A new agreement makes Africa’s economy even more dependent on the EU

Kenya and the European Union have concluded a free trade agreement. The East African country is also looking to countries outside of Africa to boost its economy.

What is the EU-Kenya Trade Agreement?

Once ratified by all 27 EU countries, the Economic Partnership Agreement (EPA) between the European Union and Kenya will fully open the EU market for all products made in Kenya, with the exception of arms. The agreement guarantees duty-free and quota-free access for goods manufactured in Kenya.

The EU is already the most important export market and second largest trading partner of the East African country. In 2022, Kenya exported €1.2 billion worth of mainly agricultural products to the EU, including tea, coffee, cut flowers, peas and beans. Over two thirds of Kenya’s total flower production is sold on the European market.

For its part, the largest economy in East Africa will open its own market “gradually and partially” to European goods. Under the agreement, tariffs are to be phased out over a period of 25 years. Currently, Kenya mainly imports machinery, mineral and chemical products from the EU.

Kenya should continue to be allowed to impose import duties on certain so-called “sensitive products” or to impose protective measures if there is a sudden increase in imports of these sensitive products from the EU.

The EPA is the first comprehensive trade deal between the EU and an African country since the EU signed a similar deal with Ghana in 2016. Trade between the EU and Kenya has been increasing steadily for years: between 2018 and 2022 it grew by 27 percent. “This puts more money in the pockets of Kenyan traders. This increased trade anchors Kenya as a natural hub for EU products in the East African states,” said Kenyan President William Ruto at a ceremony marking the official conclusion of the negotiations on Monday.

What does the EPA mean for Kenya?

“The agreement comes at the right time. It can help diversify Kenya’s traded products and trading partners within the EU,” says Sherillyn Raga, research associate at global think tank ODI. The Netherlands, Germany and France are currently the top destinations for EU imports from Kenya, Raga adds.

The world has experienced several economic shocks, from the corona pandemic to the effects of Russia’s attack on Ukraine and climate change. “If a country’s trade structure is very heavily concentrated on a limited number of partners or products, this country is very susceptible to strong global price fluctuations,” the macroeconomics and trade expert told DW. Trade diversification will make Kenya more resilient.

However, not much will change for Kenya’s exports to the EU in the short term: The country already enjoys duty-free and quota-free trade with the EU under a temporary special agreement that was concluded in 2014 after an agreement between the EU and the EU East African Community (EAC) had stalled.

Above all, the new agreement is about formally securing Kenya’s market access to the EU and thus “reducing uncertainties,” estimates economist Frederik Stender, who researches trade policy and regional economic integration at the German Institute for Development and Sustainability. This legal certainty could in turn attract more investors from the EU to Kenya in the medium term, according to Stender.

Remarkably, the EU trade deal is not just about trade. It also contains “a development policy perspective” for Kenya, Stender continued. Kenya has committed to implementing binding commitments related to environmental protection, climate protection, combating gender inequality and strengthening labor rights.

The agreement also includes trade-related development assistance measures to address some factors constraining Kenya’s exports, such as a lack of manufacturing capacity, poor infrastructure or difficulties in meeting EU standards. “These development policy elements are designed to help Kenyan exporters overcome some of the difficulties they face when trading with the EU. This in turn should help ensure that Kenya is better integrated into the value chains of the EU,” says Stender.

Why did Kenya sign the EU deal on its own?

In 2014, the members of the EAC – then consisting of Kenya, Rwanda, Burundi, Tanzania and Uganda – negotiated an economic partnership agreement with the European Union. But only Kenya subsequently ratified the agreement. Without the signatures of the other EAC members, which now also include the Democratic Republic of the Congo and South Sudan, the EU-EAC free trade agreement could not come into force.

It stands to reason that the other EAC members did not consider it urgent to ratify the joint agreement since they – as so-called “least developed countries” (LDC) – already enjoyed quota-free access to the EU market. For Kenya, which entered the group of middle-income economies around the same time, this path was lost. In early 2021, EAC leaders agreed to allow those members wishing to implement the EU trade deal to negotiate directly with Brussels. And so did Kenya.

What about Kenya’s other trade deals?

The slow progress of regional integration in Africa is probably one of the reasons why Kenya negotiated the EU trade deal and plans to finalize more deals. In 2019, the African Continental Free Trade Association (AfCFTA) came into force and its operational phase started in 2021, but so far only a few countries, including Kenya, have tentatively started trading selected goods under the agreement in a pilot phase.

Against this background, Kenya appears to be looking for closer integration with other partners outside of Africa. In December 2020, when the UK left the EU, the country signed a similar trade deal with the UK. Negotiations are also underway for a trade deal with the United States, which could be signed next year.

A letter of intent to start negotiations with the United Arab Emirates has been in place since July 2022. If a deal is finalized, it would be the first bilateral trade deal the United Arab Emirates (UAE) has with an African country. As one of Kenya’s most important export partners, the Emirates are primarily considered the gateway for trading partners and investors from the Middle East.

Kenya mainly exports tea, sheep and goat meat to the UAE. Trade between the two countries is currently characterized by massive trade inequality to the detriment of Kenya. “Kenya is doing its best to secure deals with countries outside of Africa with the aim of increasing exports and diversifying trading partners,” says expert Sherillyn Raga, adding that this is all the more important given Kenya’s vulnerability external shocks urgently needed to be reduced and the country’s economic stability promoted.

Hank Peter

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