Kenya first in line for post-Agoa deal

A garments factory at an export processing zone in Kenya. Agoa is said to have created some 25,000 jobs in Kenya’s Export Processing Zones where apparel is made. FILE PHOTO | NMG 

In Summary

• Kenya is seeking a deal that will not be reliant on frequent renewals.
• Officials in Nairobi say they have activated “preemptive” negotiations to get a replacement to Agoa as soon as possible.
• Agoa was signed into being in 2000 by President Bill Clinton and was renewed twice. It will expire in September 2025.

By AGGREY MUTAMBO
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A Kenyan delegation led by President Uhuru Kenyatta is headed to the US this week for discussions on a new trade deal that officials say will be different from the Africa Growth Opportunity Act (Agoa), and set the tone for the rest of the continent.

The EastAfrican has learnt that Kenya is seeking a deal that will not be reliant on frequent renewals.

Rather, officials say they want a bilateral agreement that will be activated once through parliamentary ratification, and ended through the same legislative decisions, rather than one that focused on sub-Saharan Africa in general.

Agoa was signed into being in 2000 by President Bill Clinton and was renewed twice. It will expire in September 2025.

Officials in Nairobi say they have activated “preemptive” negotiations to get a replacement to Agoa as soon as possible.

Kenya’s Foreign Affairs Principal Secretary Macharia Kamau told The EastAfrican of an “expanded” arrangement that Kenya is seeking, without giving details.

“Agoa has lived its course so it makes sense that we need to get a new deal, that is much better,” he said.

“A lot of work will go into it before the final outcome is reached. But this step is an assurance to all our businesspeople that we do not want a vacuum (when the Agoa expires) and we hope it will be a better, and expanded version.”

On Thursday, the Kenyan cabinet approved the commencement of trade talks with the US in what State House in Nairobi said was a trade deal that “will help Kenyan goods to have smooth access to the expansive US consumer market especially as the Agoa pact comes to an end.”

President Kenyatta is expected to be accompanied to Washington by a strong delegation of trade policy makers.

State officials in Nairobi clarified that these were just the first of trade talks and nothing is expected to be signed during this trip referencing reports by Bloomberg news that an agreement will be declared. State House said they expect negotiations to take long to conclude.

“If we get something better than Agoa, the better, but the truth is if we don’t do anything, our exports will soon start attracting duty. But it is not possible to tell at the moment when we can have it done,” one govt trade policy maker who is familiar with the arrangement told The EastAfrican.

“We cannot regret trading under the Agoa at all. But it is only that we couldn’t utilise its entire privileges,” the official said.

The official explained that Kenya may also look for provisions that will help protect local industries such as allowing certain taxes to be imposed on second-hand goods from the US. If that goes through, Nairobi’s negotiators will have navigated a stronger lobby of US trade merchants who often campaigned to be allowed to export goods under privileges.

US Ambassador to Kenya Kyle McCarter, meanwhile, said “I am expecting a victorious week coming up. Win-Win for Kenya and US in many ways.”

Under Agoa, Kenya and other sub-Sahara Africa countries were allowed duty-free exports on a select list of 6,421 goods, provided they met certain stringent conditions. But these countries were also supposed to accept certain second-hand goods without charging extra duty.

Countries that tried to ban those second-hand clothes were removed from Agoa such as Rwanda.

Agoa also allowed the US government to remove countries that flouted human rights, rule of law or market openness.

Under Agoa, Kenya’s top exports to the US mainly included apparel, coffee, tea and macadamia nuts, whose exports rose from one per cent to six per cent during Agoa.

Kenya’s total exports globally maintained an average of $5.6 billion during the 2012-2016 period, the Trade and Industrialisation Ministry data shows.

But under Agoa, they grew from $389.5 million in 2012 to $551.5 million in 2016 even as the total sub-Sahara Africa exports to US decreased from $34.9 billion to $10.7 billion during the same period, according to the World Bank.

In Sub-Sahara, Agoa is said to have created some 350,000 direct jobs, and another one million jobs reliant on export channels. But experts warned that Agoa’s expansive list of countries that combined least developed and lower middle income earners meant some profited more; on the same rules.

For example, Kenya’s share of total exports to the US was below one per cent, even though it doubled exports during this time.

“It is difficult to ascertain the extent to which Agoa trade contributed to the impressive growth that has been witnessed since 2002...as there were other more significant policy changes that led to economic growth,” a recent assessment by the Institute of Economic Affairs Kenya (IEA), a local think-tank says.

Agoa is said to have created some 25,000 jobs in Kenya’s Export Processing Zones where apparel is made.

Economists however say there has been little connection between EPZs and Kenyan economy as most factories are foreign owned with little skills transfer.

Kenya’s own Trade and Industrialisation Ministry admits the narrow focus in exports meant exports could not grow.

“The US market is dynamic as new products are frequently launched in the market. Exporters should therefore expect competition in every instance, including in niche products,” Kenya’s National Agoa Strategy (2018-2023) admitted, recommending diversification and more value addition.

Key issues under review
• Expiration: Nairobi wants continuity in a trade agreement that only needs parliamentary ratification, rather than frequent renewals.
• Nascent industries: Nairobi hopes to avoid clauses that could open floodgate of cheap imports that could kill local industries.
• Generalities: Nairobi is seeking a specified deal, better than Agoa which gave everyone same conditions.
• Expansion: Need for an expanded list of goods beyond what is currently supported by Agoa.
• Clearing vacuum: Agoa expires in 2025 and US will not renew it.
• New basis: US linked Agoa benefits to rule of law, human rights and market transparency. New deal to be country-specific.
• $551.5 million: Total value of Kenya’s exports under Agoa in 2016.