Kenya: Why Tanzania, Kenya Trade Ties Blow Hot and Cold

By Otiato Guguyu

The price of Tanzania's onions imported by Kenyan traders keep shifting. It increased from Sh108 per

kilo in February this year to Sh118 in April due to logistical challenges posed by coronavirus testing at the Kenya-Tanzania borders.

When President Kenyatta ordered the closure of the border except for cargo vehicles in May, and Tanzania retaliated by banning all cargo trucks, the price shot up to Sh150.

The volatile onion prices mirror the erratic relations between the two countries.

The challenges faced by onion traders are also representative of the woes businesses have to grapple with whenever there is a misunderstanding between the two countries, whose sibling rivalry is always never far from the surface.

ESCALATED DISPUTE

The question then is how does the trade between the countries look like? Who stands to lose more in case of an escalated dispute?

Tanzania has a nearly balanced trade with Kenya, importing goods worth Sh23.3 billion in 2017, while exporting goods worth 23.7 billion.

However, trade between the two countries has been on a downward trend since 2014 when Kenyan exports to Tanzania stood at Sh64.7 billion and in 2015 when imports from Tanzania peaked at Sh79.4 billion.

This decline tells of simmering differences and political grandstanding between the administrations in Nairobi and Dar es Salaam that has resulted in cold war policies that have made it difficult to do business across East Africa's big economies.

DOWN MEMORY LANE

The uneasy ties between Nairobi and Dar did not start yesterday. It goes back to when the two countries had just attained independence from the colonialists.

It was the closure of borders between Tanzania and Kenya in 1977 that finally killed the decade-old East Africa Community. The threats of border closures, seizing goods and discrimination have continued to date.

When EAC was revived in 2000 trade slowly began to pick up between the two countries. Kenya's annual exports grew from Sh10.7 billion in 2002 to Sh64.7 billion in 2014 while imports grew from Sh3.5 billion to Sh79.4 billion in 2015.

However, with new administrations in Nairobi in 2013 and in Dar es Salaam in 2015, trade plunged to a decade low.

Kenya's isolationist policy of courting Rwanda and Uganda to the Standard Gauge Railway through "the coalition of the willing" was viewed as a geopolitical move against Tanzania.

However, as the coalition of the willing collapsed, Tanzania scored its own geopolitical wins by convincing Kigali to link with Dar's SGR and Kampala to route the East Africa Crude Oil Pipeline through the country.

Tanzania also differed over the Economic Partnership Agreement that almost blocked Kenya from the European market and was only allowed access under special arrangements with EU countries.

DIPLOMATIC ROW

Traders from both countries have raised issues including lack of preferential treatment on Kenyan textiles, edible oil, cement and lubricants with growing administrative barriers that have cropped up to slow bilateral trade.

Relations also soured when Kenyan milk products were greatly affected by the trade wars that saw the value of export to Tanzania drop by 79 per cent between 2014 and 2016.

In 2017, Kenyan millers strongly opposed the government's move to allow Tanzanian firms to bring in wheat flour duty-free.

It was only in 2018 during the summit of EAC heads of State that President Kenyatta and President John Magufuli acknowledged the gravity of the problems and agreed to resolve them through their respective ministries.

But the frosty relations resurfaced when Kenya's Starehe Member of Parliament Charles Njagua made xenophobic statements against Ugandans and Tanzanians doing business in Nairobi threatening to storm their businesses. This sparked a diplomatic row.

CORDIAL RELATIONSHIPS

The see-sawing relations then seemed to thaw with President Kenyatta's private visit to Chato, the home of Tanzania's president John Magufuli in July last year.

It was thought that with the two heads of State cultivating personal cordial relationships, the bilateral ties would be recalibrated in a way that small disputes would not arise and muddy trade between the two countries.

However the latest tiff over coronavirus means that the uneasy relations between the two countries persist, with same old issues still simmering beneath the veneer of calm and display of brotherliness.

Mr Sallu Johnson, a regional expert on customs and logistics, told Smart Company that politics tends to get in the way of bilateral ties, with businesses bearing the brunt of any diplomatic tiff.

He said that although there are agreements among, for instance, the buyers, sellers and transporters of onions, which specify who bears liability for the goods in transit, the contract does not deal with such an occurrence as the border closure.

LOGISTICAL NIGHTMARE

"Borders are meant to be transit points, not interchange terminals. A political order that goods should be offloaded and changed creates a logistical nightmare," Mr Johnson said.

"As a transporter ferrying the onions, you're aware that it starts deteriorating as soon as it leaves the farm and any further delay reduces the quality, and you may end up selling them in Mombasa at a throw-away price so you do not incur a huge loss," he said.

The Kenya Association of Manufacturers (KAM) says the current row, which appeared to have been resolved following the Kenyatta-Magufuli intervention, is only a tip of the iceberg.

Long standing issues, especially Tanzania's continuous increase of internal taxes as measures to protect their own industries, have stifled investments and market access for locally manufactured products.

"Tanzania has continued to increase taxes on Kenyan products. Whilst this is aimed at protecting Tanzania's industries, the measures are discriminative, and [this] goes against the EAC Customs protocols," KAM chief executive Phyllis Wakiaga said.

KAM said that Tanzania has imposed excise duty (80 per cent higher) on Kenyan cigarettes despite tobacco raw material being fully sourced from Kenya since 2005.

EAC LAWS

"The non-tariff barriers (NTB) on cigarettes presents a significant excise/pricing disadvantage. This is contradictory to Article 15 (National Treatment) of Protocol on Establishment of the EAC Customs Union, which is categorically against discrimination on the same or like products of other Partner States.

"In addition, Article 8 of the Treaty Establishing the East Africa Community provides that, the EAC laws take precedence over similar national laws on matters pertaining to the implementation of the treaty," Ms Wakiaga points out.

Through Animal Diseases (Animal and Animal Products Movement Control) amendment, Tanzania has also imposed import and export fees on beef and beef products.

This has increased levies to Tsh4,800 per kilo of meat (from Ksh200 to Kh500) and Tsh1,800 per kilo for milk against the spirit of the EAC where Tanzania (a partner State) is required to accord equal treatment to products from Kenya.

Subsequently, this has negatively affected Kenya beef and beef products into Tanzania.

Tanzania Revenue Authority (TRA) has not been issuing assessment for confectionery until Atomic Energy Certificate is attached in the TRA system.

This implies that samples have to be provided by an agent/client to the Tanzania Bureau of Standards in Arusha and a fee of 0.4 per cent of invoice value paid.

A new requirement from the Government Chemists and Lab Allied (GLCA) is that all transporters of chemicals must have this licence to transport chemicals into Tanzania that cost approximately $2 per metric tonnes.

Tanzania is also subjecting 1 per cent of the invoice value of transfer of roasted coffee products from Kenya into Tanzania. This is mainly done by the Tanzania Coffee Board, which increases the cost of the Kenyan product in Tanzania.

But while Nairobi blames Dar for most of the anti-trade practices, in some cases Kenyan companies have not helped in creating confidence.

Closures of Nakumatt and Uchumi supermarkets without paying Tanzanian suppliers has been raised in diplomatic round tables as some of the issues derailing relations.