TRADE DISCOURSE IN KENYA: SOME TOPICAL ISSUES VOLUME 1

Kenya - 15 January 2018

FOREWORD
The School of Economics at the University of Nairobi was awarded the WTO Chairs Program in 2010 and decided to use 75% of the yearly grants on research. This book which is the first volume is the final output of research carried out by some members of the research team. The research papers arose out of proposed research areas from concept papers prepared by members of the WTO Chairs program in the school. This volume is an important and exciting assessment of the topical issues in international trade in Kenya.
The world has witnessed the resurgence of regional development in terms of regional economic integration groupings at the global level over the past decades. The fundamental objectives for the formation of these sub regional and regional integration schemes are to enable the economies of the member countries participating in such arrangement to achieve, individually and collectively higher levels of economic development that would have otherwise proved elusive. The gains and losses of these integration movements particularly the Tripartite Agreement signed to enhance these developments is the thrust of this paper by Dr. Agonda.
Foreign direct investment (FDI) is believed to promote exports of host countries by augmenting domestic capital for exports, helping transfer technology and new products for exports. It also facilitates access to new and large foreign markets, provides training for the local workforce and thereby upgrading technical and management skills. In the Kenyan context little is known on the role of FDI in the export orientation of firms. How do FDI impact on the export propensity and intensity of Kenyan firms? Dr. Abala examines the export propensity and intensity of Kenyan manufacturing firms using a panel of firms from 1993-2002. Using a probit model, the results show a significantly positive effect of FDI on firms’ propensity to export. The random effect results finds no significant impact of FDI on how much firms export, but shows that firm size is an important factor in export intensity. The results clearly show that FDI is very relevant in influencing export propensity. The findings have important policy implications in terms of promoting initiatives to encourage FDI inflows into the country.
The global financial crisis of 2008-2009 had various channels of transmission to Kenya and one of them was through remittances. However, Dr. Kiriti Nganga, found that data from the Central Bank of Kenya shows that remittances from the Diaspora only reduced for the first six months of 2009 after which they started rising though not at the same rate as before. After that remittances have taken an upward trend and they comprise a sizable proportion of Kenya’s Gross Domestic Product (GDP). Remittances have been shown to smoothen consumption (food) on the part of recipients. Recipients also use the remittances to pay for health services, built new houses, improve old ones, buy livestock and buy other household assets. The data shows that only a very small proportion of remittances in Kenya is used for improvement of land though Kenya is an agricultural country. With the looming debt crisis in the Euro zone (2011), the future of remittances in Kenya looks bleak unless the crisis is sorted out fast.
Informal Cross-Border Trade in agricultural commodities between Kenya and her neighbors has been growing with time, but knowledge of its magnitude, determinants and consequences remain largely inadequate. This has acted to inhibit formulation of appropriate policies and strategies to help exploit its impact particularly on food security. It has also led to possible undervaluation of the national accounts. On the basis of surveys and relevant government, scholarly and civil society documentation and studies, Dr. Gor’s paper attempts to assess the direction and volume of informal trade flows, the types of agricultural commodities involved and the existing supportive trade infrastructure. The paper also derives the incentive to informally trade between Kenya and her neighbors.
The findings show that Informal Cross Border Trade (ICBT) is so deeply entrenched in the region that it almost equals in size to formal trade, yet it continues to expand. The study identifies maize as the most traded good. Other leading agricultural commodities traded include beans, rice and livestock. In addition, it was found that Ethiopia and Sudan have the highest incentive to informally import while Kenya and Uganda have the lowest incentive. The latter two however, also have the highest incentive to informally export within the region.
The term non-tariff measures (NTMs) is defined to include export restraints and production and export subsidies, or measures with similar effect, not just import restraints. In Kenya many internal processes by trade facilitation agencies have been reported to be inefficient, adding to cost of doing business and eroding Kenya’s firms competitiveness in the domestic, regional and international markets. The regulations, processes, procedures and operations of the trade regulatory agencies sometimes act as trade hindrance to domestic and intra- East African Community (EAC) trade. There are challenges because of many duplicative roles played by these agencies all which add to the cost of doing business and restricts the expansion of the domestic trade as well as EAC intra trade.
Dr. Kiriti Nganga found that product export/import bans and discriminatory sourcing, corrupt practices, road blocks, clearance of exports goods, documentation on private businesses, lengthy clearance processes, arbitrary/multiple documentation, administrative levies, lengthy classification and valuation of import processes, inefficient port operations, numerous police road blocks, variable documentation requirements, road toll charges and uncompetitive port entry taxes/charges have very severe impact on business in Kenya. There is therefore need to harmonize the documentation procedures with other trading partners and to reduce the lengthy clearance procedures that end up frustrating trade instead of facilitating it.
Integration is once again a concept so much in vogue as argued by Dr. Kiriti Nganga and Mr. Okelo. Regional trade agreements have multiplied worldwide. Almost all countries are members of at least one agreement and many are party to multiple agreements. Existing agreements are re-invigorated and expanded while new ones are being negotiated and formed. Integration measures have extended their reach beyond traditional free trade in goods to a number of domestic regulatory sphere including services, investment and intellectual property rights, to deepen the integration among partner countries. For most countries, integration is just an agreement among a group of countries to remove various kinds of trade barriers. Developing countries such as Kenya are active participants in the regionalism movement. They see regional integration as an essential avenue towards economic growth, development and poverty alleviation. The overarching concern of these arrangements is the formation of a body with a common purpose, usually to increase human welfare.
Dr. Nyandemo contends that the tourism sector has become an important sector towards contributing to overall development in many countries, in terms of foreign exchange earnings, employment generation and so do the region’s domestic product. The World market for tourism services has been steadily growing over time.
The paper gives an overview of African tourism and its contribution towards the overall development efforts, trends and patterns of the sector, challenges and potential prospects and the way forward.
The publication of this volume is timely as Kenya tries to gain momentum towards achieving the status of an industrialised nation by the year 2030 and also tries to fulfil the last of the Millennium Development Goals. Volume Two will go beyond Kenya and will look at topical trade issues in the East African region.
This book benefited greatly from internal and external peer review sessions. We thank Mr. Peter Kennedy Akech for text processing the book material and Professor Okoth Okombo for technical editing.
Last but not least we thank the authors of the book chapters for spending time and energy to respond to comments by the reviewers in order to produce the chapters.

Prof. Tabitha Kiriti Nganga Mr. Jasper Okelo

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