Kenya Summary

Introduction

In December 2002, President Mwai Kibaki took office in Kenya, ending a 24-year dictatorship characterized by mismanagement and corruption under former President Daniel Arap Moi. Since then, Kibaki's new government has made promising steps towards its campaign platform of fighting corruption, which is widely hoped to attract investment to revive the national economy from its stagnant growth rate of slightly higher than one percent. During his first year in office in 2003, Kibaki impressed foreign aid donors and international institutions with his anti-corruption efforts, most significantly by coming down hard on the notoriously corrupted judiciary. In November 2003, the IMF, which had frozen lending to Kenya since 1997 due to the pervasive corruption under President Moi, resumed lending with a $252.8 million three-year loan. International aid donors followed suit with money and praise.

However, economic indicators have not yet responded to the spirit of hopeful change. Though increased foreign investment is the primary goal of the ongoing Kenyan reforms, multinational companies reported a 25% decline in turnover in 2003. And international aid, though flowing more freely since Kibaki's election, is still only at 20% of the $700billion in Kenyan shillings that is needed for development spending over the next four years. [1] Although it is the biggest economy in sub-Saharan East Africa, Kenya currently remains entangled in a deep economic crisis. Still facing its inherited US$850 million budget deficit and debts of US$8.4 billion, as well as the legacy of institutionalized corruption, the new administration faces a significant challenge in the task of economic revival.[2]

Sugar

The surplus of global sugar production has led to global price declines, exacerbating the effects of dumping in Kenya by sugar-subsidizing developed countries. All of Kenya's major sugar firms are currently indebted to their suppliers, resulting in protracted disputes between domestic millers and farmers. Facing imminent collapse of the local industry, the Kenya Sugar Cane Growers Association lobbied in March 2003 for a ban on the importation of sugar. The government, however, was unable to close borders due to international commitments in WTO agreements, particularly for fear of retribution by Egypt. Though prevented from altogether banning imports, Kenya was granted a one-year extension by the Common Market for Southern and Eastern Africa (COMESA) on the right to levy duties on sugar to fend off massive inflows of cheap imports from other members of the nine-year-old trading bloc.

A grant of $400,000(US) from the International Labor Organization (ILO) is currently funding a task force to review Kenya's labor laws to ensure they meet ILO standards, especially regarding laws about the children involved in child labor on sugar and coffee plantations. According to the ILO and the Central Bureau of Statistics, there are 1.9 million child laborers in Kenya, 1.3 million of which are not enrolled in school.[3] A new labor code is expected by May 2004.

Labor and the Export Processing Zone

Export Processing Zones (EPZ) were established in Kenya in 1990 to attract investors for export-oriented business. Offering privileges such as a 10-year corporate tax holiday, exemption from import tariffs and unrestricted foreign investment, Kenya expected to benefit in turn from increased capital investment and technology, job creation and diversification of exports. Workers in the EPZ's have complained, however, that the new national government focuses too much on investment and not enough on workers' rights. Investors contend that Kenya's high electricity costs, expensive freight charges and dilapidated infrastructure are instead to blame for increased production costs, which have in turn depressed wages to as low as $1/day for unrepresented workers. [4] They also note that the EPZs have seen increases in employment from 6,000 to 32,000 jobs since they were established. [5]

In March 2004 workers called for an international strike of EPZ products in protest of working conditions. Government has not made significant steps towards any resolution of workers' concerns, expressing contradictory priorities of increasing investment and protecting workers' rights. [6]

The EPZ workers also face losses of up to 25,000 jobs in September 2004 when the U.S. African Growth and Opportunity Act (AGOA) will require Kenyan EPZ textile factories - the third largest exporters of textiles to the U.S. under AGOA - to use African or American cotton rather than cheap Asian materials. Kenyan cotton producers, who suffered through rapid liberalization and lack of regulation in the '80s, resulting in a dramatic decline in business, are pressing the government to support the development of the sector with a comprehensive cotton policy rather than simply requesting an extension of the AGOA deadline from the U.S. [7] Illegal schemes that import ready-made clothes from Asia to be exported from the EPZs also undermine employment in the EPZs. [5]

Under pressure, the government granted EPZ status in fall 2003 to tea farmers to include tea as a tax-free EPZ export, since 80 percent of tea produced in Kenya is exported. [8]

Regional Trade Relations

Facing precarious economic stability due to low world prices and limited market access for many of their export commodities, Kenya, Tanzania and Uganda (the second and third largest export destinations for Kenyan goods after the UK) finally finalized long-delayed plans for an East African Community (EAC) Customs Union in March 2004 after four years of negotiations. Kenya, the most industrialized country in the bloc, made significant concessions, allowing duty-free exports from Uganda and Tanzania, while they are allowed to keep their current tariffs on Kenyan goods until 2009. The countries also agreed on a Common External Tariff on non-EAC countries of 0% for raw materials, 10% for intermediate goods, and 25% on finished goods. Though Kenya faces a large expected drop in income after implementation of the EAC, there are high hopes for increased investment after elimination of customs regulations and the creation of a unified investment code. As the most industrialized of the three EAC countries, Kenya stands to benefit the most from increased foreign investment in the region. [9]

In early 2003, Kenya signed independent agreements to cooperate in the promotion of commercial and industrial relations with Korea and Mauritius, while it also mended strained trade relations with Egypt. Egypt, a fierce competitor in the textile industry, agreed to remove barriers to Kenyan textile exports and to partner in the set-up of plants in the country so that Kenya might take better advantage of the African Growth and Opportunity Act (AGOA) trade benefits offered by the US.

Ivory

While the governments of South Africa, Namibia, Botswana, Zambia and Zimbabwe want permission to sell off their stockpiles of raw ivory and to be issued quotas for a limited legal trade, Kenya has lobbied to maintain the strict ban on international ivory trading. Its effort was successful in persuading the UN Convention on International Trade in Endangered Species (CITES) to halt the plans to allow the above countries to sell their ivory stockpiles until better regulation is in place. Having lost 80 percent of its elephant population during the 1980s when ivory trading was still legal, Kenya fears that an easing of the ban would trigger an increase in demand for ivory and a resurgence of poaching and illegal trade. [10]

Trade Related Intellectual Property Rights

In 2002, a coalition of NGOs including Medecins sans Frontières (MSF/Doctors without Borders), Action Aid Kenya, and Econews Africa pressured the Kenyan parliament to lift restrictions against the production of generic anti-retroviral drugs used to treat HIV/AIDS. The September 2003 WTO agreement allowing developing countries to license both the production and export of generic HIV/AIDS drugs is promising for the future of generic drug access to stem the AIDS-related death rates in Kenya and other African countries, although neither Kenya nor any other developing country with production capabilities has yet signaled intentions to license generic production.

Tariff and Non-tariff Barriers to Trade

In March 2002, Kenya and nine other developing countries submitted a joint proposal for the modalities of upcoming WTO negotiations concerning manufactured goods. The proposal calls for less reciprocity by developing nations in terms of reducing tariff and non-tariff barriers to trade. The EU has alternatively proposed a harmonization of tariff rates that will simultaneously give favorable conditions to products coming from the developing countries, while the US has suggested the gradual reduction of all tariffs to zero by 2015.

The developing countries group, including Kenya, has frowned on these latter proposals, however, wary that the reciprocal adjustments demanded would more severely impact the typically high tariff structure of the developing countries. Therefore the group advocates a simpler and smaller percentage tariff cut, with the onus for the most part on developed nations to diminish trade barriers. Decisions about negotiations on these non-agricultural market access (NAMA) issues were meant to be made at the WTO ministerial meeting in Cancun in September 2003; they were not discussed since the meeting adjourned when countries could not agree on modalities to discuss investment issues, the first topic discussed. NAMA issues remain on the agenda for the Doha Development Round.

Kenya gained some international notoriety when its trade and industry minister Mukhisa Kituyi "triggered the collapse of Cancun", being the first negotiator to walk out of the talks. Kituyi is a leader in the attempt to present a united African front in the WTO, trying to move development talks away from discussion of investment-related "Singapore issues" to "African issues", especially agricultural subsidies and trade-related intellectual property rights. [11] Though the developed-country response to the collapse of Cancun was initially hostile, vowing to focus on bilateral and regional agreements rather than the frustrated multilateral approach, since then trade ministers of the US and EU have expressed willingness to forego their pursuit of expanded issues including investment and continue to negotiate African priorities such as agricultural subsidies within the WTO. The US-EU encouragement of a 'G90' of lesser-developed countries including African, Pacific and Caribbean countries could be seen as an effort to counteract the influence of the G-21 bloc of more-developed countries led by Brazil, India, and South Africa which coalesced in Cancun. [12] In March 2004 Kituyi acknowledged that the G-90's positions in Cancun had been 'rigid' and encouraged increased cooperation and concession-making from developing countries in the spirit of continuing multilateral negotiations. [13]

Conclusion

The challenges remaining for the Kibaki government to reduce corruption and promote real economic growth in Kenya remain onerous, and include continuing efforts towards political transparency and legitimacy and the reduction of politicized ethnic tension between government leaders; significant reductions in crime, especially in Nairobi, to attract investment; and sustainable reform and development in the sugar and textile industries and the export processing zones. The prospects of success for the recently strengthened G90 and African states groups, led by Kenya, in global trade negotiations in achieving developing-country objectives without making harmful liberalization concessions remain to be seen.

Last updated April 2004.

[1] "IMF and Kenya Reforms." Africa Analysis. 28 Nov 2003.
[2] Stop the Dumping! Oxfam Briefing Paper No 31. October 2002.
[3] Peter Musa. "ILO to Spend $4.6m to End Child Labour in East, Sn Africa." The East African (Nairobi). 7 April 2003.
[4] Ken Opala. "Investor Dollars Versus Workers' Rights." The Nation (Nairobi). AllAfrica, Inc. 21 Feb 2003.
[5] "Kenya; EPZ Plans to Burn Sh1.6b Worth of Imported Clothes." The Nation. 20 Mar 2004.
[6] "Kenya; Minister, Assistant Differ Over Plight of Staff." The East African Standard. 10 Mar 2004.
[7] "Kenya Jobs Threat." Africa Analysis. 28 Nov 2003.
[8] "Kenya; Tea Factory Units to Get 'Export Processing Zone' Statu.", The East African Standard 6 Oct 2003.
[9] "Investor Confidence Buoyed By Customs Union." Africa Analysis. 5 Mar 2004.
[10] "UN agency blocks S. Africa, Namibia, Botswana bid to sell off ivory stockpile." BBC Monitoring Africa. 23 Mar 2004.
[11] "Still No African Unity at WTO." Africa Analysis. 3 Oct 2003.
[12] "Guarded Optimism At WTO Mombasa Talks." The East African. 23 Feb 2004.
[13] James Anyanzwa. "Minister calls for change of strategy in WTO talks." East African Standard. 31 Mar 2004.