Kenya gets economic lifeline in East Africa’s common market

The signing of the East Africa Community common market has given Kenya an economic lifeline.

The protocol launched last week, comes at a time when the country is grappling with low exports to international markets.

Food and Agriculture Organisation (FAO) says Kenya’s main export— black tea— to Britain and Russia has reduced, owing to the Europe debt crisis and increased global supply.

Exporters say the crisis that has battered investor confidence across Europe and pushed the euro to its lowest level in 13 months has eroded their earnings.

Coffee exports have also dropped due to poor quality of beans harvested.

The US Department of Agriculture’s Nairobi bureau, in its latest report, says Kenya’s coffee production is likely to fall 8.2 per cent to 670,000 bags in 2010-11, the lowest amount produced in more than 30 years.

Farmers are not replacing coffee bushes, with the over 100-year-old plants yielding low-quality berries, the report says.

The situation has been made worse by the low culture of coffee consumption in the Kenya.

The country requires to export more to improve its balance of payments account and boost the stability of the Kenyan currency.

A recent World Bank report noted that Kenya’s exports as a share of gross domestic product (GDP) have declined from 40 per cent in 1960 to 26 per cent in 2009.

The bank warns that reliance on domestic consumption while net exports remain weak is denting hopes of meeting long-term growth.

Hope now lies on the expanded regional market.

“East Africa Common Market is by all means a huge market that cannot be ignored. As Kenya professionals we are ready to take advantage of this expanded market to deepen our services provision to the region,” said Mr Daniel Ichang’i, the chairman of the Association of Professional Societies in East Africa.

Mr Vimal Shah, the chairman of the Kenya Association of Manufacturers said businesses see expanded opportunities in the common market, but there is need for member states to ease remaining barriers for business to fully benefit from integration.

“Partner states need to urgently simplify and harmonise their trade and documentation procedures. This should be accompanies by reduction of import and export documents,” he said.

Kenya’s export to EAC states increased by 22.8 per cent from Sh73.6 billion in 2005 to Sh90.5 billion this year, an amount seen to grow in future.

Over the same period, imports from neighbouring states grew by 300 per cent from Sh4.6 billion to Sh12.7 billion.

For tea, one of Kenya’s top foreign exchange earner, FAO says the country should increase local promotion to boost consumption.

“Tea producing countries across the world should increase income from the crop by marketing the drink more heavily at home,” said FAO. “Scope for expansion in consumption in traditional import markets like the United Kingdom and Russia is quite limited, but in countries producing tea, the per capita consumption is much lower and so there is a lot more market potential,” said Kaison Chang, secretary of FAO’s Inter-Governmental Group on Tea.

Consumers in tea-producing countries drink just a tenth of the beverage compared to those in mature import markets, representing a major opportunity for tea-growers if the right marketing strategies are employed, said FAO.

Kenya tea consumption is estimated at slightly above 17.6 million kilogrammes as per the 2008 intake levels.

FAO warned that Kenya should not increase tea acreage because that could result in oversupply at the world market and subsequent price fall.

It says the country should invest in green tea instead of solely on black tea. Kenya is the world’s largest black tea exporter.

“The export market in green tea will grow more quickly over the next 10 years than that of black tea, where the markets in major importing countries are unlikely to expand further as they are already nearly saturated,” said FAO.

Tea exports earned Kenya Sh69 billion in 2009, up from Sh62 billion in 2008, from 342 million kilogrammes, according to the Tea Board of Kenya.

The Export Processing Zones (EPZs) in Kenya are also eyeing the expanded market of 127 million people and spill over to non-EAC countries like DR Congo, Zambia and Ethiopia as the competition for the USA market deepens.

Officials of EPZs say they should be allowed to sell more of their produce locally to expand their market.

Under the EAC Custom Union Management Act, firms operating under the export promotion schemes in any of the five member states can only sell up 20 per cent of annual production within the territory and the rest must be for export.

Lack of raw materials locally has also pushed up the cost of production.

“The region has a combined population of over 200 million people which means that if EPZs are allowed to sell 70 per cent here, they will enjoy a wider market,” said EPZA chairman, Mr Mathenge Wanderi.

Tourism is also banking on the common market to grow its revenue.

The sector has been hit hard in the past years with the 2008 post-election violence and ranking of Kenya in the ‘failed states’ list contributing to fall in returns.

According to the Economic Survey of 2009, Kenya’s domestic tourism has grown, thanks to the marketing and education campaigns.

Visitors from Uganda and Tanzania also increased in the period.

The survey said domestic bed nights increased from 1,566,000 in 2008 to 2,150,000 in 2009.

Visitors from Uganda it increased from 43,000 to 103,000 from 2008 to 2009 while from Tanzania it increased from 43,000 to 71,000 in the same period.

The Tourism ministry says 2010 is the year when domestic tourism is to be supported and brought to the forefront, hoping to achieve by 2012, a 50 per cent margin of business.

During the last Easter Holidays, Mombasa hotels reported good business, recording high bookings from locals.

An earlier report by the World Bank and Export Promotion Council had tipped Kenya’s export of professional services to other East African states to increase by large margins because of the country’s sharper market intelligence and improved networking.

A survey by two groups showed that professional services demand such as banking, insurance, legal, accounting, architectural, ICT and engineering have been rising with the progression of the integration project, offering Kenya – the country with the most advanced human resource base – a chance to boost its exports.

The creation of the East Africa Common Market, last week, appears to have come at the right time because it has effectively increased the size of Kenya’s “local” market from the current estimated 40 million people to over 127 million people and a combined gross domestic product (GDP) of Sh5.8 trillion.

With Kenya’s main export sectors—tea, coffee and tourism— recording low returns, the opening up of the EAC will give the country a new trade outlet.

Economists say the common market may be the solution to increase Kenya’s foreign exchange.

With over 127 million people from EAC’s five member countries and a combined gross domestic product (GDP) of Sh5.8 trillion, Kenya looks to grow its....

The EAC common market appears to have been a perfect timing for Kenya because it has expanded the window for several main exports whose markets in Europe and United States are either shrinking or facing high competition.

Talk to more analysts on the specific benefits of EAC to Kenyan exporters.

Get statistics on how EAC will boost exports.

This comes against the backdrop of a recent Food and Agriculture Organisation (FAO) alert that forecasting stagnating black tea markets in Britain and Russia.