ECONOMIC DIPLOMACY

Why Kenya-Uganda trade pact on SGR is raw and dumb deal

One disgusted mzee in a social club describe the agreement as an “Abunuasi deal”

In Summary

• Uganda will freely export milk, chicken and eggs, and increase its sugar exports from 36,000 to 90,000 tonnes annually.

• It makes economic commonsense for Kenya to delay Uganda’s connection to SGR for at least 20 years as it develops itself as the BRI’s Eastern Africa manufacturing hub.

President Uhuru Kenyatta and Ugandan President Yoweri Museveni greet Kenya Ports Authority staff when they toured the Port of Mombasa.
President Uhuru Kenyatta and Ugandan President Yoweri Museveni greet Kenya Ports Authority staff when they toured the Port of Mombasa.
Image: PSCU

Last week President Uhuru Kenyatta and his Ugandan counterpart Yoweri Museveni struck a wide-ranging trade agreement.

The deal basically removes existing trade barriers and commits Uganda to Kenya’s component of the SGR under the Chinese Belt and Road Initiative.

Uganda will freely export milk, chicken and eggs, and increase its sugar exports from 36,000 to 90,000 tonnes annually.

In addition, Uganda will get land in Naivasha to develop a dry port for its cargo. On its part, it committed to link its SGR component to Kenya’s to increase the viability of this massive infrastructure project.

Since the political class is either too pre-occupied or compromised by the politics of 2022 and the handshake to care about matters of national interest, ordinary Kenyans should be applauded for questioning whether the President and his aides have struck a fair deal for the country.

Whereas Uganda will get tangible returns from this deal, many Kenyans on social media and social places are understandably at a loss what benefit Kenya stands to get.

Last weekend I heard one disgusted mzee in a social club describe the agreement as an “Abunuasi deal” but I am contented to call it a raw deal.

Before I explain that, it is important to understand the three features or circumstances under which such a deal is made.

First is the conflict of interest, which compromises the ability and capacity of a dealmaker to strike the best agreement for a client or principal. Second, is the competence of the negotiator particularly a misunderstanding of the adversary’s position and strategic interests. Third is the eagerness to strike a deal borne of insufficient appreciation of your own strength and leverage in the negotiation.

Based on available information. it is not easy to tell which of these factors were at play during Uhuru-Museveni talks. To my mind, there are five reasons why Kenya got itself a raw deal.

One Uganda is a landlocked country whose main cities, towns and the majority of its population must easily, effectively and affordably access the sea through the port of Mombasa precisely because they are located or live within 300km from the Kenya–Uganda border. In short, it is in Uganda’s strategic interest and economic necessity to access the sea and the port of Mombasa has no real competition whatsoever on this score. It is, therefore, dumb in my view to strike a deal with Uganda under the delusion that Kampala has a choice to connect its SGR to the port of Dar es Salaam or Tanga.

FUNDING SGR TO KISUMU

SGR illustrated
SGR illustrated
Image: LUCY SWAN

The second reason concerns the rationale of Kenya breaking its Treasury to extend the SGR to Kisumu and Malaba. Uganda is already transporting its goods to and from Mombasa by road and the existing railway. But for it to attract significant manufacturing investors, it needs the SGR connection to Mombasa. Kenya is assured of this advantage by simply extending the SGR to Naivasha and extending it to Malaba. Kenya will actually eliminate this comparative advantage over landlocked Uganda as the region’s manufacturing hub.

To put it bluntly, it makes economic commonsense for Kenya to delay Uganda’s connection to SGR for at least 20 years as it develops itself as the BRI’s Eastern Africa manufacturing hub.

Third, the main value of international trade deals is to enhance manufacturing and agricultural production and service provision by your people. By all yardsticks whilst Uganda got a juicy deal for its farmers and manufacturers, Kenya only got a psychological dividend that Kampala will continue to use the port of Mombasa as though it had any choice.

The little detail about Kenya’s beef exports accessing Ugandan Market is a false prospectus. I am personally aware that over the last three years, the major beef suppliers in Nakuru, Kiambu and Nairobi counties have been importing Ugandan beef cattle on a massive scale. Ugandan negotiators may have tricked their Kenyan counterparts that Kenyan beef will now be exported to Uganda when the converse is the case.

INFERIORITY COMPLEX

Fourth it is about time Kenya stopped entering into deals with an inferiority complex. For starters, Kenya is the largest market for industrial and agricultural goods in East and Central Africa courtesy of the higher purchasing power of its people.

The bulk of Kenyan exports to Uganda, for instance, are not manufactured here but re-exports such as fuel, cement and palm oil. Uganda’s main exports to Kenya are agricultural goods grown or manufactured in Uganda. Uganda needs the Kenyan market more than we need theirs. In fact, Kenya’s need for the Ugandan market can be virtually eliminated if only the Jubilee government could return to Mwai Kibaki’s policies that helped to raise Kenyans’ income.

Finally, Kenya should wake up to the reality that its true regional rival is Ethiopia, not Djibouti or Tanzania. For heaven’s sake, spending a trillion shillings of expensive Chinese debt presumably to retain Mombasa Port’s regional status is a testament of lack of economic ambition and laziness. Kenya should not be competing with Djibouti and Tanzania to develop a port based or transit economy. We belong to the league of Ethiopia and South Africa and should be competing to become one of Africa’s industrial centres.

Ethiopia is a landlocked country but Sudan, Eritrea, Somalia, Djibouti and even Kenya are competing to offer their ports to them on the cheap simply because its leaders have the imagination and capacity to inspire their people to produce.

Truth be told. There is no serious country in the world that invests billions of dollars to develop infrastructure for the benefit of its neighbours. And so the main reason why the SGR should be extended beyond Naivasha is only that the infrastructure will serve Kenya and not merely to earn extra commissions for the port of Mombasa and the Kenya Railways.

Whatever happens, we need to remember Djibouti has no choice but to be a transit economy for the benefit of Ethiopia because it has no space, population and Singaporean imagination to make use of its port.

Our leaders should consider themselves embarrassing failures if they cannot put Mombasa and Lamu ports to optimal use without kneeling before our neighbours. In all fairness, our Cabinet must discard this Djibouti mindset as Kenya determines on the wisdom of extending SGR beyond Naivasha within the next 10 years.