Kenya looks north for more economic prospects

Minister for Transport Amos Kimunya (right) exchanges documents with his Ethiopia's counterpart Deriba Kuma during the signing of the Lamu Port agreement at State House in Nairobi on March 1, 2012. The Lamu Port-South Sudan-Ethiopia Transport (Lapsset) corridor is a major infrastructure development that is envisaged to promote regional trade and deepen cooperation between Kenya, Ethiopia and South Sudan. PHOTO/FILE

What you need to know:

  • Kenya’s relationship with neighbouring states has often been a foreign policy priority due to geo-strategic, historical, cultural and economic considerations.
  • In 2011, Kenya’s total exports to Ethiopia was valued at Sh4.8 billion while total imports from Ethiopia valued at Sh369 million.

By PAUL ODHIAMBO and JOYCE GICHURU

Kenya has stepped up efforts to deepen economic ties with her northern neighbours.

The recent visit to Ethiopia by a delegation led by Cabinet Secretary for East African Community, Commerce and Tourism and officials from the Kenya Association of Manufacturers is one such example.

The visit is a demonstration that the country is keen to take advantage of the emerging economic potential in the region to realise some of its economic diplomacy objectives, such as exploring new destinations for Kenya’s goods and services.


Kenya’s relationship with neighbouring states has often been a foreign policy priority due to geo-strategic, historical, cultural and economic considerations.


Over the years, Kenya has developed long-standing cordial relationships with northern neighbours including Ethiopia, Sudan, South Sudan and Somalia through bilateral ties and regional cooperation under the Inter Governmental Authority on Development (IGAD).


While Kenya’s engagement with her northern neighbours has been mainly underpinned by peace and security considerations, there is a gradual shift to deepen trade and economic relations in recent times.


The Lamu Port-South Sudan-Ethiopia Transport (Lapsset) corridor is a major infrastructure development that is envisaged to promote regional trade and deepen cooperation between Kenya, Ethiopia and South Sudan.


The key components of the Lapsset corridor include Lamu Port, railway, highway, oil pipeline, oil refinery, Lamu airport and resort cities in Lamu, Isiolo and at the shores of Lake Turkana.


Late last year, Kenya and Ethiopia signed The Special Status Agreement (SSA) aimed at enhancing their trade and economic relations.

The SSA will also provide a framework for engagement between investors from the two countries to exploit trade and investment opportunities in the vast market. At the moment, trade between the two countries is still low.


In 2011, Kenya’s total exports to Ethiopia was valued at Sh4.8 billion while total imports from Ethiopia valued at Sh369 million.

In 2012, however, imports from Ethiopia rose to over Sh1 billion, but the exports remained relatively the same.

The Kenyan private sector is optimistic that the SSA will contribute to reducing trade barriers and in streamlining transit procedures between the two neighbours.


Hospitality

Prospects of a one stop border post in Moyale and incentives such as low land leasing rates and cheap electricity costs offered by the Ethiopian government are likely to encourage Kenyan investors to move into manufacturing, agriculture, horticulture and hospitality sectors in Ethiopia.


Although the renewed cooperation between Kenya and Somalia is mainly driven by the desire to realise peace, security and stability in the latter, Kenya is hopeful that a post-conflict Somalia will lead to opportunities for increased trade, investment and development.


Kenya is expected to reap peace dividends once a stable government is established in Somalia. Infrastructure connectivity will be a breakthrough in enhancing trade and economic relations between the two neighbours.


One of the major undertakings to realise transport linkage is the upgrading of the Garissa-Dadaab-Liboi road. Despite the conflict in Somalia, trade volumes between Somalia and Kenya have been on the rise in the last few years.

Kenya’s total exports to Somalia in 2007 were valued at Sh8.3 billion, increasing to Sh16.6 billion in 2011.

However, imports from Somalia are still modest, even though there has been an increase from Sh30 million in 2007 to Sh143 million in 2011.


Following the signing of the Comprehensive Peace Agreement (CPA) in 2005 between Sudan and SPLM/SPLA, Kenyan investors began setting up operations in the then semi-autonomous Southern Sudan, especially in the banking, insurance, construction, aviation, education, health, hospitality and Information and Communication Technology (ICT) sectors.


Currently, Kenya and South Sudan are engaged in technical cooperation aimed at assisting South Sudan to develop technical capacity for state institutions.

The capacity building programmes include training South Sudan civil servants, envoys and security personnel.

Joint ventures meant to promote trade and development between Kenya and South Sudan include the Lapsset corridor, upgrading Eldoret-Juba road to international highway standard, and a one-stop border post at Nadapal.


The regional countries are likely to benefit from enormous opportunities accruing from increased regional trade and investment, infrastructure development and unlimited access to education and health facilities in the region.


Poor infrastructure

Despite prospects in the region, challenges such as insecurity, cross-border cattle rustling, proliferation of illegal firearms, poor infrastructure, human and drug trafficking and threats of terrorism are still persistent.

There are also unresolved territorial disputes such as Ilemi Triangle between Kenya and South Sudan, and demarcation of maritime boundary between Kenya and Somalia.


Some concrete policy actions might be critical in ensuring that Kenya and its northern neighbours benefit from peace dividends.

First is to deal with security issues as a matter of priority. The states should ensure they guarantee both internal security in their respective territories and border security.


This is critical for the well-being of citizens and investors, and for increased trade, investment and socio-economic development. The integration of a security policy within the IGAD and EAC framework of cooperation is necessary.


Second is the joint ventures model on infrastructure development.

The Lapsset is one of many joint investments that Kenya, Ethiopia and South Sudan are undertaking.

If the project is successful, it will further open up to Central Africa, and Africa could see a transport corridor that stretches from the Indian Ocean to the Atlantic.


Thirdly, Kenya and Ethiopia have an MoU on the Ethiopia-Kenya power interconnection project.

Fourth is the enhancement of intra-regional trade. Kenya recognises the Northern neighbours as the new engine to power Kenya’s economic growth, given its huge market and resources.

Paul Odhiambo and Joyce Gichuru work at The Kenya Institute for Public Policy Research and Analysis (KIPPRA)