DDP 752. Graham Glenday and David Ndii. "Export Platforms in Kenya." February 2000. 24 pp.

The paper analyses the structure and performance of export platforms in Kenya over the past decade. Kenya has three types of export platform. Two are targeted at export-dedicated businesses: manufacturing under bond (MUB) and export processing zones (EPZ). The third is a generalized and flexible export support program providing import duty exemptions for imported inputs into the production of exports and duty free goods for the domestic market. A stylized theoretical framework is presented to explore the structural features of different platform designs. The actual use of the three platforms in Kenya is analyzed using administrative and customs data. The changes in the macroeconomic policy environment are also analyzed in terms of the impact on export competitiveness and the composition and direction of exports.

Macroeconomic reforms, trade liberalization measures, and regional integration have been the key factors behind fluctuations in Kenya’s manufactured exports. The export surge recorded in the 1993-95 period coincided with a sharp depreciation of the Kenya shilling, a significant fall in the real average wage, and a major shift in the trade regime following the abolition of trade licensing and foreign exchange allocations in 1993. These favourable export conditions were not sustained, and export performance deteriorated again significantly after 1996.

The preferential regional market, primarily Uganda and Tanzania, followed by the wider Common Market for Eastern and Southern Africa (COMESA) accounted for the dominant share of the increase in Kenya’s exports after 1993, especially manufactured exports, reflecting a major diversion in trade. Besides the regional economic integration initiative, this trend is also a reflection of economic recovery and trade liberalization in the region increasing demand for Kenyan manufactures.

The export-dedicated MUB and EPZ platforms, targeting overseas markets, have been inconspicuous, with their combined cumulative share of exports over 1993-1998 amounting to just over one percent of total exports. By contrast, exporters using the more flexible duty exemption programme have averaged 35 percent of total exports, or over 50 percent of the eligible processed and packaged exports, and over 75 percent of exports of manufactures, largely targeted at the regional market. The unfavorable macroeconomic conditions have largely kept Kenya out of the labor-intensive manufactures, notably garments, footwear and light assemblies, for the world market using dedicated export platforms.

Keywords: Kenya, export platforms, export processing zones, export promotion, duty exemptions

JEL Codes: F13, H25

Graham Glenday is a Fellow of the Institute and Director of the Public Finance Group at the Harvard Institute for International Development and is currently an Advisor to the Ministry of Finance, Kenya.

David Ndii is a Lecturer, Department of Economics, University of Nairobi, Kenya.

This paper was prepared under the Equity and Growth through Economic Research/Trade Regimes and Growth Cooperative Agreement No. AOT-0546-A-00-5073-00 of the Division of Strategic Analysis, Office of Sustainable Development, Bureau for Africa, U.S. Agency for International Development (USAID). Views and interpretations in this paper are those of the author(s) and do not necessarily reflect the view of the U.S. Agency for International Development.