TRALAC - Trade Law Centre

Warmer Kenya-US relations good for trade and investment

Thursday, 30 August 2018 Published: | PETER WARUTERE

Source: Daily Nation (Kenya)

The meeting earlier this week between President Uhuru Kenyatta and his United States counterpart Donald Trump should, hopefully, cement strategic interests between the two countries.

It signals how much bilateral relations have warmed up since the infamous “choices have consequences” warning by a senior US government officer before the 2013 elections.

For Kenya, enhancing trade and investment should be at the core of the newfound relations. It is the key to expanding opportunities for economic growth and creating jobs for the youth, whose rising discontent over sharing of economic opportunities is increasingly rattling the elite in power.

 


In summary

  • How much Kenya leverages on the US goodwill depends on how the government demonstrates its resolve to improve the environment for business. 
  • A key aspect of this is aggressively fight transnational crime, including money laundering and counterfeiting. 
  • Sustaining the war on graft is critical to reducing the cost of doing business and improving prospects for better, shared growth.

 

POLITICAL INTERESTS

The White House meeting should encourage the Kenyan and US business community to explore strategic alliances in areas with strong prospects for growth, including oil, manufacturing, finance and agribusiness.

Kenya needs a strategic shift to benefit from this relationship, through better trade deals, rapid foreign investment in key areas and improved tourism from USA and north America. In the past, it was unable to maximise on opportunities from bilateral relations because of poor preparedness. In any case, US commercial opportunities were driven more by political interests, such as demands for governance and rule of law, than by the need to give Kenyans increased access to the US market for goods and services.

AGOA ACT

In the past decade, Kenya failed to maximize on the African Growth and Opportunity Act that former President Bill Clinton signed into law in May 2000 to give defined exports from African countries duty free access to the US market. Statistics on US trade with Africa show that AGOA accounted for half of the $20 million annual US imports from Africa. The largest categories of imports are energy related products, transport equipment and textiles and apparel.

The greatest beneficiaries are Nigeria and Angola, which are major exporters of oil and South Africa, which dominates the transport equipment category and exports minerals.

VALUE CHAIN

Kenya features in textiles and apparel, which accounts for just 10 percent of the AGOA imports. Even though Kenya is dominant in this category, its performance has been less than optimal due to high cost of doing business. This constraints Kenya’s ability to compete in the US market with other major exporters of textiles and apparel to the US, including China, India, Pakistan and Bangladesh.

Export earnings from AGOA (which was extended to 2025 after expiry of the initial 15 years in 2015) can be increased by reducing the cost of doing business and improving the textile and apparel value chain and brand.

OIL MARKET

The government should also provide an enabling environment and incentives for the private sector to negotiate strategic partnerships with US firms in key areas such as textiles, agribusiness and food processing. Experienced US firms would help local industries improve the manufacturing value chain to become more competitive in the global market. The emphasis here should to increase exports of processed agricultural products that earn more foreign exchange than raw commodity exports.

Another emerging opportunity is in petroleum products. Now that Kenya has started producing oil, it should be angling for a share of the lucrative US oil industry in the long term.

LOGISTICS CENTRE

The US is a big investor in Kenya, in key areas including education, healthcare, infrastructure and devolution. It should have a strategic interest in supporting Kenya to become a leading logistics centre for Eastern Africa. China has invested in expanding and modernizing the port of Djibouti to serve Ethiopia and the northern Horn of Africa. A similar investment in the ports of Mombasa and Lamu would open up the East African hinterland to the rest of the world and deepen the access of US firms to the East African Community market.

These strategic moves can quickly transform Kenya and turn it into a vibrant hub for regional trade and investment networks. They can strengthen the foundations of the Big four pillars of economic and social transformation.

SHARED GROWTH

How much Kenya leverages on the US goodwill depends on how the government demonstrates its resolve to improve the environment for business to attract more foreign direct investment. A key aspect of this is aggressively fight transnational crime, including money laundering and counterfeiting. Sustaining the war on graft is critical to reducing the cost of doing business and improving prospects for better, shared growth.

 

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