Uncertainty on global stage fuels urgency for deeper East Africa ties

Kenyans watched in horror this week as newly installed American President Trump wreaked havoc on global travel and upending norms of American values and civility. Many pundits and business leaders ponder what impact the perceived policy insanity in America’s executive branch of government might hold on us here in Kenya. So let us review Kenya’s economic relationship with America to ascertain any vulnerabilities.

First, USAid states that the US Government donates roughly Sh100 billion every year to Kenya. The lion’s share of US Government funding goes to the health sector particularly the Kenyan Ministry of Health for anti-retroviral drugs for people living with HIV and Aids. Kenya must immediately begin planning to fill the health funding gap if President Trump implements even more isolationist policies and cuts foreign aid to partner nations.

Second, the office of the US Trade Representative delineates that bilateral trade between Kenya and America comprise an additional Sh150 billion. Kenya’s trade with the United States dwarfs Tanzania’s at 5.4 times and more than 9.7 times that of Uganda’s. Kenyan exporters benefit through two trade agreements. The Africa Growth and Opportunity Act (Agoa) of 2000 that benefits textiles and the Trade and Investment Framework Agreements (TIFA) signed with the East African Community (EAC) in 2008 and the Common Market for Eastern and Southern Africa (Comesa) in 2001, both of which Kenya is a member.

Our exports to America include primarily woven apparel, knit apparel, unroasted coffee, tea, spices, and macadamia nuts. However, Kenya carried a trade deficit with the United States of Sh37 billion . American imports to Kenya included aircraft, machinery, electrical machinery, and, surprisingly, cereals of grain and sorghum.

A third category of economic intermingling between our two countries involves remittances when, as an example, a Kenyan living in the United States transfers money back home. Over 100,000 Kenyan citizens live in the United States, most of who have been granted American citizenship or permanent residency status. In Kenya, roughly 20,000 US citizens live here, most of who have not been granted permanent residence or citizenship.

The fact that America allows so many Kenyans to permanently live in its borders means that the remittance situation continues in perpetuity under foreseeable circumstances as a constant source of revenue to Kenya. The Pew Research Centre approximates remittances sent from the United States to Kenya by individuals to total Sh46.9 billion per annum.

Fourth, Americans hold over Sh38.3 billion in stock equities on the Nairobi Securities Exchange. Kenyan firms may then utilise the American investments to expand their products, services, and corporate infrastructures. Fifth, Kenya receives over 1.2 million tourist visitors every year according to the World Tourism Organisation, staying an average of 13 days. Tourism equals about 12 per cent of Kenya’s economy. According to the Kenya Tourism Board, Americans comprise the largest number of tourists that come to Kenya at 11.3 per cent, just ahead of the British. One can then postulate that American tourists contribute about 1.3 per cent towards Kenya’s GDP, or Sh71.8 billion annually.

In total, not accounting for donations from private Americans directly to NGOs who operate in Kenya or foreign direct investment of private equity by Americans in Kenya, Kenya’s direct relationship with America entails Sh380 billion or 6.9 per cent of our total economy. However, since a US President or Congress restricts trips by its private citizens only in extremely rare scenarios, like to Cuba, then Business Talk will not presume a cessation in tourists from America coming to Kenya in a hypothetical Trump-era world. Removing American tourists from the equation, then America’s remaining direct relationship with Kenya totals Sh308.2 billion comprising 5.5 percent of our Sh5,524 billion gross domestic product.

How could our economy survive if President Trump’s cuts all ties with Kenya? Since Kenya’s GDP grows at roughly 5.7 per cent per annum according to the World Bank, then the loss would roughly equate to missing out on one year’s worth of growth despite commensurate inflation. So while prices would continue to rise around 6.3 per cent for a year, wages and corporate profits would likely stay stagnant.

While such a scenario represents an unpleasant environment, Kenya could easily withstand such an economic shock rebounding quickly in future years. In fact, Kenya could benefit over the long-term from a jolt ceasing American trade since it could help force Kenyan firms to conduct more value addition on raw materials here in our country instead of exporting raw agricultural material for processing elsewhere.

As uncertainty reigns on the global stage, Kenya and our neighbours in East Africa might want to seriously consider deeper economic and political integration similar to the Economic Community of West African States (Ecowas) to fortify ourselves against external economic shocks and spearhead more regional stability. An integrated East African Community remains an elusive dream.

Further, lessen our dependence on out of balance trade with countries that sell us finished goods, such as China, Japan, and America, and focus on developing our own export led growth in targeted industries that champion value creation, processing, and refining our raw materials. Kenya possesses one of the most educated work forces, vibrant professional services industries, and rampant entrepreneurship cultures anywhere in the world. Perhaps it is time for us to turn our attention towards exports and regional trade interconnections and away from professional attention to predominantly local services.

Discuss Kenyan economic stability and growth with other Business Daily readers through #KenyanStability on Twitter. Business Talk continues its mini-series on Kenyan and American linkages next week with an expose on variations between both countries’ history and culture.

Scott may be reached on [email protected] or on Twitter: @ScottProfessor