Make bilateral trade deals work for Kenya

 

This week, Kenya signed four trade and investment pacts with Indonesia, a country that exports goods worth Sh27.1 billion to Kenya while buying goods worth only Sh1.1 billion.

Such imbalances in trade between Kenya and its trading partners are all too common and, as a result, Kenya spends more in international trade than it earns. This is unsustainable in the long run and partly explains why the country will always be in debt; because we routinely spend more than we earn collectively.

Because of this historical trend, Kenya has remained a net importer of goods and services. Yet, with incentives such goods and services can be made locally.

Kenya’s obsession with imports goes against the national mantra of creating more jobs because every time an individual or company imports a finished product, they have essentially created jobs abroad. With proper planning, incentives and equipment, it is possible to stop some imports — such as furniture — altogether and reduce on non-essentials like clothing materials, leather products and simple goods like pens and pencils.

There is need, therefore, for the government to review its policies with the aim to improve the balance of trade by encouraging individuals and businesses to import less and exporting more.

Kenya has a wide variety of goods that it exports in their raw form. As a result, such goods fetch lower prices. Yet, those who buy them make more money by adding value to such products. The question we should be asking ourselves is; why are we not encouraging more companies to engage in value addition for export?

In the Budget statement that he read in July, Treasury CS Njuguna Ndung’u said he would be introducing an import substitution tax to discourage importation of goods that can be manufactured or produced in the country. In principle, this is a good idea although the enhanced taxes will hurt businesses that have traditionally thrived from importation.

To compensate, they should be given incentives to start manufacturing the same products locally. Within a few years, the dividend from such a strategy will be evident to all. That is the only way to improve Kenya’s balance of trade in the medium and long term.   BY PEOPLE'S DAILY