Kenya-UK deal exposes African trade faultlines

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Jambo from east Africa, where a trade deal between Kenya and the UK has ruffled some feathers. Today’s main piece looks at why Kenya’s neighbours believe the deal undermines broader regional trade interests.

Tall Tales tells us not to panic about a collapse in world trade following the Suez Canal incident — it will survive this just like it has survived everything else thrown at it.

The consequences of Kenya going it alone

Last week, Kenya and the UK ratified an agreement signed in December — one among over a dozen deals inked during the transition period to Brexit. Kenya, for its part, signed it to ensure continued preferential trade terms for its tea, cut flowers and fresh vegetables with one of its biggest trading partners after Britain left the EU two months ago.

“Given that over 40 per cent of Kenya’s vegetables are exported to Britain — and around 40 per cent of our tea is from Kenya — this agreement supports jobs and economic development in Kenya, and provides opportunities to grow trade between Britain and Kenya further,” the UK’s trade minister Ranil Jayawardena told the Financial Times.

The value of annual trade between both countries is estimated at between Ks70bn and Ks90bn annually, Kenyan officials said, adding that their country has a “large unexploited export potential” estimated at over Ks1tn “which Kenya stands to lose” without the said agreement. The latest IMF data, for the year to December 2020, show the relationship is worth $755m, or Ks82.7bn, with the majority — $418bn — made up of exports to the UK.

Yet, there is a concern that African countries like Kenya in the East African Community (EAC) — and Ghana and Ivory Coast in the Economic Community of West African States (Ecowas) — are being prised away to sign bilateral trade deals instead of regional ones, angering others that blame them for going solo. This, critics say, could undermine not only African regional blocs, but also even the bargaining power of the nascent 54-member African Continental Free Trade Area (AfCFTA), as a united gateway to the continent.

This is because Kenya becomes an entry point for UK goods into Africa, as many goods can cross into east Africa free of tariffs, thereby weakening the hands of the AfCFTA if it were to ever bargain with the UK as a union of countries. Then, there is the EAC, which “is mired in trade tensions” between members — Uganda, Tanzania, Rwanda, Burundi and South Sudan — , explained Africa Kiiza, a trade analyst at the Southern and Eastern Africa Trade Information and Negotiations Institute in Kampala. “Uganda has been having sugar wars, milk wars, maize wars, chicken and egg wars with Kenya, with Kenya blocking sugar, sugarcane, milk and its products, maize, eggs coming from Uganda to Kenya. Already the EAC’s integration is being tested.”

British officials have said they were very keen to do an agreement with the whole of the EAC. As things did not really get into motion fast enough last year from the part of the other five countries, and based on a desire on both sides to do the deal, Kenya and the UK decided to push through bilaterally, rather than regionally. The other EAC members had asked for more time — partly, because of presidential elections in Tanzania in October and in Uganda in January.

However, Kenya was in a rush to sign a deal as, unlike the other five members, it would have not had any of the preferential access the UK offers to least-developed countries. The EAC said in a document from September last year, “Kenya expressed its intention to proceed and conclude negotiations for a Trade Agreement with the UK by December 2020, due to the possibility of future loss of preferential market access by virtue of its status” as a non-least developed country, following Britain leaving the EU. As the biggest economy in the EAC, it had to break ranks, said Kwame Owino of the Institute of Economic Affairs in Nairobi. “Kenya was alone, it needed to make an agreement.”

Kenya and the UK left a door ajar, saying the agreement remains open to other members of the EAC, whenever they may be ready to join, “under the terms and conditions agreed upon” between Kenya and the UK. “This is important in promoting the EAC region’s sustainable development and ensuring special and differential treatment of least developed countries,” said Betty Maina, Kenya’s trade minister, adding that the ratified agreement “will deepen the EAC integration by ensuring that exports from Kenya and the EAC region continue to enjoy duty-free quota-free access to the UK after Brexit”. 

Jayawardena echoed that the UK agreement with a former colony “is an important step towards a regional agreement too”. Kiiza is not so sure: “There is a contradiction with the UK which says it would wish to promote integration within Africa, but then it is actually disintegrating the region through pursuing of individual agreements without inclusion of other partner states.”

Brace off, there may be other ruckuses to come. The ratification of the Kenya-UK deal could also offer a blueprint for further trade agreements including, if the Biden administration wishes to opt for bilateralism, one with the US. Last year, Kenya started talks with the Trump administration. Nairobi, once again, denied accusations that it was undermining the spirit of multilateralism by seeking to negotiate its own bilateral free trade agreement with the US. Others, we suspect, are not so sure.

Tall tales of trade

Another threat to globalisation rears its head and roars to the heavens, there’s another round of hand-wringing and sometimes even garment-rending, and then everything is quiet again and world trade is, amazingly, still moving. Last week’s unfortunate events in the Suez Canal are already receding into obscurity — oil prices have, for instance, hardly moved. We’re pretty sure most traders sending cargo through Suez have contingency plans.

And remember how the coronavirus pandemic was going to destroy global trade? Here’s what happened in January:

Line chart of goods, annual % change showing Global trade rose sharply in January

On Wednesday, the WTO again revised up its estimate of the volume of world goods trade last year to a fall of just 5.3 per cent, and predicted 8 per cent growth in 2021.

As we were just saying, globalisation (at least world goods trade) survived being written off after 9/11, the global financial crisis, the Icelandic volcano ash cloud, the Fukushima earthquake, Brexit, Donald Trump and now Covid-19. It will cope with a now-unstuck ship. If the US and China really try with all their might to smash supply-chains apart, they might succeed. Short of that, global goods trade has been intensely stress-tested and come through fine. Enough of the histrionics, really. Things are OK. Alan Beattie

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