We need to improve environment for trade through better policies

According to the latest World Economic Forum report, Kenya posted weak results in its trade competitiveness relative to other members of the East African Community.

The report influences investor decisions on which countries to put money in and the destination of foreign direct investment.

The report places Kenya at position 122 out of 138 countries in terms of having a competitive macro-economic environment for investment, way below Tanzania, Uganda, and Rwanda, and only slightly better than Burundi at 124.

The stability of the macroeconomic environment is important for business and significant for the overall competitiveness of a country.

Macroeconomic disarray harms the economy.

The government cannot provide services efficiently if it has to make high-interest payments on debts.

Running fiscal deficits limits the government’s future ability to react to business cycles.

Firms cannot operate efficiently when inflation rates are out of control.

In sum, the economy cannot grow in a sustainable manner unless the macro environment is stable.

Yet Kenya’s problems do not begin or end at the macroeconomic environment.

This report comes against the backdrop of Kenya’s hosting of several high-profile international trade meetings.

LOSING GROUND

The country has also accommodated several high-profile delegations and heads of State in which several bilateral trade agreements and MoUs have been signed.

An impression has thus been systematically articulated that Kenya is on top of the game.

A cursory glance at recent developments suggests otherwise and underpins the findings of the World Economic Forum report.

The waters are troubled. The message is loud and clear that unless Kenya makes a conscious decision to reorient its domestic trade policies to benefit from the international trade engagements, the future is bleak. 

Kenya has lost its position as the leading foreign direct investment destination in the region.

Its trade policy is driven by populist politics aimed at pleasing the masses and giving a “good name” to the political leaders.

Yet the economy is choking through corruption and poor policies. 

The results are there for all to see.

Sameer Africa, the only tyre manufacturing company in Kenya, recently closed its doors, opting for offshore production in India and China.

Cadburys has moved to South Africa and Eveready to Egypt.

Kenya Fluorspar, Colgate Palmolive, and Reckitt Benckiser are some of the other companies that found the local business environment unsuitable and pulled out.

The reasons advanced by these companies are nearly identical: high cost of energy, cheap imports of similar or substitute goods, corruption, and restrictive domestic regulations.

BEHAVIOUR CHANGE

And with the fate of flower farmers hanging in the balance as a result of the stalemate over the signing of the Economic Partnership Agreement between the EAC and the EU, Ethiopia and Tanzania are waiting with open arms to receive the expected exodus of flower firms.

Kenya must realise that neither the trade negotiations at the multilateral level nor the plethora of bilateral and pluri-lateral trade agreements will positively impact its economy unless the government re-orients domestic trade policies away from publicity stunts and strategically places it to address the concerns of investors and businessmen.

No amount of publicity will help the plight of the employees laid off as companies close shop, nor can the attendant consequences on the economy be wished away.

The policies must forestall the flight of manufacturing companies, address the issues around the attraction of foreign direct investment, and fix the macro-economic environment if Kenya is to remain an economic giant in the region.

The need to reduce the cost of energy is at emergency levels.

Kenya must make a conscious choice to fight corruption, which has led to growing trade in the black market, thus damagingly impacting honest investors.

It is not lost on us that Kenya lost its bid to have Uganda’s pipeline and Rwanda’s railway projects pass through its territory because of high costs principally attributable to corruption.

Fixing its debt portfolio and arresting inflation are indispensable if Kenya is to mend its macroeconomic environment for business.

The cry to fix the country’s domestic policies to enable a better trade environment has never been louder.

The writer is a trade policy and trade law expert and an advocate of the High Court of Kenya. [email protected]