With the upcoming Global Entrepreneurship Summit co-hosted by Kenya and the US next week, focus is shifting to the future of US-Africa trade relations. It is expected that going forward, this collaboration will translate to business opportunities to benefit not only the US investors, but also the country. The attendance by President Obama underscores the importance of the event in the US calendar, and the growing excitement in the country is obvious.
Independent Kenya has enjoyed close ties with the US that have significantly contributed to economic development. Infact part of President Obama’s history is the late senior Obama's study in the US in the early 1960s as part of preparing Kenya’s post- independent leaders. As they say, the rest is history. Today, President Obama occupies a special place in Kenya as “our brother from another mother”, and his visit has understandably earned the homecoming tug.
That said, US relations with Kenya has over the years remained broad-based, ranging from fighting disease and improving healthcare, fighting poverty and promoting private-sector led prosperity, advancing democratic values and good governance, cooperation in fighting insecurity and terrorism and collaborating in fostering peace and stability in the region. In addition, the Peace Corps volunteer programmes and the missionary families serving in various parts of the country have positively impacted many lives.
More importantly is that the relations with US are not confined to assistance programmes, but extend to trade and investment thus creating job opportunities and growing the local economy. The US has maintained a healthy position five in terms of export destination for Kenya, mainly under the recently extended African Growth and Opportunity Act and position nine in terms of imports, according to recent statistics.
Inevitably, we cannot talk about Africa trade relations with the rest of the world without bringing China into the discussion. Officially, China surpassed the US as Africa’s largest trade partner right around the time of the financial crisis in 2009. Today, China forms the top two sources of imports to Kenya, although it is still a distant position 32 in terms of exports. Considering that the US economy is still twice as large as China’s, there is potential to significantly grow trade levels with the US.
Whether or not US or China leads in trade is of less significance to Kenya, because both play a role. Of importance is ensuring as a country we have negotiated deals that are a source of jobs and economic growth. Furthermore as custodians of our destiny, we have the responsibility to leverage current relations with both China and US to drive economic development beyond lower middle level status and reliance on basic agriculture.
Kenya, and Africa as a whole, has experienced unprecedented growth rates in the past decade and Africa is currently home to seven of the 10 fastest growing economies in the world. It is therefore attracting investment and trade interest world over, not just from the US and China. At a time when the global economy has stagnated, particularly after the global financial crisis, Africa has maintained healthy growth rates, often exceeding five per cent and well above the developing countries average. The increasing focus is on Africa as the next global growth frontier is real.
Locally, there are growing opportunities in Kenya in particular, both for its population and for interested foreign investors with a 5.4 per cent economic growth rate in 2014 and a rapidly expanding educated middle-class. The momentum for economic growth is expected to be sustained at above sic per cent in the medium term, with growth rates of six per cent in 2015. According to recent World Bank Group’s economic analysis this is expected to expand to 6.6 per cent in 2016 and 6.5 per cent in 2017.
The key drives for future growth are continued investment in infrastructure, improved business environment and stable macroeconomic environment, exports and regional integration. These key success pillars form the basis of opportunities for partnering with the US for mutual benefit.
Kenya and most of Africa has changed. Africa whose dominant basis of engagement with the West was a bowl in hand has matured into one that is keen to replace trade as the dominant basis of engagement.
Thankfully, the partnership with US has also shifted to trade, as long acknowledged by the coming of AGOA in 2000. The programme has recently been extended for a further 10 years with the purpose of stimulating exports to US, giving Kenya the opportunity to further grow its exports.
Further engagements with the US that would be beneficial to Kenya include:
Building on the current window of opportunity under AGOA to expand exports to the US. This may include expanding the exports under the already successful apparel sector and diversifying into new products. Building of exports is critically needed to balance the imports occasioned by infrastructure imports, one of the reasons for the decline of the shilling in the recent past. Besides, growing exports is one of the key pillars of creating jobs and growing the economy.
Attracting investment into supporting industries such as the cotton industry, fabric and accessories production. Currently value leakage continues in the apparel exported to US because most fabrics and accessories are imported. Investing in building local supporting industries would stem this leakage.
Building local capacity to understand and explore the dynamics of the US market. The decision to build a trade hub that can provide information, advisory services, risk mitigation and financing for Kenyan investors will be critical in increasing trade between the two countries.
More infrastructure investment is needed in power, roads, railway network and ports. The oil discoveries will also require substantial capital investment.
Security and the threat of terrorism remains the biggest barrier to economic development in Kenya. Terrorism in particular is a threat to the global economy and collaboration between countries is needed.
Finally, with a growing youthful population, the demand for quality higher education, particularly in development oriented courses such as engineering and other skills is critical. There is the opportunity to train the next generation of youth that will take this country to the next level of development.
Karen Kandie is a financial and risk consultant and a PhD student in finance at Catholic University of Eastern Africa