Balancing benefits and risks of deepened Kenya–EU trade Ties

This Economic Partnership Agreement (EPA) aims to catalyse growth further by guaranteeing duty-free access for over 80 percent of Kenya’s goods into Europe. For an economy dependent on agricultural exports like coffee, tea and horticulture, this promises an immediate boon.

Yet aspects from fiscal planning to value chain development must align to materialise the promise.

Kenya will open its market in phases over 15-25 years to allow domestic sectors to adjust. But the immediate removal of Europe’s barriers also opens the floodgates for imports that could inundate local producers.

While the EPA permits safeguards against import surges, policymakers need proactive monitoring to judiciously apply appropriate measures as required. Getting this balancing act right is crucial.

Kenya cannot forego revenues or growth prospects by leaving local industries vulnerable prematurely. But equally, developing competitive capacity rather than long-term protectionism is essential to utilise preferential European access.

More fundamentally, Kenya requires concrete progress on multiple fronts to fulfil its potential. Meeting Europe’s stringent standards related to sanitary, phytosanitary and technical requirements will open the door for Kenyan goods rather than having them shut out as inferior produce.

Upgrading transport links, cold chains, laboratory and warehouse capacity hence become urgent priorities. Streamlining customs procedures through single-window clearances and improving connectivity will bolster last-mile competitiveness.

While Kenya’s limited technical resources constrain such objectives currently, the EU’s promised development assistance specifically for trade infrastructure can alleviate funding gaps if efficiently utilised.

Beyond trade procedures, Kenya must also address underlying competitiveness issues to avoid chronic deficits as its imports grow.

Productivity and export capability vary enormously between Europe and Kenya. The latter’s average yields for tea and coffee languish at nearly half global benchmarks, epitomising the technology access challenges faced. Improving farm productivity and moving smallholders higher up the value chain into processed ingredients requires public-private partnerships for technical skills development and tech transfers tailored to the needs of agricultural export clusters.

Similar principles apply for light manufactured goods identified as growth areas under Kenya’s development blueprint, especially considering strong regional competition. Failure on this front risks access to the EU becoming a one-way street where Kenya becomes merely a consumer rather than a beneficiary.

Sector-specific developments keyed to Europe’s distinctive demand also hold great potential. In horticulture, Kenya can target higher-value market niches for premium vegetables and cut flowers among EU buyers, transitioning beyond its current wholesaling focus. In beverages, a buoyant appetite for speciality coffees and boutique teas allows premium differentiation to boost smallholder incomes.

Away from agriculture, Kenya’s underdeveloped domestic pharmaceutical industry can gainfully supply generics to Europe amid shifts in the continent’s sourcing strategies. Across such domains, the EPA props open a window for laying strategic foundations for the future rather than just enjoying one-off gains.

However, political economy tests abound, whether around fiscal planning, interest group politics or governance reforms essential to benefit in scale from the EPA. Foregone import tariffs currently contribute over a fifth of Kenya’s tax revenue.

Cushioning losses as duties phase-out requires developing alternative revenue sources without compromising competitiveness through mechanisms like export taxes. Careful projection of revenue implications and associated structural reforms need advanced consideration. In parallel, policymakers must reconcile demands from producers of goods like maize and sugar lobbying for extended protection versus user industries demanding access to cheaper inputs.

Balancing these interests will determine the EPA’s inflationary impact and hence broader political reception. Governance poses further challenges given Kenya’s mixed record on graft. Boosting capacity for transparent regulation and enforcement around enhanced European trade will limit the risks of cronyism hijacking higher value export opportunities. If the EPA results in similar levels of venality as past infrastructure spending, the wins will bypass ordinary citizens.

Finally, Kenya can exploit Europe’s acute interest in ethical sourcing to position itself as a leader on sustainable trade. With stringent requirements around social and environmental standards in areas from labour regulations to plastic waste, the EPA provides a framework for Kenya to exceed minimums, signalling higher governance capacity.

European policymaker and consumer affinity for ethical sourcing and traceability offers scope for Kenyan goods to access niche sustainability schemes. Demonstrating excellence on themes like carbon footprint reduction and community partnership models can become key differentiators versus regional competitors.

In essence, Kenya must proactively don multiple hats, as a trade negotiator, infrastructure builder, skill developer, standards harmonizer and sustainability champion to transform its European trade breakthrough into lasting national gains. The opportunities span far beyond one-off export boosts, potentially remaking Kenya as a globally competitive economy. Actualizing that promise depends on how strategically the country leverages the platform it has now secured.

The writer is a Public Policy and Development Specialist. [email protected]