TRALAC - Trade Law Centre

Kenya: Firms see rise in exports to US despite hurdles

Monday, 30 January 2012

Source: AllAfrica.com

Kenyan firms are expressing confidence in the US market even as their exports stagnate in the wake of protection policies forced on President Barack Obama's administration by domestic economic problems over the past three years.

Government and private sector players said low demand had hit exports to the US but there were strong prospects for growth.

"We enjoy greater market access now but the slow export growth reflects economic calculations by individual exporters", said Dr Stephen Mbithi, chief executive of the Fresh Produce Exporters Association of Kenya."

From being Kenya's second single largest destination for exports after the Uganda and UK, the US has slowly been dropping off the country's export radar because of poor prices despite the longer transportation costs involved. In 2007, the US further ceded ground to Tanzania and Netherlands as a destination for Kenya's exports.

Government statistics indicate that exports to US reached Sh21.9 billion in the first 10 months of last year, far behind Uganda's Sh50.4 billion. Exports to UK in the same period reached Sh33.9 billion with Tanzania and Netherlands absorbing Sh29.3 billion and Sh27.5 billion respectively.

"Most of the time, it is exporters who consciously opt out of the US market on realisation that it makes no economic sense to ship goods to a destination that attracts additional 33 per cent in transport cost compared to EU only to sell at much lower prices," said Dr Mbithi.

The US Depart of Agriculture has since cleared French beans, runner beans, baby carrot and baby corn to join a list of horticultural produce that Kenya is allowed to sell into its territory.But unlike EU market, which absorbs close to 80 per cent of Kenya's fresh produce exports, American market still accounts for between three and five per cent of industry's foreign sales. President Obama's father -the senior Obama Obama - was born and raised in Kenya's Siaya County where he was buried after he died in a 1982 road crash.

When Mr Obama was elected to the White House three years ago, a wave of optimism swept through Kenya's economic landscape as key sectors angled to tap his Kenyan connection to beat traditional barriers to US market.

With him at the helm, they hoped for strong trade and diplomatic ties that would pave way for the long awaited direct air flight between the two countries, raising export of fresh produce and doubling tourist arrivals from current level of 100,000.

But president Obama has been more preoccupied by US's internal economic problems, most of the time pronouncing policies that end up isolating sub-Saharan African countries including Kenya.

In a State of the Union address delivered last week, president Obama proposed to stop US multinationals from "moving jobs and profits overseas", signalling hard times for countries such as Kenya.

Mr Obama proposed to scrap the current tax breaks that US has been giving companies that outsource operations from developing nations, a move that could stifle Kenya's budding business outsourcing industry.

"The most unfortunate thing about Mr Obama's presidency was that it coincided with the worst of economic times," said Mr Jonathan Chifallu, an official at the Export Processing Zones Authority. "But the confidence that ensued buoyed our investors to aggressively pursue niche markets that have elevated Kenya as the top exporter of textile to the US from sub-Saharan Africa.

When Mr Obama assumed power in 2008, Kenya was Africa's third largest exporter of textiles to US after Madagascar and Lesotho under the preferential African Growth and Opportunity Act.

The country is today rated as number one exporter of textile from Africa in terms of volume (square metre equivalent) and second largest exporter in terms of value After Madagascar.

From merchandise that was mainly women dresses three years ago, the EPZ firms have raised their stake in the American market with their bet on niche areas such as sport wear. Industry data indicates that Kenya's overall textile export to US leapt in 2011 to a record Sh25 billion $292 million, a 55 per cent growth over the Sh16.1 billion earned in 2010.

In September this year, the third country fabric rule of Agoa -- which has allowed Kenya to export textile made from imported fabrics to the US -- is set to lapse. The local textile industry has joined forces with staff of Kenya's embassy in Washington to lobby the US Congress to extend the rule and make Agoa a permanent trade window.

"We are very optimistic because Congress gave us a good signal that it could grant our request just before it went for recess late last year", said Mr Jaswinder Bedi, chairman of Kenya Association of Manufacturers, adding that their request is contained in two Bills that congressmen will look at within the next two weeks.