Expert comment: Bridging Kenya’s trade deficit

source: The star  Aug. 02, 2018, 12:00 am   By KAREN KANDIE

An aerial view of Nairobi city a top KICC.

The currently ongoing Kenya Trade Week and Exposition places this week’s focus squarely on matters trade. Themed ‘Powering Kenya’s Big 4 Agenda through Trade’, the main topic on debate is measures that Kenya can undertake in order to reduce her trade deficit. Per the Kenya Bureau of Statistics, Kenya’s trade deficit in the 2016/2017 financial year stood at Sh1.1 trillon, or approximately $11.3 billion. Granulated, this arises from exports of Sh594 billion as against imports of Sh1.7 trillion.

In cognisance of the increasing trade deficit, GoK has formulated the National Export Development Promotion Strategy (NEDPS) that seeks to introduce measures that incentivise Kenyan exports. This, as noted in NEDPS, will focus on, inter alia, establishing market access opportunities and promoting competitiveness of Kenyan products. As marketed by GoK, NEDPS target is increasing export contribution to Kenya’s GDP to 25% by 2022. Currently, exports contribute approximately 8% to GDP. To achieve this, Kenya plans to boost exports in key sectors, being manufacturing, agriculture, trade in services and oil and gas, among others.

Indeed, GoK’s target is ambitious. However, as ambitious as this may seem, GoK has proactively placed its focus on matters trade, with a view to establishing a trade conducive environment. On the one hand, for instance, in an attempt to boost Kenya’s export market, the Special Economic Zones (SEZ) Act 2015, effective 15 December 2015, seeks to ensure that export processing zones have a tangible impact on the Kenyan economy. Through the SEZ regime, Kenya provides incentives to potential investors on a wide array of areas, including ease of setting up, investment and investor protection, simplified tax regime, and favourable labour regulations.

However, the above notwithstanding, bridging the trade deficit requires focus on our imports as well as our exports. Rather, a two pronged attack is needed. From an economic standpoint, this refers to implementing both import substitution development strategies, as well as well as export promotion strategies.

On the import side, it is necessary that domestic industries are incentivised to ensure that rather than import, local production is supported. This may require using trade tariffs, import quotas as well as subsidies to promote and protect local industries. However, this carries with it a risk. An adequate balance must be reached whereby in the interest of protecting local industries, Kenya is cognizant that protectionism policies may affect local industries abilities to compete in international markets.

Similarly, on the export side, export promotion strategies involve policy measures that include export subsidies, tax concessions targeted at incentivising exports, and quality control. On this front, marketing plays a key role, through which Kenya can position herself as a source of high quality and authentic products.

All factors considered, follow-through is required. By growing local value add capacity, and at the same time marketing Kenya’s products globally, the trade deficit may indeed be bridged.