU will soon have to bail it out again (Italy is also shaky)
EU laws limit Britain’s ability to get top talent (e.g from Kenya) as they have to give preference to the EU states.
Under the EU, the production of a country is controlled (they may have to destroy fishing boats, and Portugal’s wine industry was destroyed by the EU).
Britain will have to renegotiate trade deals with 28 (and maybe 32) countries, but probably has no interest in trading with 10 of them.
Brexit debate in Nairobi
Points against BREXIT
The great Winston Churchill wrote a book titled “Europe Unite”.
56% of Britain exports are to the EU, – don’t BREXIT.
The last time the UK thrived outside the EU, it had a protectionist market called the colonial empire.
There has not been much discussion about the positives of being in the EU – only the negatives – and that is not enough reason to leave.
Impact on Barclays Premier League (BPL)? : Arsene Wenger (Arsenal manager) asked Britain to stay in the EU (which is a huge global export, but how many in Europe watch the BPL ?).
The world is moving towards integration (e.g The East African Community).
The rise of nationalism in Europe is a concern.
Britain at 16%, is Europe’s biggest export market, ahead of the US (14%), and China (8%).
Also see this forum, with the (then) High Commissioner from Britain to Kenya in which he discussed the relationship between the two countries.
Last night had the Safaricom Power Hour Series, a talk session that featured the British High Commissioner, Dr Christian Turner. In a forum similar to Mindspeak, and other leadership series, he spoke freely on many subjects of his time as a political advisor (as an aide to prime ministers) and as a diplomat in the Middle East, Washington and Africa.
He also answered questions on issues such as the Mau Mau settlement, the UK Miraa ban, the Scottish referendum (later this year), and Britain’s acquiescence in the weapons of mass destruction /Iraq War (they knew what would happen in Iraq after the war but didn’t seem to have cautioned the US)
An aide has to be able to break down complex issues for his/her boss and present them in rapid short sessions (such as corridor walks, or car rides) and get them to make important decisions in those few minutes. To get to this position the aide has to first earn the trust of the boss.
A lot of what happens goes wrong in government are the result of mistakes (cock-ups), but the public likes to believe that these are due to conspiracies .. the reality is much harder to fathom (Westgate)
The importance of a leader surrounding himself/herself with/and enabling people with diverse views (avoid group think – or you end up with the WMD war)
Even in the age of twitter in which rapid opinions are formed and the added on pressure to look decisive, a leader should resist the temptation to look like they’re taking action – and sometime the best way is to go slow.
Also, avoid sweeping generalizations like the Arab Spring, and Africa Rising. He said each country in the Middle East had turbulence experienced that due to very different reasons.
There’s no East vs. West anymore. Britain did not lose ground to China in Kenya. He said China is investing in things that Britain does not like roads and some manufacturing – and that the balance of trade between Kenya and Britain is still almost even, while that with China is very skewed.
Meeting with eccentric leaders like Gaddafi who thought he was irresistible to women and Saleh (of Yemen) who boldly asked for guns (instead of capacity building assistance) from Britain.
Some people diss Britain as they drink Scotch whiskey, drive Land Rovers and watch Arsenal football.