Kenya-USA Bilateral Trade Talks: Ambassador McCarter confirms “cat is out of the bag” on Bloomberg scoop on negotiations for Free Trade Agreement

U.S., Kenya to start trade talks seen as template for Africa

Key takeaway is that Bloomberg reports that trade talks have been underway between the United States and Kenya, with the Kenyan officials confirming progress and the US expecting to publicize status in conjunction with Uhuru Kenyatta visit to Washington next week.

The East African nation’s cabinet will probably approve discussions with the U.S. this week, Kamau [Permanent Secretary] said.

Kenya is America’s 11th largest trading partner on the continent and the sixth biggest in sub-Saharan Africa, with total trade between the two countries at $1.17 billion in 2018.

The U.S. currently has one free-trade agreement on the African continent — with Morocco. U.S. Assistant Secretary of State for African Affairs Tibor Nagy said in August that the nation was pursuing a trade deal with an unidentified country in sub-Saharan Africa, adding that it would be used as a model for others when AGOA expires.

The Trump Administration wants to use an agreement with Kenya as a template for other bilateral agreements in region, as opposed to the African Union’s expressed preference for a multilateral pact in the context of the new African Continental Free Trade Area. It is also somewhat unclear as to how this would integrate with the longstanding US support for the federation process among the members of the East African Community.

Update:

Ten years into the major multinational counter piracy missions off the Horn of Africa, are China and India paying their fair share?

Operation Atalanta of the European Union (EUNAVFOR) commenced in December 2008 and was joined by the Combined Maritime Forces (CMF) Combined Task Force for counter piracy force (CTF-151) in 2009.

The Combined Maritime Forces are a multinational security venture based in Bahrain, with U.S. and U.K. top command.

  • 33 member nations: Australia, Bahrain, Belgium, Brazil, Canada, Denmark, France, Germany, Greece, Iraq, Italy, Japan, Jordan, Republic of Korea, Kuwait, Malaysia, The Netherlands,  New Zealand, Norway, Pakistan, The Philippines, Portugal, Qatar, Saudi Arabia, Seychelles, Singapore, Spain, Thailand, Turkey, UAE, United Kingdom, United States and Yemen.

China and India do send ships independently to cooperate in the CTF-151 mission. But given the volume of Chinese and Indian trade and shipping at this point, are they bearing their fair share of the cost?

Piracy has been radically reduced in recent years off Somalia and in the bab-el-Mandeb, Gulf of Aden region patrolled by CTF-151.

For the United States to solve the “free rider” problem for trade competitors, especially the PRC, the best approach it seems to me is to increase our own trade and investment in East Africa, as well as globally where we have facilitated the rise of the PRC as a trading power through free global maritime security, direct and indirect foreign investment, lax cybersecurity and intellectual property protections, etc.

While it has been our policy since my childhood to facilitate the rise of China, although under slightly varying rationales at different times over the years, President Trump has sometimes, along with a few of his advisors, expressed a desire to change this policy and our formal National Security Policy calls for recognition of “great power competition” as the superseding longterm priority to the ongoing war with al-Queda and progeny or similar groups.

National Security Advisor Bolton announced a “New Africa Policy” suggesting some rethinking back in December, but it seems to have been largely overcome by events since then. Bolton’s “back to the 80’s” focus on Cuba and Nicaragua to add to the standoff involving Venezuela, along with primary redirection of focus to the permanent “shadow war” with Iran, takes bandwidth, already constrained, away from African issues. Meanwhile rapidly unfolding events in Sudan, Algeria, Libya and Egypt at a time of increased uncertainty in much of Central Africa with limited clear U.S. engagement suggest that we are very much in flux about whether we are serious about recalibrating our overall reticence to compete in Africa.

Powerful forces of bureaucratic inertia and domestic American politics suggest that we are likely to continue deficit spending to help secure Chinese trade with Africa without get much further toward making it pay for itself at least through the 2020 election.

As of 2017, US exports to Sub-Saharan Africa were $ 11.7B., or somewhat less than the cost of an aircraft carrier or two amphibious assault carriers, with a trade deficit of $3B. Chinese exports were $37.4B with imports of $18.5B. (India had exports of $13.1B and imports of $19.7B.) The Chinese trade surplus with Sub-Saharan Africa approximately equals the annual U.S. Navy Shipbuilding and Conversion budget.

Should the United States support “political confederation” of the East African Community? Can we do so while also supporting democracy?

What are the basics of our current foreign policy in East Africa? According to the State Department’s Bureau of African Affairs there are now “four pillars” to our policy towards Africa:

1) Strengthening Democratic Institutions;

2) Supporting African economic growth and development;

3) Advancing Peace and Security;

4) Promoting Opportunity and Development.

Pillar number one seems quite clear, even if I have to admit that I cannot articulate what difference is intended between numbers two and four. See “The Competitive Advantages of Promoting Democracy and Human Rights in Africa,” by Mark Dieker on the State Department DipNote Blog this month. Dieker is the Director of the Office of African Affairs at the Bureau of Democracy, Human Rights and Labor.

The East African Community as currently constituted with the addition of newly independent but unstable South Sudan has six member states. Arguably Kenya under its corrupt but seemingly stable one party dominant “handshake” government over the past year following annulled then boycotted 2017 elections is about as far along the democracy continuum as any of the six–on balance, the region seems to be experiencing authoritarian consolidation.

EAC Chairman Paul Kagame, who initially took power in the first instance through leading the 1990-1994 invasion from Uganda, engineered a referendum to lift term limits last year and was then re-elected with nearly 99% of the vote over his two closest opponents with less than 1% each, after jailing a more conspicuous challenger and expropriating her family’s resources. Suffice it say that Paul Kagame is one of the world’s more controversial leaders–both loved and hated, praised and feared among Rwandans and among politicians and journalists from other countries. The slogan of the EAC is “one people, one destiny”; the website invites users to memorialize the anniversary of “the genocide against the Tutsi”.

I think we could all agree that Kagame operates Rwanda as a heavily aid-dependent developmental authoritarian one party state “model”. Western diplomats and politicians, aid organizations, educational institutions and companies and foundations are free to participate so long as offer support rather than any form of dissent. Likewise journalists and scholars are welcome to spread the good news. Some see deep real progress from a genocidal baseline and a “cleaner”, “safer” more “orderly” less “corrupt” and more business-friendly “Africa”; some see a cruel dictatorship killing its opponents and silencing critics to hide its own dark past while supporting catastrophic regional wars and looting outside its borders while offering international busybodies and ambitious global operators gratification or absolution from past sins for cash and protection. Whatever one thinks of the relative merits of democracy and developmental authoritarianism, in Rwanda specifically or in East Africa or the world-at-large, I think we can agree that Rwanda is not a model of democracy.

Tanzania has regular elections which are always won by the party that always wins. In the world of East African democracy, it ranks above Kenya in some respects in recent years for avoiding the tribal mobilization and conspicuous corruption-fed election failures that have plagued its neighbor to the north. But again, no actual turnover of power from the ruling party and lately, civil liberties have been taking a conspicuous public beating. In the last election, the opposition took the seemingly desperate or cynical step of backing a candidate who was compromised by his recent expulsion from Government and the ruling CCM–and who having lost has now abandoned his new friends to return to CCM.

In Uganda, Museveni like Moi before him in Kenya, eventually allowed opposition parties to run, but unlike Moi, as not given up unilateral appointment of the election management body and has gone back to the “constitutional” well to lift first term limits, then the presidential age limit. While extrajudicial killings are not as prominent a feature of Ugandan politics as they are in Kenya, that might only be because Museveni counts on beatings and jail terms to send clear messages.

Burundi is under what would be an active ongoing crisis situation if not for the fact that things have gotten too much worse in too many other places for us to keep up. Whatever you think of Nkurunziza and the state of alternatives for Burundi, I do not think we need to argue about whether it is near to consolidated, stable, democracy.

South Sudan has not gotten far enough off the ground to present a serious question.

So under the circumstances it would seem quite counterintuitive to think that a political confederation beyond commercial of the existing six states would enhance rather than forestall hopes for a more a democratic intermediate future in Kenya or Tanzania. Likewise it does not seem to make sense to expect some serious mechanism for real democratic governance on a confederated six-partner basis anytime in the near or intermediate future unless quick breakthroughs are seem in multiple states.

Someday, after democratic transitions in Rwanda and Uganda and an experience of a change of power in Tanzania, after Kiir and Machar are safely under lock and key or have run off with Bashir to Paraguay, this can be revisited in a new light.

1999 Treaty Language TZ, UG, KE:

DETERMINED to strengthen their economic, social, cultural, political, technological and other ties for their fast balanced and sustainable development by the establishment of an East African Community, with an East African Customs Union and a Common Market as transitional stages to and integral parts thereof, subsequently a Monetary Union and ultimately a Political Federation;

In Chapter 23, Article 123

6. The Summit shall initiate the process towards the establishment of a Political Federation of the Partner States by directing the Council to undertake the process.

7. For purposes of paragraph 6 of this Article, the Summit may order a study to be first undertaken by the Council.

In 2011

In the consultations, it became clear that the East African citizens want to be adequately engaged and to have a say in the decisions and policies pursued by the East African Community.

On 20th May, 2017, the EAC Heads of State adopted the Political Confederation as a transitional model of the East African Political Federation.

Candy and Communists for Kenya: as Kenyatta’s Jubilee “deepens” partnership with Communist Party of China, Mars’ Wrigley East Africa to sell “affordable Skittles”

“Affordable Skittlesfor the “kadogo market” as Wrigley offers may not quite match Kentucky Fried Chicken in Nairobi, but perhaps the biggest news since Burger King arrived?

And yes that event at State House celebrating the deeping partnership of Jubilee and the Communist Party of China yesterday has turned heads. I think a lot of Americans had not been aware of this relationship. Obviously it makes sense in carrying forward the spirit of KANU of Kenyatta and Moi and their understudies. Kenya always labeled itself a “democracy” whether one party rule was formal or informal. China, of course, is also “democratic” with numerous parties other than the Communist Party.

Caption from Presidential Communications operation: “Today we agreed to deepen our relationship with the The Communist Party of China in order to enhance Jubilee party management and democracy.” The Presidency

At a micro level I would take umbrage at the blatant use of State resources for Jubilee Party business, but since the Party was launched at State House in the first place and the donors supporting “Western-style” democracy and the “rule of law” and such were not willing to say “boo”–nor the IEBC nor the Office of the Registrar of Political Parties, there is never a reason to be surprised at this point. We reap as we sow.

ICYMI: An important read from Tristan McConnell in The Atlantic: A Deadly Election Season in Kenya – The Killings Suggest a State that is More Predator than Protector.

And here is the story from Moroccan World News of how the Chinese connected the African Unions computer servers at the Addis headquarters directly to Chinese servers in Shanghai.

“Let them drink bubbles . . .” The Nairobi Curse revisited in a time of hunger

Back in March 2010–well before the last widespread famine in 2011–I wrote a piece here called “The Nairobi Curse” suggesting an analogy between the role of Nairobi in Kenya’s overall political and economic development and “the resource curse” faced by those countries prized by outsiders for oil, for example.

With famine being reprised I was reminded of the “Nairobi Curse”  when I noticed on the “KenyaBuzz” Nairobi entertainment and happenings newsletter a charming little story, “Nairobi’s Newest Wine Shop Delivers In A Different Kind Of Way”, promoting “Wine and Bubbles”, a French couples’ couple of Nairobi stores selling French wine.  The expat Nairobian explained that he had hoped to grow vineyards in Kenya but learned on moving from France that the climate was not conducive so he was selling French wine instead.

The growth market of course is introducing wine tastes to what is invariably called the “Kenyan Middle Class”–basically the third tier wealthy Kenyan of the Nairobi professional/managerial class.  The sort of people who would be upper middle class in a much more broadly and deeply prosperous country where most people had enough to eat with a per capita income several times that of Kenya’s.

Here is my original post:

This is Kenya’s version of “the oil curse” or “the resource curse”.

 

Nairobi is the place to be in Sub-Saharan Africa (and outside of South Africa) for international meetings and conferences.  It is a relatively comfortable place to live for middle class or wealthy Westerners, or young aid workers.  An international city with a certain level of cosmopolitanism, yet of manageable size and scope relative to so many burgeoning cities of the less developed “South”.  A headquarters for two UN agencies.  A diplomatic critical mass, with lots of representation from all sorts of countries around the world that have little obvious presence in Africa, but also a crossroads for representation of everyone playing for a major piece of the pie (Iran, Libya, China, India, the Gulf States–as well as obviously the US and Europe).  And you can go on business, and then take a safari on the side.

 

From the US, soldiers go to Djibouti (the Combined Joint Task Force-Horn of Africa, at Camp Lemonier) while diplomats go to Nairobi.  The US runs its Somali diplomacy from the Embassy to Kenya rather than Djibouti which would be the more obvious place on paper.  Likewise, Somali politicians tend to live much of the time in Nairobi.   Nairobi is the place to invest cash generated in Somalia.

Nairobi is the “back office”, and in some cases the only office, for much of relatively huge amount of US aid-related effort for Southern Sudan, as well as that from other countries.

 

Nairobi has something like 8% of the Kenyan population, and perhaps 60% of the GDP (don’t let anyone tell you they know any of these figures too precisely).  Perhaps 50-60 percent of the population lives in informal settlements (“slums”) whereas the other half lives as “the other half”.  Most national level Kenyan politicians holding office live primarily in Nairobi (although they may have homes in a constituency they represent in Parliament as well).

 

When I was the East Africa Director, based in Nairobi, for IRI (where our much bigger Sudan program was also  headquartered) as an American I felt that my government at that time (2007-2008) was falling into the trap of recreating a Cold War paradigm for our international relations by looking around through our “War on Terrorism” telescope.  And that in Kenya there were a lot of international interests that valued stability over reforms for reasons that related more to the current role of Nairobi than the long term interests of Kenyan development.

 

Certainly Nairobi is a resource that has great value–as does oil, for instance–it’s just a question of whether Kenyans can find a way to use it to the broad advantage of the nation or whether it will continue to be exploited to disproportionately benefit the most powerful.  Including being used to help keep them in power when more Kenyans want democratic change.

 

Just this past week Kenya hosted an IGAD meeting on Sudan–and flouted its obligations as a party to the Rome Treaty on the ICC by inviting President Bashir of Sudan while under indictment.  Meanwhile the ICC is considering whether to allow formal  investigation of key Kenyan leaders for the post-election violence from 2007-08.  But Nairobi is such a great place to have these conferences . . . and Sudan is so important (Khartoum is no Nairobi, but it has oil).

How will the Iran nuclear deal play out in East Africa?

I wish I had a clear sense of how this might develop but I don’t.  It seems to me that there may be several areas of impact over the next few years:

+Diplomatic leverage of Museveni, Kenyatta, Kigame et al vis-a-vis the United States will be reduced as one of the main US “asks”–UN votes to maintain nuclear-related sanctions against Iran–drops away.

+While I do not foresee the current US administration raising expectations for other US priorities from these East African leaders, the next US administration might feel some greater freedom to address “the democratic recession,” declining press freedom, and other issues on the formal US policy list.

+Oil prices:  if a lot more Iranian oil gets to market both in the near term from the immediate impact of lifting sanctions and the longer term from the increase in capacity associated with ramped up foreign investment, the prospects for oil production in Uganda and Kenya will be impacted, especially as related to the 2021-22 election cycle.

+Iran will reassume a stronger role in trade and finance in the region and thus compete more strongly with Israel, Saudi Arabia and the Gulf States.

+Iran will presumably increase its regional naval presence.

+The fall of the Gaddafi regime in Libya and subsequent sad state of affairs in that country reduced one major “petrocash” player in East African politics; an Iran less cash-strapped by UN sanctions might have aspirations to finance East African politicians aside from its espionage/security/terrorism enagement.

New Developments on Iran’s Geopolitcal Efforts in Africa–another challenge for democracy?

Uganda, Iran and the Security-Democracy Trade Space?

High Level  U.S. Delegation Carries Requests to Museveni on Fair Elections and Iran Sanctions

Salim Lone book talk and today’s public radio stories

Salim Lone last week at Chatham House, London, speaking on Kenya’s Pre- and Post-Election Challenges: The End of the Kibaki-Raila Decade ahead of the publication of his book, War and Peace in Kenya.

From NPR’s All Things Considered today, “Kenya’s Free Schools Bring a Torrent of Students”:

A study published by Britain’s Sussex University in 2007 found that Kenya’s free schools were “a matter of political expediency … not adequately planned and resourced,” and as a result, there have actually been more dropouts and a falling quality of education.

Conversely, the number of private schools has increased tenfold as parents look for alternatives to overcrowded classrooms.

The situation is similar in neighboring Tanzania, which did away with school fees a year earlier in 2002. The student population also skyrocketed, leading to packed classrooms, book shortages, overused toilets, a teacher scarcity and an increase in paddling students to keep order.

And here is a good “Wealth and Poverty” feature from American Public Radio’s Marketplace on an international folk art market in Santa Fe, New Mexico with craftspeople from a number of African countries participating.  Interesting discussion of globalization and the impact of imports of used clothing.

State of U.S. economic interchange with Kenya

So where do things stand economically between the United States and Kenya at the start of the Administration’s “new policy” for Sub-Saharan Africa?

Faded Aid

From the East African’s coverage of the Gration resignation, Envoy’s exit underlines new US strategy in Africa:

Over the past five years, the US clout in the local economic scene has been declining as Kenya continues to look east, specifically to China, India and Japan for aid. Whereas the US continues to be a major source of development aid, disbursing an estimated $3 billion between 2008 and 2011, China, India and Japan have emerged as new sources of infrastructure funding.

China is currently carrying out improvements of roads in Nairobi, while Japan is actively supporting the country’s energy sector.

America’s support has largely focused on health and military funding, with the US government set to give Kenya $14 million in military help this year.

In trade, whereas imports from the US have stagnated at Ksh45 billion ($535 million) since 2007, Kenya’s imports from China and India have more than tripled, rising from Ksh46 billion ($547 million) and Ksh56 billion ($667 million) to Ksh144 billion ($1.7 billion) and Ksh148 billion ($1.8 billion) respectively.

Kenyans had been hoping that General Gration, who spent his childhood in Democratic Republic of the Congo and Kenya, and spoke fluent Kiswahili, would take US-Kenya relations to a new level given his knowledge of Kenya, its people, its language, and its culture.  .  .  .

Assistant Secretary of State Carson testified on June 28 before the Senate Foreign Relations Committee on “Economic Statecraft” emphasizing the importance of the renewal of the Third Country Fabric provisions under AGOA, and the harm caused by uncertainty:

. . . As you know, many African countries are not taking full advantage of the benefits of AGOA. However, some AGOA beneficiary countries take good advantage of the provisions for fabric and apparel product lines. The third country fabric provision component of AGOA was designed to provide an opportunity for AGOA-qualified countries to be more competitive in labor intensive textile processes such as sewing, stitching, and cutting fabric.

It was widely recognized that most African countries were not able to compete in the more capital intensive process of producing fabric from raw cotton. African manufacturers have successfully used the AGOA third country fabric provision to create jobs, not just in the manufacturing countries but have used this provision to create cross-border pan-African supply chains. These supply chains also encourage regional integration – one of our key goals for the continent. Fabric and apparel exports are the second largest AGOA export after extractive industry products. However, these imports still account for less than two percent of U.S. imports.

I’d like to say a few words about what is likely to happen if third country fabric is not renewed. In our globally linked world, American buyers place orders six to nine to twelve months ahead. 95 percent of AGOA apparel and textile exports enter under the third country provision. And the AGOA third country fabric provision is the only way that African textile and apparel companies can remain competitive with larger producers such as China, Vietnam, and Bangladesh.

Without our help, jobs will continue to disappear in some of Africa’s most vulnerable economies, affecting primarily women and the families they support. Eighty-five percent of these imports come from just four countries: Lesotho, Kenya, Mauritius, and Swaziland.I know that diplomats from these countries have come to see you to emphasize the disproportionate effect that lack of renewal of this provision will have on their economies.

The effects of the loss of orders are troubling. At the AGOA Forum, the Swazi Minister for Trade told AGOA delegates that the loss of the provision will “shut the country down”. The textile and apparel sector is the largest formal sector employer with over 15,000 jobs and employment is already 41 percent in this small, landlocked country. Loss of just one of these jobs means that ten people lose their livelihood, since Swazi officials calculate that each textile job directly supports ten people. Lack of orders have already led to plants closures in Namibia, robbing people of their legitimate livelihoods and governments of much needed tax revenues. The Mauritians report that their orders are down 30 percent since January due to the uncertainty whether this provision will be renewed in a timely fashion.

The Trade and Politics Blog indicates that passage of the new bi-partisan legislation to extend the third country fabric provision is finally expected by the end of July before the Congressional Augut recess.  I hope this get squared away as soon as possible.

See “Africa Bureau announces vision to revitalize AGOA” and comment by Dr. Richard Mutule Kilonzo, Chief Executive, Kenya Export Processing Zones Authority:

The potential impact of a delayed renewal of the third country fabric provision of AGOA is grave. Third country fabric is the most successful components of the AGOA legislation and can be credited with over 100,000 direct jobs in Sub-Saharan Africa. Apparel orders are drying up due to the uncertainty surrounding the provision. In Kenya alone, over 40,000 factory workers could very likely lose their jobs if third country fabric is not renewed in a timely manner. The apparel industry in SSA rely on the third country fabric provision; without it there is a very real possibility that the investors in the apparel factories will pack up and move production to some other part of the world as happened in Madagascar following its loss of AGOA eligibility in 2009. This would cause enormous economic strife in countries that are strong partners of the United States. On September 30, 2012, the third country fabric AGOA provision will expire. With barely six months to go, further delay threatens the lives of 1 Million people, mostly women who work in the apparel sector. We estimate that each factory worker supports ten additional people. If third country fabric is not renewed soon, these jobs will disappear and Africa’s poverty rate will sour by over 55%.

Africa Bureau announces vision to revitalize AGOA

Assistant Secretary of State Johnnie Carson at CSIS from African Press Organization (APO):

While AGOA has achieved a certain amount of success, it has not solved Africa’s challenges and the region has not experienced a genuine economic revolution. Africa also continues to struggle to compete in an increasingly competitive global economy. For these reasons I am fully committed to revitalizing AGOA.

AGOA remains the centerpiece of our trade and investment policy with Africa. In 2012 the third country multi-fiber provision which allows textile producers to source their raw materials from other countries is set to expire and in 2015 the AGOA legislation itself will end. I would like to outline the State Department Africa Bureau’s vision for the next steps on AGOA:

1. Renew AGOA through 2025. The uncertainty about renewing the legislation creates a disincentive for potential investors to source production in AGOA eligible countries.

2. Renew the Third Country Multi-Fiber provision through 2022. The rules of origin for fabric under AGOA are one of the most important incentives to invest in textile production in AGOA eligible countries. This component of AGOA allows textile producers in AGOA countries to source their raw materials from other countries and still maintain their preferred access to the U.S. market.

3. Add South Africa to the Third Country Multi-Fiber provision. South Africa is the only AGOA eligible country not eligible for this provision and also the country best suited to take advantage of it.

4. Continue USAID’s Trade Hub and capacity building programs. Without this type of strong trade capacity building program AGOA cannot succeed.

5. Ensure that the Department of Commerce’s Foreign Commercial Service maintains their presence in Dakar and Accra. This is crucial not only for AGOA but for all of our economic initiatives in Africa.

6. Increase USDA’s capacity to provide phytosanitary certification. Agriculture exports remain an important and underutilized component of AGOA.

7. Tax incentives for earnings from AGOA investment. AGOA already provides substantial tariff savings for U.S. companies importing eligible products from Africa, but there are no other types of tax incentives provided under the legislation. Recommend that the U.S. government support an effort to eliminate the U.S. tax on repatriated revenues from American companies that invest in factories in Africa that produce AGOA exports to the US.

There has been a great deal of impressive economic news coming out of Africa recently. I am very encouraged by these positive developments. However, it is not the time for us to become complacent. Africa still faces huge challenges and we need to continue and revitalize our economic partnership. This is not only in the interest of our African partners, but in our interest as well. We need to maintain and improve upon AGOA today in order to continue to play a role in the growing dynamism in Africa tomorrow.

In the meantime, Russia is also seeking to “up its game” in African trade and investment.  Here is a link to “Buziness Africa”, a Russian magazine covering the subject, including AGOA.