Since establishing diplomatic relations in 1964, Kenya and the United States have long been close allies. However, on the trade front, the increasing growth of exports and imports between the two nations shows they have a good trade relationship that will soon get even better.
In February, the Trump administration announced its intent to start bilateral trade agreement negotiations with Kenya when Uhuru Kenyatta, the Kenyan President, visited the white house. By March, President Trump had formally notified Congress of its intention to begin the negotiations of what would be the US’ first bilateral trade agreement with a sub-Saharan African country and the second Free Trade Agreement (FTA) after its agreement with Morocco in 2004.
According to the US President, the new bilateral FTA with Kenya would replace the 20-year-old African Growth and Opportunity Act (AGOA), which expires in 2025. AGOA has been a cornerstone program for America’s economic relations with Africa since the year 2000, offering over thirty countries preferential access to U.S. markets by eliminating import tariffs. Although the program will end in 2025, in the decade after it began, exports from AGOA countries to the United States nearly tripled, rising from $22 billion to $61 billion.
Kenya is one of AGOA’s top five exporters to the United States, primarily sending apparel, cocoa, tree nuts, coffee, and tea. While it imports American aircraft, machinery, agricultural products, and plastics. Trade between the two countries stands at around $1 billion annually.
Kenya now ranks in the United States’ top one hundred trading partners, though the United States is Kenya’s third-largest export market and its seventh-largest source of imports.
As AGOA will expire in 2025, Kenya needs an option to ensure it keeps trading with the USA. To achieve that, it needs a trade arrangement that would guarantee duty-free and quota-free market access to the United States.
This is the motivation for Kenya, and it is the reason President Uhuru Kenyatta, and President Trump began negotiations of a Free Trade Area Agreement.
What does this mean for Kenya?
Kenya is the only country in the East African Community (EAC) that is not on the United Nations’ list of least developing countries (LDC), so it believes that the expiry of the AGOA would put it at a greater risk than neighboring countries because the US has a trade arrangement for LDCs. Hence its determination to have a replacement for the soon to be expiring AGOA because it exports over 70 percent of its products to the US duty-free under the Act.
Unlike the African Growth and Opportunity Act, the new free trade agreement is a strategic partnership that will let Kenya send more goods to the US market and also bring exclusivity and reciprocity of trade and investments which the AGOA doesn’t provide.
What does this mean for the US?
In 2018, US Trade Representative Robert Lighthizer told the media, “I think before very long we will pick out an African country, properly selected, and enter a free trade agreement with that country, and then that, if done properly, will become a model for these other countries.”
Although America’s aim is to counter China’s growing influence on the continent which I think is not a battle worth going into, it sees Kenya as an economic powerhouse in East Africa that is vital to the entry of American companies in the region, and also for its counterterrorism efforts against Al Shabab in Somalia.
If this becomes successful, it will serve as a model for trade relations with more African countries which will definitely strengthen America’s influence but might spell doom for Africa if not rightly figured.
What does it mean for Africa’s AfCFTA?
Recall that in March 2018, fifty-four African countries signed the African Continental Free Trade Area (AfCFTA) agreement. By May 2019, the agreement had entered a force for twenty-nine of those countries, including Kenya.
Although negotiations for AfCFTA have lasted for years, finally, in 2019, all member nations agreed as a matter of necessity to open up their economies to each other and boost intra-African trade. However, the US-Kenya free trade agreement poses a threat as it might make it difficult to achieve the full implementation to make the AfCFTA a reality.
And that is because, in 2018, at the AU summit in Mauritania, African heads of state agreed that no country shall enter bilateral free trade negotiations with a third party once the AfCFTA agreement comes into force, as they are likely to jeopardize the AfCFTA.
Though the launch of the AfCFTA has been postponed to January 1st, 2021, the fact remains that Kenya’s FTA with the US violates the AfCFTA agreement, and it remains unclear how Kenya intends to navigate the concerns of the East African Community (EAC) and its obligations under the AfCFTA. Regardless, its actions are likely to have consequences on the continent’s drive for improving intra-African trade.
Sources: Tralac, CSIS, Africa Portal.
This article conveys the views of the author(s) and not necessarily that of the trustees, staff or members of Ominira Initiative.