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November 15, 2018

Unexploited trade opportunities for Kenya with US

President Uhuru Kenyatta meets US President Barack Obama during the late Nelson Mandela memorial service at FNB stadium in Johannesburg, South Africa.PHOTO/FILE
President Uhuru Kenyatta meets US President Barack Obama during the late Nelson Mandela memorial service at FNB stadium in Johannesburg, South Africa.PHOTO/FILE

Shortly after President Obama took over the leadership of the world’s superpower, the United States of America, I had the privilege of a casual chat with the then US Ambassador to Kenya, Ambassador Michael Ranneberger. The excitement about a US president with immediate Kenyan ancestry was not just culpable at the time, it was demonstrated through T-shirts and lesos proudly won in the streets.

As we chatted over the jubilant mood in the country, including a public holiday, he expressed one particular hope. His hope was that beyond the excitement and jubilation, the country would pursue the opportunities that come with such proximity to the world’s largest economy.

He was optimistic a window of opportunity for Kenya had just opened and if well pursued in tourism, export and foreign direct investment, would make a significant difference in Kenya.

As we look forward to the President Obama’s Nairobi visit to attend the Global Entrepreneurship Summit in July, a reflection on the US-Kenya trade relations will be a major focus for both governments. Although this will be his first visit to Kenya since he ascended to the presidency seven years ago, and one year to his final term, it will be his fourth visit to the country.

It will also be the first visit to Kenya by a sitting US President. According to his memoir, Dreams from My Father, President Obama’s first visited Kenya in 1987 in search of his roots and spent five weeks, touring Nairobi including Gikomba market, Kariokor and his father’s ancestral homes in Kogelo and Kendu Bay.

Perhaps no other president of the US has been this familiar with Kenya.

Several times President Obama has mentioned Kenya in his speeches, bringing Kenya constantly on the world map and a clear indication that he acknowledges and cares about his ancestry.

However, a look at trade levels during the seven years of Obama’s presidency show mixed results. Export to US stood at $343.5 million in 2008, a decrease from $353.7 million in 2006. The exports would also decline to $311.1 million by 2010 before picking up to $381.6 million and gradually increase to $565.8 million by 2014.

This shows an overall increase of 65 per cent in the six years, which although positive, can hardly be regarded as remarkable or significant. The exports comprised mainly of tea, coffee, apparel and pyrethrum. In the same period, Kenya’s imports from USA grew from $430.7 million to $635.7 million in 2013 and spiked to U$1600.1 million in 2014, an overall increase of almost three fold increase by 2014. The imports from USA were mainly aircrafts and spare parts, chemical products and fertilisers. This means trade has remained increasingly skewed in favour of the US with the trade deficit growing year after year.

Additionally, 2013 statistics show exports to US are about a third of the exports to the European Union and comes fourth place after Uganda and Tanzania. In terms of imports, US is eighth accounting for only 18 per cent of the main import partner India. Overall in 2013, US is the fifth largest trading partner after India, the European Union, China, and UA Emirates.

Regardless of the way we look at it, the expectations on the benefit accruing to Africa and in particular Kenya on account of the Obama’s presidency were perhaps over-ambitious if not a little bit misguided. Perhaps with the heightened political temperatures prevailing in the country during this period, Kenya did not succeed in building the capacity to seize the opportunity. Tourism in particular suffered, both after the post election period and lately because of the threat of terrorism.

Apart from tourism, the African Growth and Opportunity Act (AGOA) remains the most important avenue for increasing exports to the USA. This is the legislation that was signed in 2000 and gives tariff preference to exports from Sub-Saharan countries to USA for approximately 6,400 products. Almost 90 per cent of Kenya’s exports to US have benefited under AGOA comprising mainly textiles and apparels made under the well known export processing zones.

Other product lines are tea, coffee, and pyrethrum. In fact, after the coming of AGOA in 2000, exports to USA significantly increased from $110.2million in 2000 to $348 million in 2005. In the period, 2003 and 2004, trade was to the benefit of Kenya, with exports to US exceeding imports.

However, a declining trend is observed from 2007 which is attributed to the ending of Multi Fibre Arrangement in 2005, an agreement that restricted the volume of garments and textile imports to US from developing countries in favour of AGOA. Post the MFA, Kenya’s textiles and apparels could not compete with the low-wage countries of Asia and since then Kenya’s exports have been on the decline.

Regardless, significant opportunities under AGOA remained unexploited. Products under AGOA remained limited, with no specific focus on supporting the supply side. Potential to include flowers, pyrethrum, honey, handicrafts, leather and leather products has remained unexploited. Even the textile and apparel sector exports did not lead to the revival of the cotton industry, thus limiting the opportunity to create more jobs in this sector. Although AGOA did open up opportunities for Kenya, its impact was not as transformative as expected and the full potential of AGOA was hardly exploited.

That said, the current tenure of AGOA comes to an end in September, 2015, with the Obama Administration advocating for a 15-year extension.

All indications are that the extension will be forthcoming for the mutual benefit of Africa and US. It will both ensure US is not edged out of the continent by other partners especially China and India and also contribute to the economic growth, poverty reduction and job creation in Africa. This time round, there is need to position the country to better seize the opportunity. An AGOA centre and AGOA strategy is required to both diversify the products as well as ensure that the multiplier effect is felt especially by farmers and SMEs.

As we await Obama's visit, as Africa we look at the future knowing that the Africa of today is different from that of yesterday. Quoting from the Dreams from My Father, “it (is) that courage that Africa most desperately needs” has now turned to “African has the courage to rise”.

Karen Kandie is a financial & risk consultant with First Trident Capital and a PhD candidate in Ffnance at Catholic University of Eastern Africa. [email protected]

 

 

 

 

 

 

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