72649 v1 World Trade Indicators 2009/10 Kenya Trade Brief Trade Policy External Environment After progressively liberalizing its trade regime since With a Market Access TTRI2 including preferences of the mid�1980s, Kenya’s MFN Tariff Trade 3.9 percent, Kenya’s access to international markets is Restrictiveness Index (TTRI)1 is currently 8.2 percent, comparable to that of an average SSA country and indicating a more open economy than that of an only slightly more favorable than that of an average average Sub�Saharan Africa (SSA) or low�income low-income country (5.6 percent). The weighted country (11.3 percent and 11.6 percent, respectively). average rest of the world tariff, including preferences, Based on the TTRI, it ranks 84th out of 125 countries faced by Kenyan exports is 1.9 percent, with non- (where 1st is least restrictive). With the government’s agricultural exports having easier access to world objective of attaining food security, the agricultural markets (1.0 percent) than agricultural exports (2.6 sector is given a higher degree of tariff protection percent). One of the most stable currencies in East (19.9 percent) compared to the non-agricultural sector Africa, the Kenyan shilling’s exchange rate against the (6.8 percent). Following the implementation of the U.S. dollar changed little in 2008 relative to 2007. The Common External Tariff (CET) of the East African exchange rate was KSh69.2 to US$1 in 2008 compared Community (EAC) in 2005, Kenya’s average MFN to KSh67.3 to US$1 in 2007. applied tariff has remained largely unchanged and is currently 12.6 percent. The country’s maximum MFN Kenya, as a member of the EAC, signed a Trade and applied tariff (excluding alcohol and tobacco) is 100 Investment Framework Agreement (TIFA) with the percent. Its trade policy space, as measured by the United States in July 2008. Under the TIFA, the two wedge between bound and applied tariffs (the parties will establish talks on strengthening their overhang), is 76.7 percent. Although Kenya has a economic relationship. In the meantime, Kenya liberal trade policy regime for services relative to most remains eligible for quota-free and duty-free entry of SSA economies, there is a wide gap between actual certain goods into the United States under the African liberalization and its multilateral commitments, which Growth and Opportunity Act (AGOA). In a further is reflected by its relatively low overall GATS boost to Kenya’s market access, in November 2007, commitments index. the EAC initialed an interim Economic Partnership Agreement (EPA) with the EU, under which its To counter the problem of high food prices in 2008, members’ exports are allowed duty-free and quota-free the government allowed duty-free imports of maize access to the EU market. The EAC is in talks with the from South Africa and banned maize exports. In 2008, EU for a full EPA. Kenya also belongs to the the government also reduced the import tax on wheat Common Market for Eastern and Southern Africa from 35 percent to 10 percent, but subsequently (COMESA), which established a customs union in increased the tariff again to 25 percent. June 2009 with plans of fully implementing it by 2012. The country, together with its co-members in the seven-country Intergovernmental Authority on Development (IGAD), is also currently planning to create a free trade area. Unless otherwise indicated, all data are as of August 2009 and are drawn from the World Trade Indicators 2009/10 Behind the Border Constraints Database. The database, Country Trade Briefs and Trade-at-a-Glance Tables, are available at Kenya ranked 95th in the Ease of Doing Business http://www.worldbank.org/wti. index in 2009, which compares the business environment of 183 countries. Surpassing the SSA and If using information from this brief, please provide the low-income group averages of 2.35 and 2.29, following source citation: World Bank. 2010. ―Kenya respectively, Kenya’s score on the Logistics Trade Brief.‖ World Trade Indicators 2009/10: Country Trade Performance Index (LPI), which measures the extent Briefs. Washington, DC: World Bank. Available at of trade facilitation in the country, is 2.52 out of 5, http://www.worldbank.org/wti. World Trade Indicators 2009/10 Kenya Trade Brief earning it a spot on the list of the top 10 countries in markets.3 In total, goods exports contracted by 15.5 the low-income group. Among the LPI subcategories, percent in nominal terms in 2009. Tourism income the country is doing well in ensuring the timeliness of also fell by 6.5 percent.4 With exports already shipments in reaching their destination but there is exhibiting lackluster performance in the beginning of significant room for improving its trade-related the year, goods exports are expected to plummet by infrastructure. To avoid loss of business to rival ports 10.9 percent in 2009, while the growth rate of services as a result of the global downturn and a surge in piracy exports is expected to slow down by about 7 attacks off the coast of Somalia, the Kenya Port percentage points to 2.9 percent. Imports are also Authority has announced reductions in some fees at expected to fall by 11.8 percent, and in the first half of the Port of Mombasa. 2009 imports fell by 8.3 percent. Foreign direct investment inflows, as a share of GDP, dropped in In an effort to facilitate trade amid the global financial 2008 to 0.3 percent from 2.7 percent the year before. crisis, the Kenyan government recently agreed to fast- track the creation of an Export and Import (Exim) Bank to provide trade and investment finance. Notes 1. TTRI calculates the equivalent uniform tariff that Trade Outcomes would keep domestic welfare constant. It is weighted by import shares and import demand elasticity. After averaging 11.6 percent over the 2005–07 period, 2. MA-TTRI calculates the equivalent uniform tariff of the real growth rate (in constant 2000 U.S. dollars) of trading partners that would keep their level of imports trade sharply declined to 3.5 percent in 2008, and is constant. It is weighted by import values and import expected to fall even further to 2.1 percent in 2009. demand elasticities of trading partners. Exports grew at an average rate of 6.3 percent during 3. Central Bank of Kenya 2009, pp. 16–19. 2005–07 but ended up dropping by 4.2 percent in 4. Central Bank of Kenya 2009, pp. 16–19. 2008 with mixed performance from the country’s major export products; tea and coffee export volumes declined, while horticultural exports increased. References Imports fared better, although growth still slowed from 15.3 percent in 2005–07 to 8.2 percent in 2008. Business Daily. 2009a. ―Millers, Bakers Decry Increase of Exports are expected to pick up in 2009 with an Duty on Imported Wheat.‖ June 17, 2009. estimated growth rate of 2 percent, while imports are . in 2009 compared to 2008. ———. 2009b. ―Dwindling Cargo Forces Reduction in Mombasa Port Tariffs.‖ July 2, 2009. . 2008 compared to 17.7 percent in 2007, driven by Central Bank of Kenya. 2009. Monthly Economic Review. strong growth in both exports and imports (15.8 Central Bank of Kenya. May 2009. percent and 18.8 percent, respectively). The country’s COMESA. 2009. ―COMESA Launches its Customs trade as a percentage of its GDP has remained mostly Union.‖ COMESA. July 24, 2009. unchanged over the past few years and was an Europa. 2009. ―Fact Sheet on the Interim Economic estimated 64.4 percent in 2008. Goods exports grew at Partnership Agreements—The Eastern African an estimated 18.3 percent, compared to an 11.9 Community (EAC).‖ Europa. January 2009. percent growth rate for services exports which were International Monetary Fund (IMF). 2009. International hurt by a fall in tourism receipts due to the post- Financial Statistics (Country Tables). July 2009. IMF, election violence in 2008. The country’s main export Washington, DC. products continue to show mixed performance in Office of the United States Trade Representative. 2009. 2009. Coffee production increased by 41.1 percent in ―Kenya.‖ . prices, but tea output fell by 14.3 percent due to late rainfall, while horticultural export volumes fell by 11.1 The Intergovernmental Authority on Development percent as a result of lower demand in Kenya’s export (IGAD). 2008. ―IGAD Member States and Development Partners Discuss Minimum Kenya Trade Brief World Trade Indicators 2009/10 Integration Plan for the Region.‖ IGAD. November 4, 2008. U.S. Department of State. 2009. ―Background Note: Kenya.‖ Washington, DC. July 2009. U.S. Treasury. 2008. ―Ambassador Schwab Signs Trade and Investment Agreement with the East African Community.‖ Washington, DC. July 16, 2008. . World Bank. 2009. ―Trade Finance Measures Taken to Mitigate the Impact of the Financial Crisis.‖ July 2, 2009. World Bank, Washington, DC. World Trade Organization (WTO). 2000. Trade Policy Review—Kenya. January 3, 2000. WTO, Geneva.