Brexit threatens east Africa trade deal

Posted on July 28, 2016

Workers at the Maridaidi Farm in Naivasha, prepare roses which will be exported to Europe for Valentine's Day on February 12, 2015. Kenya is the major provider of quality cut flowers to the EU with a market share of about 40%. Flower farmers are upbeat ahead of the Valentine's Day and are projecting a rosy picture for the sector, despite the recent losses incurred during the Economic Partnership Agreement (EPA) impasse. AFP PHOTO / SIMON MAINA (Photo credit should read SIMON MAINA/AFP/Getty Images)©AFP

Millions of Kenyans’ livelihoods are at risk after Tanzania and Uganda refused to sign a proposed regional trade deal with the EU over concerns about Brexit and the impact the agreement might have on east African economies, industry associations in Kenya have warned. 

The failure threatens Kenya’s €1.1bn annual flower and horticulture exports to the EU, because if the agreement is not signed by October 1 the goods will incur tariffs. It could also trigger price rises for these items in Europe, as Kenya accounts for more than 25 per cent of EU flower imports and about one-seventh of its fruit and vegetable imports. 

    Members of the East African Community — Kenya, Uganda, Tanzania, Burundi and Rwanda — were due to sign an Economic Partnership Agreement with the EU last week to ensure the five nations continued to export goods to the EU without incurring quotas or tariffs. 

    But Tanzania withdrew from the planned signing because of “the uncertainty in EU after the exit of UK,” according to a government statement. “But more importantly is to protect the economic interests of our countries by empowering the manufacturing industries,” the statement continued, without giving details beyond that the agreement “may adversely affect our existing industries”. 

    Yoweri Museveni, Uganda’s president, then also pulled out of the signing, saying the deal needed further discussions, even though his government had already agreed it. 

    The trade deal has been under negotiation for nine years and was initialled by all parties in October 2014. If it is not signed by EAC leaders and ratified by October 1 then the current trade deals will lapse. 

    All the countries apart from Kenya, the region’s largest economy, will be largely unaffected because they are classified as least developed countries by the EU.

    But Kenya is classed as a wealthier developing country and so will face tariffs of 4.5-19.5 per cent, according to Jane Ngige, chief executive of the Kenya Flower Council and interim chief executive of the Kenya Horticulture Council. 

    One fruit and vegetable exporter who said his margins for vegetable exports to the EU were currently 5-8 per cent, said the imposition of tariffs would force him to stop trading with the bloc. “If we earn less than what we are it makes more sense to stop producing and put the money in the bank,” he said. 

    Ms Ngige said about 4.5m livelihoods would be affected if the deadline is not met because so many small-scale farmers are involved in horticulture production and it would not be easy to find alternative markets since Kenya already exports to 60 destinations every day. 

    “The EU is our main market,” she said. “For the flower industry it takes about 60 per cent [of exports] and the UK takes 85 per cent of the fruit and vegetables that we export.” 

    In 2015 Kenya exported €567m of food and €462m of flowers to the EU, according to Eurostat. This equates to about 1,000 tonnes of fruit and vegetables and up to 15,000 tonnes of flowers a month. 

    In 2014, the last year for which full data are available, Kenya’s horticulture and flower exports to the EU accounted for 23.7 per cent of the country’s total exports by value. Kenya is the world’s third largest flower exporter behind Colombia and Ecuador. 

    The EU has said the deadline cannot be extended because the current agreements violate World Trade Organisations rules and other developing countries do not enjoy the same preferential conditions. 

    Adan Mohammed, Kenya’s minister for international trade, said on Tuesday he expected the deadline would be met, but declined to say when the deal would be signed or how Tanzania’s objections would be overcome. 

    Margaret Muchui, general manager of the Fresh Produce Exporters Association of Kenya, a trade association, said everything was being done to ensure the deadline is met.

    “Where we can find stones we’re not leaving any of them unturned to sort this out,” she said. “There is a real fear of the unknown. People don’t know what to expect.” 

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