Kenya may ink EU trade deal alone as Brexit spooks neighbors

Kenya may abandon 10 years of negotiating a trade deal with the European Union as part of the regional East African Community bloc and go it alone, to avoid having duties of as much as 30 percent slapped on its exports from October.

A so-called Economic Partnership Agreement between Kenya, Uganda, Tanzania, Rwanda and Burundi and the EU is on hold after Tanzania’s government said two weeks ago it’s reluctant to sign any deal because of “recent developments affecting the bloc’s union.” The U.K. voted in a referendum on June 23 to withdraw from the bloc, ending a 40-year partnership. Uganda said last week it also wants to delay signing the deal.

“We would like to sign it together; the desire is that we sign it together,” Kenyan Foreign Secretary Amina Mohammed said in an interview in the capital, Nairobi, last week. “If we get to a stage where we can’t do that then we also have the right to make our own sovereign decisions.”

The negotiated EPA would give members of the EAC immediate duty-free quota-free access to the EU for all exports. The Brexit decision is complicating trade negotiations as ministers from around the world gather this week for the 14th United Nations Conference on Trade and Development in Nairobi, where the EPA accord has been scheduled to be signed.

The EU imported goods worth 2.6 billion euros ($2.9 billion) from the EAC last year, data from the European Commission shows. Kenya exported 126 billion shillings ($1.2 billion) worth of goods to the EU in 2015, according to the national statistics office.

“Countries like Tanzania, which said it will postpone signing the agreement with the EU might want to wait and see what happens with Brexit,” Willemien Viljoen, a researcher at the Tralac Trade Law Centre in Stellenbosch, South Africa, said by phone. “That will affect other members of the East African Community.”

Brexit may curb capital flows into East Africa, hinder trade and investment, weaken exchange rates and damage economic stability in the region, central bank governors from the EAC trading bloc said in a statement to reporters in the Ugandan capital, Kampala, on July 14. Uganda wants to delay the signing the EPA to ensure the deal is signed collectively, Nairobi-based Business Daily newspaper reported on Friday, citing Julius Onen, permanent secretary for the nation’s trade ministry.

No Excuse

“There may be some dynamics about East Africa negotiating market access to Britain, but there is no sufficient reason to dither the EAC’s engagement with the EU on the basis of Brexit,” UNCTAD Secretary-General  Mukhisa Kituyi said in an interview in Nairobi. “Brexit should not be an excuse.”

If the deal is not signed by Oct. 1, Kenya, as the only member of the East African Community not classified as a so-called least-developed country, could lose all its preferential access to the EU.

“The partners in the region realize there is a time pressure, so does the European Union,” Betty Maina, Kenya’s principal secretary for the East African Community, said in an interview on July 14. “So we are looking at all measures and engagements to ensure you don’t miss October 1.”

Kenyan farmers shipped produce such as carnations, green beans and avocados worth 90.4 billion shillings globally in 2015, according to the Kenya National Bureau of Statistics. Together with tea, fresh-produce exports generate the bulk of foreign-exchange earnings in East Africa’s biggest economy.

Flower exports by Kenya, which accounts for more than a third of the stems sold in Europe, may face taxes of as much as 20 percent unless the agreement is signed by Oct. 1, said Jane Ngige, chief executive officer of the Kenya Flower Council.

“We are trying to see how we will get out of the quagmire we are in,” Ngige said by phone.

 ~Bloomberg