advertisement

Corporate

Kenya faces grim prospects if Doha round succeeds

In addition to flowers, Kenya is expected to increase its exports of tea, coffee and oil seeds but it will lose in the tobacco and grains markets. Photo/FILE
In addition to flowers, Kenya is expected to increase its exports of tea, coffee and oil seeds but it will lose in the tobacco and grains markets. Photo/FILE 

The consequences of the Doha Round of trade talks for larger developing countries in sub-Saharan Africa could include job losses and industrialisation if a new study forecasting how Kenya is set to be affected is anything to go by.

The Carnegie Endowment for International Peace, the United Nations Economic Commission for Africa (UNECA), the United Nations Development Programme and the Kenyan Institute for Research and Policy Analysis were involved in the study.

It attempts to model the expected effects of the provisions contained in the World Trade Organisation’s (WTO) Doha Round July 2008 negotiating texts in agriculture and industrial goods.

These texts have since been slightly revised and currently negotiators are working with the December 2008 text.

Due to the scarcity of data, the model does not take into consideration trade facilitation and services, “which is a pity, since services are the fastest growing industry and we are one of the four African countries that have already made offers in services liberalisation”, said Kenya’s trade negotiator, Daniel O. Owoko.

Prior to the current global economic crisis, the country’s economy was one of the fastest growing in Africa.

“Doha’s liberalisation of merchandise trade will significantly affect the Kenyan economy,” stated Eduardo Zepeda, one of the authors. “Agriculture and processed food will gain. Manufacturing and mining will lose. Gains will come primarily from the drop in export subsidies to agriculture in Europe and the US and, less so, from reductions in domestic support to agriculture in developed countries and to tariffs cuts around the world.”

The study assumes that developed countries will effectively eliminate export subsidies in agriculture by 2013 and reduce trade-distorting domestic supports.

The export and import of agricultural goods would increase between 2010 and 2012 with the progressive market opening and reduction of internal subsidies in the North.

But the most important benefits would come from the elimination of export subsidies by 2013.

“Even products that don’t get export subsidies, like horticulture, will profit a lot,” Nicolas Imboden, director of the Ideas Centre in Geneva commented.

In addition to flowers, Kenya is expected to increase its exports of tea, coffee and oil seeds but it will lose in the tobacco and grains markets.

“How long can a country keep specialising in these sectors?” Zepeda questioned. “It needs manufacturing and services too.”

But the study shows that Kenya will lose in manufacturing - textiles and footwear, machinery and equipment - even though it does not commit itself to any tariff reductions in these areas.

The study supports the position that the reduction in prices will increase consumption which, together with a rise in GDP, will “reduce poverty”.

But surging imports also take away jobs. Kenya has over-specialised in some manufacturing goods.

“There is going to be de-industrialisation in textile and footwear because these sectors are not competitive. But we should not interpret the result of the study as a general de-industrialisation, since the model does not show where the country will have a comparative advantage in the future,” Imboden states.

The study underscores that the country’s long-term development cannot depend on agriculture and food processing activities alone and Kenya must aim to build comparative advantages in activities with higher value-added characteristics if it wishes to support higher standards of living.

Concerning the labour market, further specialisation in agriculture and processed foods means a more intensive use of unskilled and semi-skilled labour.

The adjustment costs will be significant.

The processing of agricultural goods will be more affected than agriculture itself.

“Doha liberalisation is not a major factor in Kenya’s development but not an insignificant one either. Trade is not that important. What matters more is development, investment and the industrial policy,” Imboden said.

advertisement