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Recent macro-economic instability in East African economies, notably the sharp depreciation of the national currencies, has concentrated focus on the problem of low export earnings. Weak local currencies in fact increase the price competitiveness of East African products and services in global markets – provided imported input in exports is low.
However, the region’s export underperformanceis tied to several more basic issues, includingsupply-side constraints: low quality goods or services; poor infrastructure, high transportation costs, high transaction costs, weak and unreliable policies and regulatory environment, weak institutions, low skill base, an underdeveloped trade finance sector, and lack of market information.
Whilst these shortcomings contribute significantly to sub-optimal export performance, East African countries have recognised that to become fully competitive, they must integrate the region’s small and fragmented national markets into a larger economic space. A fully integrated community of nearly 140 million people will stimulate greater investment through increased returns to factors of production, and increased specialisation and productivity.
Addressing supply-side constraints and integrating fragmented markets – as EACcountries are trying to do through the EAC Treaty– are essential pillars of a strategy for regional competitiveness. However, there isa complementary pillar too, that must be pursued with equal vigour - market access. If East Africa is to fully integrate into the global economy and penetrate and even dominate key global markets, it needs fairertrade rules and equal access to those markets.New markets, higher export earnings and a healthy trade balance will then contribute to sustained growth and macroeconomic stability. Market access – as a critical and complimentary strategy to regional growth – has up till now not received the attention it deserves. This is why it is important to highlight the potentially transformative effective of the on-going negotiations on a comprehensive Economic Partnership Agreement (EPA) between the European Union (EU) and the EAC countries. The importance of these negotiations to Kenya, EAC’s largest economy, is of particular interest.
The Framework Economic Partnership Agreement was initialled by the Parties (the EU and the EAC)in November 2007, with the expectation that negotiations would be concluded by June 2010. Progress was slowed by lack of funds and contentious issues (for example, theexport taxes and Most-Favoured-Nation clause) in the Interim EPA. These challenges are being overcome as evidenced by appreciable progress towards conclusion of a comprehensive EPA. The date by which the comprehensive EPA must be concluded is now agreed as 31st July 2012.
Kenya, through on-going support from TradeMark East Africa, has played a key leadership role in the region’s tremendous progress in EPA negotiations.It is very encouraging to note the high degree of convergence emerging between the parties on such important areas as rules of origin, agriculture and economic cooperation and development.
For Kenya alone, a comprehensive EPA that allows for duty free and quota free access to the Europe Union market will be a major boon. It will protect Kenya from losing its exports to the EU, which in 2010 stood at Kshs 98billion,representing 24 percent of Kenya’s total exports. The products to benefit most are, of course, horticulture and fisheries, the two sectors in which Kenya has traditionally held a comparative advantage. These sectors employ an estimated 1.5 million people.
Besides safeguarding traditional export sectors, a comprehensive EPA will open up new market opportunities for producers of over 1,000 products or services which are currently restricted from access to the EU.
Even before the EPA is concluded, there is an urgent need to review the approved product list, line by line, and publicise widely the new market opportunities they represent. For example, products which previously attracted high tariffs but which now are zero rated under EPA process include high quality beef and veal, and dried or smoked meat of poultry (currently sourced by the EU mainly from Brazil, Chile and Argentina). In addition, textiles exporters stand to benefit from more liberal rules of origin.
But first things first: a comprehensive EPA must be concluded by 31st July 2012. Failure to do so byKenya and other EAC countries is a price the region and its people cannot afford to pay
BY JASON KAPKIRWOK
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