The National Trade Policy 2017 and the Integrated Kenya National Export Development and Promotion Strategy 2018 envision an export-led economic growth with an annual export growth rate averaging 25 percent.
Additionally, the Bottom-Up Economic Transformation Agenda anticipates increasing export-led growth rate by 10 to 15 percent annually.
The European Union (EU) imports about 22 percent of Kenyan exports and it is a market to over 51 percent untapped export potential for Kenya.
Kenya exports have enjoyed duty reductions and quota-free access to the EU market since 2008 when the EU signed the Economic Partnership Agreement (EPA) with the East Africa Community.
The EPA is a reciprocal, comprehensive trade agreement involving multiple sectors such as agriculture, manufacturing, services, and infrastructure development aimed at long-term, fair-trade relations between the EU and Kenya.
Under EPA Kenya exports cut flowers, vegetables, and other fresh produce entering the EU which benefit from zero tariffs, which is an example of duty reduction.
This has allowed the horticultural industry to grow significantly, with a large portion of exports going to the EU market without facing import taxes.
Additionally, Kenya exports benefit from the EU Generalised System of Preferences (GSP), which has been in place since 1971.
The GSP is a voluntary unilateral trade preference scheme where the EU offers reduced tariffs or duty-free access without requiring reciprocal concessions. For example, under the EU GSP scheme, Kenya’s exports of coffee and tea benefit from reduced tariffs when entering the European market, allowing these products to remain competitive.
Both EPA and GSP offer provisions that can encourage participation by Micro and Small Enterprises (MSEs) in the EU market.
However, the level of MSE participation is largely dependent on access to information about the market requirements and their internal economies of scale which enable them to meet costs associated with complying with standards and technical requirements while pricing exported goods competitively.
The major obstacle preventing Kenyan exporting firms from fully exploiting the EU market has been the introduction of non-tariff measures such as technical regulations.
These include stringent standards on product safety, environmental protection and health. These are imposed outside the main market access provisions within the EPAs as additional requirements for accessing the market.
Technical regulations are set and enforced by governments and their compliance is mandatory to ensure that products exported are safe and meet a minimum quality threshold.
Among the regulations include cover labelling requirements, pre-shipment inspections, import licensing procedures, and safeguards, anti-dumping measures, rules of origin, and phytosanitary controls.
The compliance costs tend to be punitive to MSEs as they don’t have a comparative advantage in technology and internal economies of scale as compared to medium and large enterprises.
Technical regulations are more restrictive to trade compared to tariffs because they are less transparent and harder to quantify, and their compliance costs are huge.
A report by the United Nations Conference on Trade and Development highlighted that non-tariff barriers are estimated to increase the cost of international trade by an average of 25-30 percent.
As such, micro-small enterprises are not able to penetrate the EU market, while larger firms can manage the compliance costs.
Moreover, evidence shows that European countries that offer the largest tariff reductions to Kenyan firms exporting to the EU tend to introduce most of the technical regulations.
For example, EU countries that offer significant tariff reductions on Kenyan horticultural products impose stringent technical regulations on sanitary and phytosanitary measures, including pesticide and herbicide residues limits.
These regulations add considerable compliance costs to Kenyan exporters. Gaps in access to information pertaining to emerging market access requirements by the private sector also contributes to Kenya not fully unlocking the EU market potential.
For Kenya to unlock the 51 percent untapped EU export market potential, it is important to address the technical regulations.
One of such interventions is the need to fast-track the completion and approval of the Kenya Quality Policy 2024. The Kenya Quality Policy 2024 harmonises the process of developing standards and technical regulations with international best practice including those implemented by the European Union, and advocates for awareness creation of emerging market issues and trends to enhance the capacity of the local private sector to comply with emerging standards and technical regulations for enhanced market access.
Secondly, the State Department for Industry needs to identify the capacity gaps that hinder MSEs from exploiting the EU market and work closely with relevant agencies to build capacity and create awareness among local MSEs on evolving standards and technical regulations for sustained access to the EU.
Thirdly, economic diplomacy can also play a role in overcoming export barriers that MSEs often face. For instance, Kenya’s foreign missions, such as embassies and trade offices could collaborate with export destination countries in the EU to champion the interest of Kenyan MSEs and spearhead organising Expo trade fairs where Kenyan MSEs would participate with the aim of building capacity and sharing information on the requirements for Kenya products to access the EU markets.
The provisions on institutional support within the EPA could be invoked to establish strong diplomatic and trade relationships with export destination countries to reduce the effect of non-tariff barriers on market access and spur Kenya’s exports to the European Union for sustained development.
The authors work in the Trade and Foreign Policy Department at The Kenya Institute for Public Policy Research and Analysis.
