Deeper Kenya-South Africa ties critical to growth, job creation

President Uhuru Kenyatta and South Africa's Deputy President Cyril Ramaphosa addressing journalists at East London, South Africa on January 12, 2018. PHOTO | PSCU

What you need to know:

  • President Kenyatta and his South African counterpart Jacob Zuma had an opportunity to discuss how to strengthen bilateral relations.
  • South Africa, the second-largest and -most industrialised economy in Africa, after Nigeria, has been more successful than Kenya in developing a vibrant manufacturing sector.

  • Improving Kenya’s manufacturing sector is critical to addressing the large trade gap that is heavily tilted towards South Africa.

Kenya and South Africa, the undisputed economic powerhouses of East and Southern Africa, respectively, are the hubs of trade, investment and financial services in their regions.

While Kenya is the largest and most dynamic economy in the East African Community (EAC), South Africa is the engine of the South African Development Community (SADC). This context underpins the importance of President Uhuru Kenyatta’s recent visit to South Africa.

Even though the visit was more focused on cooperation between the respective ruling parties — Kenya’s Jubilee and South Africa’s African National Congress (ANC) — President Kenyatta and his South African counterpart Jacob Zuma had an opportunity to discuss how to strengthen bilateral relations.

DEVELOPMENT

Vice-President Cyril Ramaphosa, the new ANC leader, was the pointman for party affairs but his likelihood of succeeding President Zuma makes him a key figure in future development cooperation.

Among the strategic opportunities emerging from the visit was talk of manufacturing, one of President Kenyatta’s “Big 4” pillars of economic development. Both countries rely on manufacturing to expand capacity for economic growth and reduce their frighteningly rising youth unemployment problem.

South Africa, the second-largest and -most industrialised economy in Africa, after Nigeria, has been more successful than Kenya in developing a vibrant manufacturing sector. Its massive economy, with an output of $295 billion by the latest World Bank statistics, is substantially driven by manufacturing — which contributes over 30 per cent to gross domestic product. Kenya’s contributes just over 10 per cent to a GDP of $78 billion dominated by agriculture.

TRADE GAP

Improving Kenya’s manufacturing sector is critical to addressing the large trade gap that is heavily tilted towards South Africa. The deficit is shockingly wide and increasing.

In 1994, when ANC assumed power at the end of apartheid, Kenya’s exports to South Africa in value terms were just about four per cent of its imports from there.

The latest data shows exports from Kenya as below three per cent of imports from the ‘Rainbow Nation’.

The basic problem is that, while South Africa exports high-value manufactured products such as machinery, iron and steel, as well as telecommunications equipment and vehicles, Kenya is an exporter of primary, unprocessed or semi-processed, low-quality commodities such as tea, hides and skins, textiles, vegetables and scrap metal.

This exposes Kenyans to economic instability and external shocks arising from frequent fluctuations in global commodity prices.

EXPORTS

South Africa is experiencing growth challenges that have depressed the size of its economy. Nonetheless, Kenya stands to gain more by increasing its value added exports to southern Africa.

South Africa is a wealthy, upper middle-income country. Its 55.9 million people have an average income of $13,300 while each of the 48 million Kenyans earns just $1,400, less than a 10th of the average South African’s net worth.

Deeper trade and investment cooperation would enable Kenya to penetrate the 15-nation SADC market, which has a GDP in excess of $600 billion and a population of over 330 million. SADC figures show the region imported goods worth $192.9 billion in 2016. The six-member EAC is much smaller: It had a population of about 170 million and a GDP of $155 billion in 2016.

A strategic partnership with the industry-experienced South Africa presents an opportunity for the Kenyan Government and the private sector to resolve the long-standing constraints to an export-oriented manufacturing sector. Kenya’s sector needs to unleash its potential to produce quality products for the highly competitive regional and global export markets.

 Mr Warutere is a director of Mashariki Communications Ltd. [email protected].