Kenya: How Country's Economy Survived the EPA Threat

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East African Business Week (Kampala)

24 March 2008
Posted to the web 24 March 2008

Abwao Oluoch
Nairobi

Kenya signed an interim trade pact with the European Union in mid November to save its domestic and foreign investors who would have preferred to relocate to lowly ranked neighbouring states in the region, a senior official has disclosed.

Kenya's Trade and Industry Permanent Secretary David Nalo has said Kenya was on the brink of a huge economic crisis, a possible depreciation of the local currency and on the brink of a balance of payment crisis if it had failed to sign the interim trade pact.

"We safeguarded over US$1 billion investments which are already in the horticulture and fisheries sector and other interrelated industries such as chemicals, farm inputs and agro-equipment were under threat of being wiped out as investors were being induced to relocate to least developed countries was important to us," Nalo asserted.

Kenya would have lost Ksh110 billion in 2008 accompanied by the depreciation of the Shilling.

This would have worsened with the loss of Ksh2 billion worth of taxes accruing from the horticultural exports industry, the PS disclosed.

The East African Community (EAC) will begin formal talks with the European Union (EU) to thrash out the outstanding issues on a comprehensive trade pact with Europe under the larger Eastern and Southern Africa regional bloc.

Kenya's Trade and Industry Permanent Secretary David Nalo said the Eastern and Southern Africa (ESA), grouping 16 states, mostly members of the larger Common Market for Eastern Africa (COMESA), have agreed to jointly negotiate.

Kenya, leading a pack of five EAC states, signed an interim trade agreement with the EU in November last year in a rush move to prevent billions of dollars worth of investments from going down the drain and to mostly save the flourishing horticulture industry.

Nalo said the ESA states have set up a task-force to spearhead the negotiations with the EU on the comprehensive trade pact known as the Economic Partnership Agreement (EPA), whose signing in November last year saved 97% of Kenya's European exports.

Kenya's export destination has over the years expanded from an earlier reliance on the European market, which previously controlled nearly 52% of all exports to a radical shift to the regional and sub-regional export destinations, mostly within COMESA.

Uganda has over the last few years emerged as the consumer of Kenya's exports with 52% of the East African neighbour guzzling most of Kenya's manufactured products.

Europe is demanding equal export opportunities in Africa, as much as it grants the mostly poorly ranked African states. But a tussle over the taxation of goods from most of the African states has stalled talks on the proposed comprehensive trade pact.

Nalo said although Kenya is classified as a developing country, there are most other developing countries like India and Brazil that far out-shine Europe in several other industrial fields that in itself defeats the global ranking of countries like Kenya.

Kenya is using the UN ranking to seek a vantage point on the negotiating table with Europe over the proposed trade deal, which is expected to be negotiated effective April with a tentative deal expected to be signed somewhere in June 2009.

"Kenya is a servant of its people. We have been called a traitor but it is important to separate interests of the state and those of its citizens," Nalo told a group of East African lawmakers who paid his ministry a courtesy call last week.

He said Kenya was proud of its decision to sign an interim trade pact with Europe because this helped to avert a possible trade disruption, which he said would have a deep macro-economic impact on the wellbeing of the country and its people.

According to the PS, 1.5 million jobs already created by the horticulture and the fisheries sector in Kenya could have been lost, leading to a big loss of the preferential market access that the farmers in the country have cultivated with Europe over the years.

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