Bilateral agreements should seek to boost Kenya’s export competitiveness

A key component of Kenya’s foreign policy is predicated on developing strong bilateral agreements that open foreign markets to receive Kenyan farm produce.

Indeed, only a few weeks ago, President Uhuru Kenyatta’s successful State visit to Mauritius saw the Indian ocean island country lift a ban on several Kenyan agricultural products that included avocado, baby carrots and broccoli.

Even more recently, President Kenyatta’s trip to China secured access to export frozen avocado to the second largest economy in the world. While these bilateral agreements are commendable, their long-term viability will largely depend on Kenya’s ability to export competitively.

Therefore, much effort should be directed towards policies that support a strong export strategy. Indeed, during President Museveni’s State visit to Kenya, Kenyans were shocked to find out that much our milk and eggs come from Uganda, which has a much lower cost of production. It therefore follows, that to be a strong exporting nation, we must address the issues that contribute to high cost of production in Kenya.

To start with, the litany of taxes that have been loaded onto crucial items like animal feed raw materials, have proved to be a major obstacle to the development of the agriculture sector leading to meagre earnings. While it is understandable that government needs to raise much needed revenue to service our significant public debt, we must be careful that we don’t kill the goose that lays the golden eggs. Agriculture contributes to more than a third of our economy while also creating the most jobs. By zero-rating taxes on agricultural inputs, the governments can unleash a powerful economic stimulus that can drive our economy into a period of vibrant growth.

Secondly, the government will need to fast-track the budgetary allocations to projects that will boost the agricultural sector. Top priority should be given to completing the 31 dams and 10,000 water pans that had been planned to help the country improve its water harvesting capacity, ultimately reducing reliance on rain-fed agriculture. Indeed, most of the price shocks in the food sector are a direct result of food shortages that are occasioned by unpredictable weather patterns- a situation which can easily be stabilized by the right infrastructure. Other key infrastructural priorities should include the construction of commodity warehouses which can greatly aid in reducing post-harvest losses as well as promoting price stability.

It is very encouraging that the Kenya National Multi Commodity Exchange (KOMEX) is finally on the cusp of being a reality following the enactment of the Warehouse Receipt Bill 2018. In its full implementation, the platform will be able to trade over 21 agricultural products while also eliminating middlemen, streamlining the logistics sector and enabling ease of credit access to farmers. It might also be necessary for the government to renew its commitment to the Maputo Declaration on Agriculture and Food Security that recommended that 10 percent of the national budget be allocated to agriculture development.

The third area that will need to be addressed to boost Kenya’s export competitiveness has to be around broader macroeconomic variables. When it comes to assessing a country’s exporting capability, there is no greater economic variable than the exchange rate. Beginning from last year, there has been discussion regarding whether the Kenya shilling is overvalued against the US dollar, and if so, could it be hampering the viability of our food export business? The first concern regarding our currency valuation was raised by the IMF in October last year, and was subsequently followed by a host of other independent economic analysts. If these claims are true, then it would mean that Kenyan products are unnecessarily more expensive in foreign markets in comparison with produce from other parts of Africa rendering the country uncompetitive in the long run.

The long-term goal for Kenya should be to transform it from being a net importer country to be a net exporter country. Access to large markets such as the United States and China can provide a strong demand for our goods, which can lead to greater capital investment in Kenya and a sustained creation of employment opportunities. Only the right policies can take us closer to that prosperous future that we desire.

Ken Gichinga is Chief Economist at Mentoria Economics; Twitter : @kgichinga

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