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  • WEDF 
  • Discussion Brief for the Export Strategy-Maker

    A Summary

    Kenya: the importance of regional markets

    1. Introduction

    Kenya is an African developing country in the Eastern part of Africa. It makes up East Africa with Tanzania and Uganda. The country has a population of about 29.3 million, 80%, of whom live in rural areas. Kenya has a dynamic economy which is mainly driven by agriculture. It has a sizeable manufacturing sector which supplies manufactured goods for domestic consumption and export mainly to the rest of East Africa and a number of Common Market for Eastern and Southern Africa (COMESA) countries.

    In terms of regional economic groupings, Kenya is a member of the East African community which has preferential trade terms among members. The country is also a member of COMESA, which last year launched a COMESA free Trade Area with eight of its members – Kenya, Egypt, Sudan, Malawi, Zambia, Zimbabwe, Mauritius , Madagasca and Djibuoti offering zero duties among its members and reciprocal duty reductions among other members of COMESA.

    In 2000, Kenya exported goods worth Kshs. 134,527 million and imported goods worth Kshs. 247,804 million. Khs. 75 = 1US$

    The principal exports are Tea, horticulture (cut flowers, fruits and vegetables, both fresh and processed coffee, fish and fish preparations, manufactures and re-exports of petroleum products.

    This paper examines whether the Trade Support Network in Kenya is working in the context of Promotional Support both off-shore and on-shore. It describes the objectives of the promotional services, the strategies adopted and the role of public and private sector in the design and implementation of the programmes. The paper also identifies bottlenecks or problems encountered and attempts to explore possible solutions.

    2. Trade Support Network in Kenya: 

    a) The Government

    The trade support network in Kenya consists of a number of organizations both public and private. In the public sector the government particularly departments of the Ministry of Trade and Industry, Ministry of Finance, Ministry of Agriculture, Ministry of Health, Ministry of Transport and Communications etc are noteworthy. These government organs are mainly the policy makers in most of the services that contribute to international competitiveness of Kenyan products and services. The Government negotiates bilateral, multilateral as well as regional trade arrangements which govern market access conditions, preferential or concessionary. Government bodies also regulate the provision of important infrastructural services that play a major role in the international competitiveness of export products and services.

    b) Other Public Bodies:

    Other public bodies whose activities impinge on competitiveness of exporters include:

    • The Export Promotion Council, a body established by the Government in 1992 to identify bottlenecks to effective and efficient performance of the export sector. Such bottlenecks could be in the area of policy and regulatory environment, market opportunities and access conditions, trade information, the export products, etc

    • The Export Processing Zones Authority which was created in 1991 with the main purpose of accelerating production of export goods through establishment of industrial parks. The authority is mandated with regulation of establishment of Export Processing Zones and licensing operations of enterprises in the export processing zones. It is an administrator of incentive schemes a availed to enterprises that operate in these export processing enclaves.
    • The Investment Promotion Centre whose mandate is to promote investment in the country both foreign and domestic.

    c) Regulatory Public Bodies:

    There are a number regulatory public bodies which ensure that exports meet market entry conditions of importing countries through rendering inspection services such as Kenya Bureau of Standards and Kenya Plant Health Inspection Services. There are also public bodies mandated to oversee the development of important export sub-sectors. These include the Tea Board of Kenya, the Coffee Board of Kenya and the Horticultural Crops Development Authority.

    d) Private Sector Organization: 

      There are several private sector organizations in the trade support network. These organizations, being member organizations are sector based to deal with concerns of business enterprises in the different sectors. The organizations address issues of product standards and quality members adherence to codes of practice and business ethics, advocacy on issues that will lead to competitiveness of exporters, financial assistance and collaboration with development partners etc. the main organization in the private sector are Kenya Association of Manufacturers, (KAM) Fresh Produce Exporters Association of Kenya (FPEAK), Kenya National Chamber of Commerce and Industry (KNCC&I), Kenya Flower Council, Association of Fish Processors and Exporters of Kenya (AFIPECK) etc.

      It is important to note that exporters do not necessarily need to be members of the association in their sub-sector. There are several large exporters of goods and services who conduct their business without regard to trade associations and who also need trade support services from public organizations providing such services.

      3. The Export Promotion Council Strategies

      As the organization with the responsibility to spearhead export promotion and development in the country, the Export Promotion Council sees its mission as that of facilitating Kenya in export trade in order to generate wealth necessary for sustainable national development. To translate this mission into tangible programmes that support exporters to achieve international competitiveness the Council directs its efforts to five areas which are key to improved export performance. The five areas are:

      a) Policy and Regulatory Environment:

      For an economy that was highly regulated in the early 1990’s with all forms of licensing and regulations meant to restrict trade and usage of foreign exchange, it is important to continue to improve the environment within which production of export goods and exporting operate. Equally provision of services such as good infrastructure (roads, electricity/energy, telecommunications) and their pricing contribute greatly to the competitiveness of exporters. The area of continuously improving the business environment is an area of great importance where public and private sector collaboration is needed. Through sectoral panels consisting of stakeholders in the public and private sector and exporters , the Council facilitates dialogue to ensure concerns of exporters are voiced and addressed in order to continue enhancing supportive business environment.

      b) Trade Information Delivery System:

      Provision of current and relevant business information to enable exporters make informed decisions on the products, markets, market entry conditions including product standards and quality is key to successful international trade. The Council has established a Centre for Business Information in Kenya whose managing committee includes exporters and exporters associations. The Centre is also a reference Centre for business community on multilateral issues.

      c) Product Development and Adaptation: 

      Here it is important to understand the country’s supply capacity of exportable products. In Kenya where the main export products are primary products efforts and assistance are geared towards product improvement to add value and adapt products to the requirements of different markets. It is also important assist exporters to bring in more export products in order to diversify the export basket to move away from reliance on just a few products like coffee, tea etc which have been Kenya’s main export products. Support services are offered to individual exporters or to a sector in order to improve product standards. 

    d) Development of Exporting Skills: 

      It is important to provide exporters and prospective exporters with knowledge on specific aspects of exporting their products. Trade and Investment workshops, focused sectoral business seminars of public awareness on important development in international trade (e.g. the Multilateral Trading System) are vital to exporters. The Council regularly organizes such seminars, workshops and courses locally for exporters and the business community at large.

    e) Export Market Development: 

    The main concern of exporters is the market outlet for their products where they can get a good return for their efforts. Considerable effort by the Export Promotion Council and other major players particularly in the private sector is directed at developing markets for export products. This is a task that involves consolidation of market position in our major markets and seeking to expand the market share and seeking new markets ensuring exporters are assisted to establish in these markets. There are several market development strategies and activities that we adopt, both off-shore and onshore. This paper will describe the practices we adopt with respect to some of these strategies and highlight how public /private sector partnership come into play and examine how this can be improved to the benefit of the exporters.

    4. Promotion Support: 

    At the export Promotion Council, we realize that it is important for Kenya to diversify the market outlets for its export Products. Currently the country derives 40% of its export earnings from East African region and the COMESA market and 30% of earnings are derived from the European Union markets mainly the UK, France, Netherlands and Germany. Such concentration of market outlets does not auger well for the exporter as success mainly depends on economic conditions (as well as political relations) with very few countries. It is, therefore important to diversify market outlets. While It is also very important to the Kenyan exporter to consolidate market position and seek to expand in the current markets, it is at the same time imperative that efforts to enter into new markets be accorded high priority.

    The importance to entrench position and expand in current markets and to enter new markets necessitates a National Export Market Development Programme which needs to keep in focus the national objective as well as the interests of the private exporter. The Council coordinates the private exporters, business associations and public sector bodies and government departments in formulating the ‘National Export Market Programme’. This is a programme where all the activities to be undertaken during the year are agreed upon in a consultative process, taking into account the need to remain in present markets and to get into new markets for the different export products. The programme takes into account the trade fairs that Kenyan exporters feel they should participate in and countries where trade missions and market studies should be directed. It is very important to achieve consensus here because exporters will put in their own resources in participating in these events. If the strategy maker does not consult the exporters and their associations, he may end up with events (trade fairs, trade missions) etc which fail owing to non-participation by exporters. Exporters will generally not take part in events they feel may not generate business for them. Generally at exhibitions, the Council provides stand construction and management services, publicity and space rental while exporters meet their own travel, freighting of exhibits and hotel costs of their staff and transport costs. In trade missions, the Council will generally meet organizational costs particularly the cost of arranging meetings contacting possible business partners in country of trade mission and conducting basic studies on the market. The exporters meet their travel cost and hotel costs. The Council also produces promotional materials such as exporters directory, export video, posters etc.

    It is noteworthy that exporters associations do complement the national efforts by producing their own promotional material and most importantly by organizing on-shore promotion, through seminars, workshops and exhibitions. A good example of efforts by exporters associations is that of FPEAK which organizes the following events in the country

    a) Seminars and Workshops

    At lease two local seminars are organized for members each year. The topics covered during the seminars have mainly focused on market trends and requirements, available support services, implementation of the Code of Practice, among others.

    b) HORTEC

    In the past 7 years, there has only been one annual sector specific exhibition HORTEC. This even has been organized by a private firm, and FPEAK has been involved in hosting seminars which run alongside the exhibition. Hortec has mainly emphasized the promotion of the flower sector.

    c) HORTIFAIR KENYA

    In March this year FPEAK organized the first ever local horticultural trade fair – HORTIFAIR KENYAN. The event presented a window to showcase the exportable horticultural produce from Kenya the sector’s support infrastructure as well as a forum to provide information to exporters through seminars, which were held alongside the fair. The fair will be held annually.

    d) In-coming buyers missions

    FPEAK has been involved in organizing at least 3 buyers Missions on an ah-hoc basis, every year. Buyers involved in these missions are mainly from the existing and potential markets. FPEAK’s role has been to coordinate exporter importer meetings, farm and pack house visits.

    e) General trade events

    In addition to the above events FPEAK has also been involved in attending other events organized by the Kenya National Chamber of commerce and Industry, government agencies and private players. The national Agricultural Society of Kenya (A.S.K.) Show, held annually in Nairobi has been particularly important since it has an international visitor profile.

    Commercial Representation

    Kenya has 12 commercial representative offices abroad in Ethiopia, Tanzania, Uganda, South Africa, Zimbabwe, Zambia, United Kingdom, Germany, Belgium, Switzerland, United States of America and Canada. These representative offices are based in Kenya missions to the selected countries. The missions assist Kenyan exporters in gathering information on market requirements and market access conditions. They direct trade inquiries to the Export Promotion Council and, where possible direct to exporters or business associations that are in position to supply. The representative offices monitor bilateral trade relations with their countries of accreditation and are involved in all bilateral negotiations. Where trade fairs and missions take place in their countries of accreditation, the commercial representatives are the liaison officers between the EPC which coordinates participation at home and event organizers as well as the host government where special arrangements are needed. The offices also help in organizing contact meetings for visiting businessmen with those of host country.

    Commercial representative offices abroad are key to delivery of support services to exporters to make them competitive particularly if the offices are more oriented on business support than government functions. They are also very important sources of market information and important channels for distribution of information on home products.

    CONCLUSION

    Is Kenya’s Trade Support Network, Working?

    As described above, the trade support network in Kenya involves many players public and private. The Kenyan exporter targets regional and intentional markets, some of which have very strict market access conditions. It was observed that about 40% of export earnings are generated from regional markets where Kenyan manufactured products are competitive in terms of quality and price. This points to success in negotiating favorable conditions and appropriate regional and bilateral trade arrangements.

    Last year, the USA Government passed the African Growth and Opportunity ACT which enables sub-Saharan African countries to export to the US market duty free and quota free a wide range of products. Kenya was among the first three sub-Saharan countries to be accredited having met the required criteria. In the first five months of year 2001, Kenya exports to the USA were valued at Kshs. 21 billion equal to exports for the whole of year 2000.

    When we examine the range of Kenyan products exported to the European Union countries which constitute the 2nd most important market for Kenyan exports, (30% on value)we find that apart from primary products such as tea and coffee, horticulture and fresh fish exports are very important. These are products that have to meet very strict health requirements in the case of fish and maximum chemical residue levels in case of horticultural products. This points to successful inspectorate and quality control services in the trade support network.

    However, even if the trade support network is working, there remains the question of its efficiency, fine-tuning and its orientation to exporter sensitivities in order to improve export competitiveness. There are several aspects of the trade support network in Kenya that can be improved to make it work better. These include:

    1. The quality control and inspection services rendered by organizations such as Kenya Bureau of Standards and Kenya Plant Health Inspection Services While the services are high quality and highly facilitate the exported. The pricing of the services is often high and not commensurate with services rendered. Exporters should be fully involved through their associations in pricing decisions of such services.

    2. The commercial representation service abroad is another area that can be improved significantly to serve the exporter better. Currently this service is run by commercial attaches some of whom have no training or background in trade matters. Being a government service, the exporter has very little input in how the service is run since the commercial attaches are civil servants working from missions abroad, sometimes their good work is affected by exigencies of other non-related duties. The operations are also highly affected by the limited financial resources allocated to government departments.
    3. The area of trade negotiations in bilateral and multilateral for a is generally a government domain. Recently the government has come to realize that involvement of private sector would enhance the benefits of such negotiation. This should be encouraged to become the norm. Further training in trade negotiations is important for both public sector and private sector negotiators.
    4. The dialogue between private sector and public sector is good for national development and must be encouraged. A situation where the public sector sees the private sector as on a source of tax revenue and where the private sector is always suspicious of government initiatives must be avoided.
    5. The trade finance part of the network is still very weak in terms of insufficient initiates to address availability of financial capital for start-up and capacity development.

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    Posted 18 August 2010 

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