How Kenya plans to close its ever growing foreign trade deficit

Kenya’s trade deficit has been growing rapidly in recent years. At the end of December 2015, for instance, the balance of trade stood at Sh999.3 billion according to data from the Kenya National Bureau of Statistics.

Economists have called for efforts to grow exports in order to address the imbalance, which stands at about 7.2 per cent.

Dr Chris Kiptoo, the Principal Secretary State Department of Commerce and Trade at the Ministry of Industry, Investment and Trade, spoke to the Business Daily’s Charles Mwaniki on the sidelines of last week’s Africa 2016 conference in the Egyptian resort of Sharm el Sheikh about Kenya’s export strategies as Africa moves towards a free trade area.

What is the government doing to grow Kenyan exports?

First, we recognise that exports growth is so far our weakest point. We have prepared a draft national trade policy that we hope will be adopted by the Cabinet within the next three months.

The policy takes into account many things, including the sessional papers that we have had before, the new Constitution that takes into account county governments, and the recent tripartite agreement by Comesa, EAC and SADC.

We are also working on a national export development strategy that will underpin the trade policy, as well as a regional integration strategy.

We shall hold a meeting in March to discuss these policies. These are the foundations that will help us further penetrate the regional market. We are also looking to safeguard the preferential arrangements we already have.

In relation to the tripartite agreement, how far are the parties from actualising it?

When you sign a protocol on free trade and you ratify it, there is the process of operationalisation. Up to now, the common market is not fully operational. We still have to pass all the laws relating to immigration, social security, and labour among others.

We had over 27 laws that had to be changed. In the case of the tripartite FTA, the issue of rules of origin determining the national source of products has to be addressed.

What is important is that the agreement has been done and the summit has pronounced itself to move into a free trade area.

At the continental level, the summit has also pronounced itself for a continental FTA. The only problem is that the level of intra-regional trade is still low although it has improved from around 10 per cent to about 15-16 per cent.

Trade of that level in an FTA is not meaningful enough. We need to grow that by dealing with connectivity issues — transport challenges.

We are doing something but I think it can be fast tracked. We also have to do something about non-tariff barriers by adopting ICT platforms that improve transparency

The EPAs with the European Union have proved troublesome for us in the past. Has the issue been resolved?

The remaining work is on our side. The EU is only waiting for the secretary general of the East African Community to deposit the ratified documents.

We have gone through legal scrubbing to make sure the text is okay, and translation into all the EU languages and Swahili is almost done.

What is remaining is ratification by each of the countries, whereby the secretary general of the EAC will deposit the instruments with the EU.

We however have a window of only four years for these EPAs, because the Cotonou Agreement that covers the period 2000 to 2020 is running out in four years’ time.

After 2020 we do need to think of a new strategy to guide what we will do.

Is the government still looking to use tax incentives to encourage export producers and investment in this area?

It all depends. If an investor comes in and does not want to belong to the export processing zones, then it means they will operate just like any other company and will be subjected to all the tax laws of the land.

Let’s not cheat ourselves. Governments require revenue and the only source is taxes. I believe in more trade so that we can have more revenue.

But to me, an investor can take advantage of the Export Processing Zones where you have VAT exemption, income tax exemption, a tax holiday for 10 years and after that lower corporate tax.

They also get a 100 per cent investment allowance for a while, meaning that if you invest in machinery and property for production it is recoverable from tax.

These are good incentives, and there are industrial parks we are setting aside. We have generous incentives, so it is just a matter of providing this information to investors. Where there is a genuine case however for more incentives, the government will consider.

Have you addressed the issue of the wide trade imbalance with Egypt?

We have a strong desire to grow our exports in goods and services, and are taking a close look to see what we can do about this.

Last year our total trade between Kenya and Egypt was around $455 million. Thirty six per cent of that trade was Kenya’s while the rest was Egypt’s. Of our share, 90 per cent was tea, and yet when you look at the statistics here, they are still importing tea from other sources.

This is an area we can grow, but more importantly, we can encourage a partnership with Egyptians here and back home where we can do value addition to our tea. We also need to sell more coffee and tobacco, and more importantly meat and related products.

We signed a trade agreement on more trade in January last year. We have been in discussion with them here and we have agreed to engage more bilaterally to see how we can trade more with each other.

The numbers are low. The $455 million in trade between countries whose combined GDP is approaching $400 billion is too low.