TRALAC - Trade Law Centre

AGOA III Bill Still to Pass Through Senate

Tuesday, 22 June 2004

Source: allAfrica.com

Since the election at the end of 2002 of Mwai Kibaki as president of Kenya, replacing Daniel Arap Moi, the new government has embarked on an ambitious program of reform that has helped spark an economic revival. A key player on Kibaki's economic team is Dr. Mukhisa Kituyi, the minister of Trade and Industry. On route home from last week's United Nations Conference on Trade and Development, Kituyi stopped in Washington to meet with Bush administration officials and lobby members of Congress for an extension of the African Growth and Opportunity Act (Agoa), key provisions of which expire on September 30. Excerpts from the minister's interview with AllAfrica follow.

You have said that Kenya is making some important transitions at the moment. Could you explain what you mean?

The transition from massive state participation in the economy - the parastatals, state corporations, inefficient marketing agencies - to more private-sector led economic activity is one. Basically, meaning redirecting the whole government from [being] a player, a competitor in the economy, to a more regulatory participant.

The other one is a fast tracking of regional integration, the creation of a larger investment area in eastern Africa, as that region moves towards greater competitiveness and attractiveness to investors. For the common market of Eastern and Southern Africa we have 20 countries, with a population of 380 million people. Eleven countries have adopted free trade area arrangements [and] the twelfth, Burundi just came on board this year. We are expecting that Uganda hops on board towards the end of this year. That is a commitment that they have made. We had a recent meeting with the presidents in Kampala [and] agreed that all countries should try to be free trade areas by the end of next year. The next step is negotiating common external tariffs and the customs union.

Meanwhile, closer to home, Kenya, Uganda, and Tanzania signed a customs union on the 2nd of March this year. Starting from the first of January 2005, the eternal tariff barriers to growth will collapse. We are fast tracking the integration of East Africa as a first-hand learning experience to be transferred to a larger COMESA common market.

Is this economic transition and regional integration related to Kenya's political transition?

Yes, Kenya, at the end of the year 2002, went through one of the most peaceful and credible democratic transitions in Africa. With the removal of the last vestiges of "Big Man" politics, we're now a much more open society, much more responsive to those politics and much more responsive to the checks by the legislative and the independent judiciary. And we're engaged in a systematic and consistent fight against corruption.

Nurturing a democratic transition can be very important in building a modern competitive economy, I've just started steering through Parliament a new investment law that is simplifying and making more transparent procedures [for] investing in Kenya, as a part of ongoing dialogue between the private sector and government, and to demonstrate that we can make Kenya more attractive, in addition to its beauty, its geography, its beaches, game safaris and warm people.

Kenya does not have the raw materials that other African countries possess. What investment opportunities are you marketing to investors?

We have more natural endowments then Japan and Korea. Our biggest resource is the most sophisticated, most educated and most hard-working labor force in sub-Saharan Africa. Over the past decade, consistently, Kenya has been the leading African country with students in American, German, Canadian, Australian, and British universities. This means that cutting-edge human resource skills are sufficient for knowledge-based industry to happen [in our country].

But more importantly, for 40 years we have consistently operated a market-based economy, so that the problems of a crisis of expectations from workers and limited engagement in private sector growth that you find in a lot of other countries, we have already overcome that.

Third, our biggest advantage is our location. Nairobi is the only city which has a significant international airport that is within four hours of any point in Africa. And, there are other areas where we have a massive competitiveness. We supply 60 percent of all of the roses sold in Europe. We are the largest horticulture exporter in the European Union.

Also, thanks partly to the work of the Kenyan government, we are on the brink of peace in the Sudan. There is a very substantial investor interest in the southern Sudan, and we see Kenya as the staging post for a lot of these investments.

There is a tarmac road up to the border on the Kenyan side, and then one of the busiest airports in the world, basically used now for flying relief sorties through southern Sudan. We're looking into the construction of pipelines for the rich petroleum crude of southern Sudan. On the back of that infrastructure are also the new opportunities for trade.

These are some of Kenya's advantages. But, most importantly, we engage the world. We are trying to cultivate the platform for competitive sustainable engagement with the rest of the world [through] support for investment, better marketing opportunities, etc. This is what we are doing.

You've talked about the importance of getting better value for Kenyan tea.

Yes, insufficient attention has been afforded to value adding the price of tea. Together with Sri Lanka, we are the largest exporters of tea in the world. Unfortunately, because we did not brand Kenyan tea as such, we have had most of our tea sold onto the Western markets as English Breakfast Tea. But there isn't a single tea bush in England! It is mostly Kenyan tea that they are selling to the rest of the world. So we are looking not only for new markets, but also new partnerships and private sector-led investments in value adding to Kenyan tea before it is exported. We see investment in our agro-industries as more important to us than philanthropic donations in ending poverty.

What are you doing to fight corruption?

The things which we have done have been very radical. We cannot win the war against corruption overnight, so some of the residual elements are still with us today. But, there are a number of things that we have done. First of all, the most expensive and costly corruption case scandal in Kenya, where some people pretended to be exporting gold and diamonds in the early 90's and using that as an excuse to loot the treasury, is under way, and I think we have completed our broaching of a commission onthat.

At the level of legislation, we have established an independent anti-corruption commission. And, we have streamlined the transparency of administration of justice, particularly for commercial litigation.

Three, more than 50 percent of the most senior members of the Kenyan bench in the judiciary were shown the door after official investigations showed that they had been involved in an undertaking in which their integrity had been compromised. I don't think there's another country in the world which has shown the door to 60 percent of the top judiciary. This has [resulted in a] much more transparent and credible process in our courts.

Four, we just fired 57 out of the top 80 police officers in the Kenyan force. So the cleaning up of the judiciary, the cleaning up of the police force, the establishment of an anti-corruption authority by law, the establishment -by Parliament - of a law on public ethics, obliging city public officers - all members of Parliament, Cabinet, Senate, Administrators - to declare their wealth and to allow the state agencies to monitor their work over time, to see the credibility of their new earnings where they can be justifiable on the basis of their work, are very important steps in the war against corruption.

We believe corruption is a major enemy because it distorts trade. It adds to the cost of doing business in the country. It is part of what halts development in poor countries, and we cannot fight for credibility, for competitiveness unless we win the war against corruption.

How does the new budget reflect these priorities you just mentioned?

The new budget of the Kenyan government puts the largest component of development resources into the Ministry of Public Works and Roads. Precisely because we believe one of the weakest and softest underbellies of the Kenyan economy is the dilapidated infrastructure for communication and the cost of transport into the interior and the hinterland of Kenya.

This is of major concern to us because we are trying to position ourselves as the hub of regional economies. And, therefore, state of the art infrastructure - roads, railways, and telephony - are critical to entering into the 21st century.

The second thing is an investment into energy. Unfortunately for many years there was no maintenance investment into the power transmission grid so that a substantial burden for the consumer is the massive dilapidated transmissions bleed. We're invested in rehabilitating that, in addition to investment in displacement arrangements to access the southern Africa power pool, which has a more competitive cost of production of electricity. We also want to fix the infrastructure of fixed energy that will bring down the cost of products made in Kenya.

Also, as we try to build up the economy, we are going away from any tax increase measures. Consistent with our desire to build a customs union with Uganda and Tanzania, we lowered the external tariff on all major imports. Lower customs duty means lower cost of production.

Have international donors come through with the pledges they made at a donor conference in Nairobi last year? As of May, you were still waiting for that funding.

Discussions with the World Bank and IMF have shown very upbeat scenarios that the pledges they made are going to come through. Some of the bilateral donors are moving with disbursing. With some, we have been victim to slow procedures that are extremely cumbersome. Others have been waiting to see if the World Bank/IMF are disbursing before they move. So in the first year, we did not see the remittances we expected from the pledges made last year. It's my impression that the World Bank/IMF are now likely to perform better than before.

How does Kenya plan to take advantage of Agoa?

There is surplus cotton produced in western Tanzania, near Lake Tanganyika, but because of the colonial infrastructure, that cotton has to go to the port of Dar es Salaam, to go the port of Mombasa, to take the railroad to Nairobi before it is accessible to the Kenyan textile manufacturers. The cost of transporting cotton from western Tanzania to Dar es Salaam is higher than the cost of transporting cotton from western India to Mombasa. So, because of the distorted infrastructure of extraction, as I call it, it is difficult to connect source and market locally.

What we have to do is to connect western Tanzania and Nairobi, in an affordable way, so that it becomes sensible to the investor, to the textile industry to import from Tanzania instead of importing from India. It looks crazy, but that is the reality. So, a critical thing is an infrastructure of integration, not an infrastructure of extraction, which is an inherited reality that comes from the colonial period.

The second thing is that Agoa has opened the possibility of rehabilitating a textile industry that collapsed because of unjustifiable liberalization in the late 80s and early 90s under Structural Adjustment Programs. We could not compete with cheap, imported textiles. But now we have a window. We are retooling the ginning, we are retooling the quality of seed for cotton farmers; we are retooling textile mills and spinning factories, creating employment but also building capacity to be competitive, beyond what will otherwise happen.

So your government wants Congress to vote for the Agoa extension?

Part of the reason why I passed through Washington now is to canvass members of Senate, particularly members of the Senate Finance Committee, and their staffers, to get the Senate to adopt the version of Agoa III the House of Representatives passed [last week]. I also brought letters from my president to some of these senators, urging them to adopt it.

This is more than an investment or a trade bill, it is development for our economies. Kenya is an example where our trade with the U.S. has gone up more than ten times since the year 2000 because of the new market accessibility under Agoa. We have created 40,000 new jobs, seven million dollars in production investment. These are significant for an economy the size of Kenya's. We do not want to lose that opportunity, we want to deepen it.

Have you talked to U.S. officials about lifting the State Department's Travel Advisory for Kenya?

Yes, we don't want to pretend about that one. I had a couple of meetings, including one with Ambassador [Robert] Zoellick [the U.S. Trade Representative], and with people in the State Department. One of the main things that I have been mentioning is that while we are partners in encouraging peace in the Horn region and partners in the war against terrorism, we do not find it justifiable that today the U.S. continues to have a travel advisory against Kenya.

They mentioned that they were appreciative of support we have provided in counter-terrorism missions and enhanced security surveillance at points of entry at airports and major tourists areas. Kenya has been more successful in arresting and arraigning the culprits in that bombing than the U.S. has been on September 11th.

But there is no explanation why there was never a travel advisory against Spain when the terrorist acts happened [in Madrid], and yet, there is a travel advisory against Kenya because of the bombing of an Israeli hotel in 2002.

Having said that, while this has slowed down the human traffic between here and Kenya and investor participation in Kenya, it has not totally harmed the tourist industry. During the year that the advisory has been in place, tourist arrivals in Kenya increased by 25 percent. If Germans and Britons have increased their visits to Kenya by 25 percent, I think that is a more important statement on safety in Kenya than I can say as a minister of Kenya.