Why the FTA we’re negotiating with America is not a big deal

The news that Kenya is set to be the first country in Sub-Saharan Africa to negotiate a bilateral free trade agreement (FTA) with the United States reminded me of a book I read in 2003, at a time when Australia was negotiating a similar deal. It had a long title: How to Kill a Country: Australia’s Devastating Trade Deal with the USA.

I don’t believe the deal will change anything. First, an FTA with a country such as the US will only make sense to a developing country like ours when we have enough to export to that country.

Access to US markets can only help you when you have demonstrable capacity to ramp up export capacity and where there is room for significant trade-offs. The only reason Agoa has delivered to us is because expanded access came with the building of those export enclaves in Athi River called Export Processing Zones (EPZ).

PREFERENTIAL ACCESS

Despite the fact that Agoa gives us preferential access on almost 6,500 items, we have hardly gone beyond textiles and apparel. Why should we take up the FTA yet we can’t fully service the market access we have under Agoa?

I don’t see the wherewithal within government to execute massive investment in export capacity, including formation of special economic zones (SEZ). You just have to look at how the government has mismanaged its SEZ programme to appreciate my point.

In the recent history of ramping up manufacturing and exports, SEZs are the main tool emerging markets have employed to industrialise. Japan after World War II, China, South Korea, Thailand and Malaysia are good examples. And countries like Vietnam have been rolling out SEZs at a very fast pace.

VIETNAM ECONOMIC ZONES

I read somewhere that, in under 10 years, Vietnam had managed to build 18 special economic zones. This is the level and pace of execution you need to make a bilateral FTA with the US meaningful.

Dongo Kundu has been on the cards for over 15 years. In my view, two main factors explain the slow pace in implementation of the SEZ programme.

Grow and thrive

When you talk about industrial policy in some of the successfully industrialising economies, it entails deliberately selecting a specific sector of manufacturing and giving it sector-specific concessions to allow it to grow and thrive. In China, the SEZs provide liberal facilities – including dormitories for workers, laboratories for certification facilities and subsidised water and electricity.

Which brings me to my second reason why the FTA with the US is no big deal.

TOOL FOR COERCION

Opinion is unanimous in literature that America’s FTAs with countries are not just about market access and trade. They are a tool for coercing smaller countries into giving preferential treatment to US companies and contractors. Indeed, FTAs are driven by concerns other than trade. When Washington chooses to negotiate an FTA, it is about pulling you into their sphere of influence.

Which is why it does not surprise me that the FTA negotiations with Kenya are coming at a time when the influence and clout by American companies appears to be dwindling even as the Chinese ones continue to clinch the big deals.

A good example is the American construction conglomerate Bechtel that has been gunning for the contract to build the proposed 473-kilometre Mombasa-Nairobi expressway.

Bechtel signed a government-to-government (G2G) deal way back in July 2015 and a commercial agreement with the Kenya National Highways Authority (KeNHA) in 2017. Environmental assessment studies and public engagement sessions have been concluded. But the National Treasury is yet to sign on the financing proposal the Americans have put on the table.

ROUGH TIME WITH TAXMAN

In the energy sector, one of the biggest American investors in the country, private electricity producer Ormat International, has had a rough time with the taxman. It revealed in filings to the Security Exchange Commission that the Kenya Revenue Authority demanded a whopping $228 million (Sh22.8 billion) for assessment of its operations over the period 2013-2017. It is understood that the matter is before the tax tribunal.

In Kiambu, the American agribusiness multinational Del Monte was arm-twisted by the former governor of Kiambu County, Mr Ferdinand Waititu, to cede 690 acres of land. The deal between Kiambu and the pineapple grower gave neighbouring Murang’a County the impetus to also press the company to cede thousands of acres. The dispute is yet to be resolved.

We don’t have transparent policies to guide management of expired leases belonging to investors and agribusiness multinational companies.

As we negotiate the FTA, let us not allow them to use it as a tool to dominate us and to dump subsidised agricultural products in the local market.

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