Kenya economy to lose Sh2bn in a no-deal Brexit

PUBLISHED ON April 12th, 2019

Kenya economy to lose Sh2bn in a no-deal Brexit

Kenya will shed Sh2 billion in exports value to Great Britain if the latter leaves the European Union (EU) without an exit deal, a UN trade agency has warned.

A study commissioned by the United Nations Conference on Trade and Development (UNCTAD) found that a no-Brexit deal for the United Kingdom would see Kenyan exports drop by an initial $20.6 million (Sh2 billion), making it one of the worst hit economies in Africa.

Kenyan exports to the UK hit Sh38.6 billion in the 12 months to December 2017, down from an all-time high of Sh50.3bn recorded in 2009.

The research found that countries such as Kenya, which currently enjoy preferential market access to UK under terms negotiated with the EU, would face immense losses in case of a no-deal exit.

Among the top losing African states with Kenya will be Morocco (Sh9.7 billion), Ghana (Sh9.1bn), Tunisia (Sh4.8bn) and Mozambique Sh3.2bn.

Unpredictable

However, Ministry of Trade officials in Nairobi Wednesday downplayed the unpredictable Brexit negotiations, saying the UK would remain Kenya’s key trade partner irrespective of the direction the split takes.

“Deal or no deal on Brexit, Kenya will continue to access the UK market under the current terms with EU,” Trade Principal Secretary Chris Kiptoo told the Business Daily by phone.

The UK has been one of Kenya’s top export destinations, buying products like flowers, vegetables, fruit, tea and coffee.

A good number of these products currently enjoy duty and quota free access terms that the EU countries have collectively handed to former colonies as well as developing states with which the bloc has signed economic partnership agreements.

Once in the UK market, the goods are generally shielded from competition by tariff walls of between five and 12 percent that EU members currently apply on products from other developing nations under the Generalised System of Preferences (GSP).

“A no-deal exit would significantly alter the market access condition in UK… Countries which were enjoying preferences because of agreements will find themselves in disadvantageous position as they would then face MFN (most favoured nation) tariffs,” states the report released by UNCTAD on Tuesday evening

In a referendum held on June 23, 2016, Britons voted to exit the EU bloc in what has come to be known as Brexit.

The vote has since thrown UK into a spin, being the first of the 28-member states in the bloc to pull such a move.

Withdrawal plan

The British Parliament has severally rejected Prime Minister Theresa May’s proposed EU withdrawal plan, heightening anxiety after the extended March 29 exit date passed.

Ms May had since asked the EU for another extension until June 30, hoping she could convince MPs to back her exit deal.

The EU leaders on Thursday gave Britain six more months to leave the bloc.

The UK has in the meantime indicated an intention to redesign its trade regime to eliminate tariffs from all the areas where it has no production interest, a move that could open the floodgates for cheap imports into its market.

The UNCTAD study noted that UK had recently published MFN tariffs that will initially be in force after a no-deal exit.

Various analyses show the new MFN regime will raise taxes on Kenyan goods by five percent on average while lowering levies on competitors’ products.

As part of the EU customs union, high tariffs have shielded the UK market from relatively cheaper imports from Japan, China, Russia, New Zealand, US, Brazil, South Africa and India

Higher tariffs

“Countries that were facing higher tariffs will benefit because of the fact that many competitors will be taxed at the same rate,” states UNCTAD.

Among East African states, Uganda comes across as the only other possible loser of a no-deal Brexit while Rwanda and Tanzania are set to gain Sh800,000 and Sh3.9 million worth of export earnings respectively.

South Africa would emerge as Africa’s top beneficiary with Sh304 billion while China tops the global list with an export earnings gain of Sh1 trillion.

The UNCTAD report notes that the UK accounts for 3.5 percent of the global trade and is an important trading partner for developing countries.

Apart from UK, Holland, Germany and France also account for a bulk of Kenya’s EU exports.

Source: Business Daily

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.