Across East Africa’s vibrant economic landscape, Kenya and Tanzania hold a prominent position as trading partners and nations engaging in a fierce economic rivalry. Collectively, the two countries collaborate in business, yet never-ending feuds often erupt into disruptions that hurt cross-border trade. Overall, the Kenya-Tanzania trade wars have slowed regional integration. These tensions have also limited the nations’ ability to exploit the full potential of the EAC market.
Tanzania, with a projected economic growth of 5.5 per cent in 2023/2024, is actively positioning itself as a critical player in regional trade. In particular, Tanzania is tactfully intensifying competition with Kenya to control vital transit corridors.
The ultimate goal is for Tanzania, which has outperformed Kenya as the top investment destination for investors looking to enter the region in the next two years, to enhance its position in the regional economy.
Built at an estimated cost of $12 million by TradeMark Africa (TMA), the Taveta-Holili One-Stop Border Post (OSBP) was launched in 2016. The post, which hosts key government agencies on trade from both countries, was established to enhance bilateral trade.
Trade statistics indicate that the Taveta-Holili OSBP can potentially cut transit times between Kenya, Tanzania, Rwanda, and Burundi by a third. However, the lack of geofencing on a 15-kilometre stretch of road beyond the Taveta-Holili OSBP by Tanzania appears to be a strategic move to choke Kenya’s regional trade growth.
In practice, the Taveta-Holili OSBP offers Kenya the best route to access Burundi, Rwanda, and certain parts of Tanzania via the Voi-Taveta-Singida-Kobero road. Unfortunately, Tanzania has neglected to establish a geofence on the 15-kilometer stretch.
This decision, a Non-Tariff Barrier, is continuously forcing importers from Rwanda and Burundi, who use the Port of Mombasa, to take longer routes to deliver their goods. Currently, importers transporting goods to Uganda, Rwanda, and Burundi use the Northern Corridor that passes through Kenya after collecting their goods from Mombasa port.
Despite being lengthy, the Northern Corridor route is effectively geofenced. The absence of a geofenced road in Tanzania past the Taveta-Holili OSBP doesn’t only affect Rwanda and Burundi. Importers in certain parts of Tanzania have no alternative but to bear the enormous costs of importing goods through the distant Dar es Salaam port.
For a road to qualify as geofenced, it must have designated inspection points. What’s more, the cargo in transit should be electronically tracked for taxation purposes. This measure serves to counter the temptation for unscrupulous traders to dump their merchandise illegally.
Additionally, the few importers choosing the Taveta-Holili OSBP grapple with another challenge. They must use the laborious traditional bond system to clear their goods. Interestingly, the EAC abandoned this manual system due to the attendant costly delays at border crossings.
For now, the Taveta-Holili OSBP conundrum continues. However, data shows Tanzania and Kenya remain valuable trading partners. According to the UN’s COMTRADE data on international trade, Tanzania’s exports to Kenya amounted to $381.66 million in 2022.
In recent years, the trade volume between these two nations has increased substantially, reaching $905.5 million from January to November 2021, as reported by the Central Bank of Kenya. As the trade volume approaches the $1 billion mark, various challenges have emerged.
By August 2023, official trade statistics show a significant decrease in goods trucked from Tanzania to Kenya over six months through June. This drop is attributable to restrictions on cereal exports to Kenya. This is the latest reminder of the persistent trade issues that occasionally affect relations between the two countries.
Notably, stakeholders have tried addressing the Kenya-Tanzania trade challenges. However, these solutions have often been temporary. For instance, in June 2021, the Joint Trade Committee, a bilateral body established by the two countries, identified 60 tariff and non-tariff barriers affecting cooperation. Although they resolved 23 restrictive regulations in January 2023, the cycle of issues persists.
Despite ongoing trade spats and retaliations, these countries have resolved some challenges over the past two years. The number of non-tariff barriers has significantly decreased, indicating positive relations between the nations.
The question is whether Kenya and Tanzania will establish more sustainable trade relations and channel their competitive spirit towards global markets. As the two nations work to resolve their trade issues, they have the potential to impact the region’s economic landscape significantly.
In the past, Kenya and Tanzania have faced diplomatic disputes related to trade. The peak of their trade disagreements occurred in November 2017. This is when Tanzania set fire to 6,400 live chicks from Kenya, accusing Nairobi of smuggling them into Tanzania. To counter the sting, Kenya banned maize imports from Tanzania, citing aflatoxin contamination concerns.
As part of mending relations, last year, President Samia Suluhu Hassan faulted the order to set fire to live chicks from Kenya, terming the 2017 action by her country wrong. “Even chicks have the right to live,” she said last November.
The occasional rivalry between Tanzania and Kenya flared up in 2020. Back then, Tanzania imposed a 25 per cent import duty on Kenyan confectionery. Kenya banned Tanzanian tour vans from accessing the Maasai Mara National Reserve. This ban hurt Tanzania’s tourism industry as holidaymakers often cross the border for sightseeing in Kenya. However, these complications were resolved during President Samia’s state visit to Kenya.
A significant setback occurred in June 2022 when Tanzania increased the cost of export permits by 93 per cent. Tanzania’s directive hit hundreds of truck operators, who got stuck at the borders, disrupting maize imports to Kenya. As a result of these on-and-off disruptions, Kenya’s imports from Tanzania have declined steeply over the years.
Both nations have been working to address these issues over the past two years, but they still face ongoing trade challenges. President William Ruto emphasized the importance of eliminating trade issues when speaking to President Samia during the international Africa Food Systems Summit. Tanzania has recently improved port efficiency through the DP World deal, while Kenya is exploring maritime control via the Mombasa port to expand its trading corridor.
Read original article
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.