Why Kenya is losing its place in regional trade

by Phyllis Wakiaga

Data from Kenya National Bureau of Statistics (KNBS) shows that imports from Tanzania increased to Sh39.68 billion in January – September 2021, from Sh19.67 billion in 2020. This is a KSh 20 billion jump, and puts Kenya at a deficit of KSh 9 billion, with imports from Tanzania exceeding exports by nearly a third. 

Over the years, trade relations between Kenya and Tanzania have been tumultuous. However, last year gave us optimism of goodwill between the two countries, when Her Excellency the President of Tanzania, Samia Suluhu, visited Kenya and made commitments to renew ties and promote trade. 

Tanzania has been making efforts to improve ease of doing business in the country, and specifically, to drive its manufacturing sector’s growth. Over the past decade, Tanzania’s manufacturing sector has recorded a 4% annual growth rate, with a focus on sectors such as Food & Beverage; Textile & Apparel; Timber, Wood & Furniture; Plastic and Steel & Allied. Additionally, Tanzania’s most recent development blueprint prioritizes industrialization as one of its development pillars. 

Whereas Kenya has been trying to revive regional trade, our own policies and regulations developed over the last couple of years hinder these efforts. Before our products reach our borders with neighbouring countries, they have to grapple with a number of challenges, such as over-taxation, policy unpredictability and instability, overbearing regulations and numerous fees, levies and charges, among others. The challenges facing manufacturers affect our competitiveness as a country since our goods are not able to compete favourably in the regional markets.   

The trade deficit we are currently experiencing with Tanzania is not only attributed to high cost of production in Kenya but also non-trade barriers that Tanzania has erected against Kenya products. If both angles are not checked,  Kenya could lose her position as a regional trade powerhouse. Additionally, we shall continue to lose a large market share for Kenyan goods and services. For instance, Tanzania subjects Kenyan animals and animal products (milk and milk products as well as meat and meat products among others) to various charges, going against the East African Community (EAC) protocols. This has forced some manufacturers to stop exporting to Tanzania altogether. Others have resorted to establishing similar factories in Tanzania, to enable them to access this strategic market. This solution is not sustainable, especially for Small and Medium Enterprises that do not have the capacity to set up additional plants, particularly outside the country.  

Reversing the trade deficit calls for collaborative efforts towards developing solutions at the county, national and regional levels. 

At the county level, it is important that we harmonize county fees, levies and charges, to enable movement of goods across the country. At the national level, Government needs to create an enabling environment for businesses to thrive, by looking into taxation and regulatory challenges.  

At the regional level, Kenya and Tanzania need to collaborate to resolve Non-Trade Barriers (NTBs), some of which have taken a long time to resolve. For instance, fees charged on animals and their products were reported in 2017, and have not been resolved despite numerous bilateral meetings held between Kenya and Tanzania.  

We must also discourage the importation of finished goods to the region, by finalizing the review of the EAC Common External Tariff (CET). This will encourage manufacturing, whilst protecting industries in the East African region from imported finished goods.   

On the other hand, Kenyan manufacturers need to diversify their product portfolio, to tap into other trade opportunities in the region. However, this depends on Government’s goodwill and support to drive manufacturing growth. It is only through creating a conducive environment that local industry will thrive, and enable Kenya to be an export-led economy. 

Trade creates and expands opportunities for all. By remaining open to trade and investment, we shall increase our chances of becoming a prosperous nation. This also applies to our regional counterparts, who remain our biggest trading partners.    

The writer is the CEO of Kenya Association of Manufacturers and the Global Compact Network Kenya Board Chair. She can be reached at ceo@kam.co.ke.