Business Daily Africa, April 29, 2009‎

As several Kenyan firms retrench workers to reduce costs in the face of the global recession, the government is urging more trade with African countries.

It is projecting that the economic contraction could hurt Kenya and her neighbours further because of overdependence on European markets for exports.

But the Government’s suggestion comes at a time when the World Bank has released a report on global flow of trade, saying a new wave of protectionist policies sweeping through Africa and hurting the growth of the export markets.

The suggestion also comes hot on the heels of a survey by the University of Nairobi on the establishment of an East African federation to promote trade in the region.

The report casts doubt on the success of the planned unitary government and monetary services, saying the five members of the bloc had done below average in efforts to provide their citizens with useful information on integration.

EAC member states have agreed in principle to introduce a common currency by 2015 subject to the enactment of the region’s Common Market Protocol. However, analysts say this was not likely to be achieved because of mistrust in the region.

Assistant minister for Trade, Mr Omingo Magara, is arguing for Kenyans to think out of the European markets and concentrate on building crucial routes in African markets for a bigger impact.

The minister said Kenya’s trade with its East African neighbours is much far bigger than its trade with Europe.

According to Economic Survey 2008, Kenya’s exports to Africa alone accounted for Sh124 billion compared to Sh72 billion earnings from Europe.

The value of exports to Uganda alone topped Sh34 billion — half of the earnings received from exports to Europe.

“There is this fixation that if we don’t export to Europe then we have not exported anything. It is bad enough that our traders don’t consider exports to neighbouring Uganda as exports yet Uganda is our key export market” said Mr Magara.

He was speaking at a two-day regional workshop on multilateral trade system organised by the World Trade Organisation and the Consumer Unity & Trust Society (Cuts) in Nairobi.

“In EAC alone we have a market of about 120 million people. If we combine this with the market in the Southern African Development Community (SADC) we could get even a bigger market” said Mr Magara.

The minister said regional countries should come together and form a strong economic bloc that would facilitate intra-regional trade.

“The problem is lack of trust between countries in East Africa. Fragmentation in East Africa will not help the region” said Mr Magara.

But his position is undermined by the World Bank report which says that many countries are giving in to internal political pressure for protectionism from import competition to protect jobs as the global financial crisis drives most employers into a squeeze, threatening millions of jobs.

Some African governments such as Uganda and Ethiopia have acted to restrict the entry of Kenya’s goods by subjecting them to strict standardisation requirements and, in some cases, insisting that transportation of those goods be undertaken by the destination markets.

Protectionist tendencies by some regional markets could hurt export-oriented economies such as Kenya and are likely to add to the cost of doing business, which has ended up repelling investors and manufacturers from Kenya.

On the global front, some trade organisations have said the threat of protectionism would not be severe as the world economies tackle a downturn, which has seen many lose jobs.

Kenya’s manufacturing sector is contracting due to its inability to sell more to its partners.

Manufacturing contracted by a margin of 0.7 per cent in the third quarter of last year, compared to a growth of 7.5 per cent during a similar period the previous year.

But the WTO has appealed to countries to drop protectionist tendencies, saying the practice did not protect.

Speaking in Nairobi, the director, economic research division of the WTO, Patrick Low, said African countries should resist inward-looking policies if trade was to grow in the continent.

“The economic contraction will make it harder for the developing countries to find markets in Europe and the US. Falling prices of commodities will also hurt trade” said Mr Low.

This news item can also be viewed at: