EU Economics

Kenya is doomed either way the European Union trade deal goes

Kenya Horticultural Exporters workers pack groceries for export. [PHOTO: DAVID GICHURU/STANDARD]

Kenya could lose more than Sh11 billion annually by signing into the contentious trade agreement with Europe, in new projections made by regional civil societies. Estimates of impact of signing up to the Economic Partnership Agreement — which Tanzania has rejected— would disproportionately hurt Kenya based on a past study published by the United Nations’ Economic Commission for Africa.

A statement issued by 14 regional organisations indicates that the total projected revenue losses to the East Africa Community is about Sh16.4 billion, two-thirds potentially borne by Kenya. In the rather surprising finding, however, Kenya would still be the biggest loser at an estimated Sh7.2 billion if the trade deal falls through.

“This revenue shortfall is due to the fact that the EAC has committed to liberalise 82.6 per cent of all its imports from the EU by 2033,” reads a research paper published by the ECA cited by the societies.

Among the organisations represented in the lobby opposed to the EPA include the Southern and Eastern African Trade, Information and Negotiations Institute (SEATINI) branches of Kenya and Uganda, and the Kenya Human Rights Commission.

“This revenue shortfall has serious implications on the EAC partner states’ ability to domestically mobilise resources for their development that their reliance on aid will continue which will increase their indebtedness,” the report reads further.

Under the protracted trade deal that has already caused widespread panic in Kenya, the EU would be granted unlimited market access to Kenya— considered a developing economy— in the next 25 years. Should the negotiations within the EAC with the EU flop, as is likely after Tanzania’s exit, Kenyan exports to the EU will beginning October 1 attract taxes of between 8 and 12 per cent.

It is expected that the taxes will hurt Kenyan exports by making them uncompetitive, while the other option is a cumulative discount to buyers worth Sh600 million a month to be at par with the other sellers.

Poorer nations

As such, benefits of signing up for the trade pact are estimated at Sh7.2 billion a year, working from the  taxes payable on Kenyan exports to the EU. Should the calculations be accurate, Kenya is doomed whether the EPA is signed (Sh11 billion in losses) compared to a smaller loss of Sh7.2 billion should the deal stand.

The estimates are based on a two-week period in 2014 when the EU slapped Kenyan exports, including cut flowers, with the taxes, forcing President Uhuru Kenyatta to soften his stand and  sign up to the pact. Cries from exporters in the 15-day window prompted an urgent meeting in EU headquarters in Brussels, Belgium where senior officials from the region were prevailed upon to enter the agreement.

But unlike all the other EAC members that are ranked as Least Developed Countries, Kenya is classified as a developing economy and has until September 1 to enjoy preferential market access in the EU — a preserve of the poorer nations, including Tanzania.

It was anticipated that the five-member states would append their approvals of the EPA by Monday next week, at the start of the United Nations Conference on Trade and Development meeting in Nairobi, before the respective Parliaments ratify the accord.

But Tanzania last week pulled out of the regional deal in a step read as malicious by Nairobi, while in essence, it does not risk any losses by staying away or booking any gains by signing up. Among the grounds that Mr Pombe Magufuli’s government is said to have cited in opting out was Brexit, citing that the original EU presented a 500 million-strong market.

After the exit of Britain, the market shrunk by more than a tenth, to inform the decision taken by Dar.

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