Africa Region Working Paper Series No. 90

Abstract

Although Kenya was once viewed as being among the African countries with the most favorable growth prospects, the last two decades witnessed significant declines in many measures of economic performance and social standards. As a result, Kenya’s share of world trade is now less than one-half its average level in the early-1980s. How can Kenya halt, and then reverse, these negative trends? While the answer to this question has multiple dimensions, trade policy certainly can play an important positive role. This report examines reasons why Kenya and other African trade did not provide the “engine of growth” that it did elsewhere.

During the last quarter century many Sub-Saharan African countries non-oil exports either declined in absolute terms, or expanded at a slower pace than world trade. Evidence suggests African countries, including Kenya, experienced serious supply constraints that limited their ability to capitalize on opportunities of international production sharing in foreign markets. Inappropriate governance policies, and a general unfavorable commercial environment, were largely responsible for Africa’s supply problems. In addition, a decomposition of recent trade changes into supply and demand factors shows that, with two important exceptions (cut flowers and apparel exports) Kenya experienced a general erosion of its US and EU import market shares. These findings support the conclusion of the recent Africa Competitiveness Report that concludes Kenya is at a competitive disadvantage vis-à-vis more than one half the other African countries surveyed.

Finally, the authors suggest that the diversifications of Kenya’s exports away from traditional products must have a very high priority in practice. For the developments in regional markets, it would be more advantageous for Kenya to pursue the trade liberalization on an MFN basis, rather than through the exchange of regional preferences. Kenya also need to set itself up to attract private investment, and that means a clean regulatory environment, a judicial system that works, proper police enforcement and corporate law, capacity building, and development and maintenance of infrastructure necessary to support manufacturing activity.

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