PARTNER-ATLAS

KENYA

as a partner for safeguarding our prosperity via free trade and innovation

01 — The key questions for the Partner-Atlas

RELEVANCE: What relevance does Kenya have for Germany with regards to “safeguarding our prosperity via free trade and innovation”?

Kenya is the most stable country in East Africa and has a Western-oriented economy. With consistently strong economic growth in the twelve years before the Covid crisis and a GDP of more than 99 billion US dollars (2020), Kenya has the largest economy in East Africa and is a growth engine for the entire region. Thanks to the ports of Mombasa and Lamu as well as the airport in Nairobi, the country is an important hub for trade and finance. Many international companies have chosen Kenya as the seat of their (East) Africa branches.

With its capital, Nairobi, Kenya has also become a centre of innovation in Africa. The M-Pesa payment system, introduced in 2007, has become the world’s largest provider of mobile payments. No other country in the world has a higher proportion of mobile payment system users. Based on this success, a professional technology sector has emerged in Kenya. The start-up scene benefits from a digital infrastructure that is well developed compared with the rest of the region: 85 percent of the population has access to the Internet.

WILLINGNESS: To what extent is Kenya willing to work with Germany in realising this interest?

The technology and start-up scene in Kenya have not yet managed to repeat M-Pesa’s considerable success in other areas, despite its favourable environment. A close partnership with Germany, recently named the most innovative economy in the world by Bloomberg, could be beneficial for Kenya.

As a regional hub, Kenya has an interest in stability in the region and is therefore strongly committed to multilateralism. Kenya is part of the African Union (AU) peace mission in Somalia, for example, thereby helping to secure one of the world’s most important trade routes in the Horn of Africa.

While Kenya’s western orientation has weakened due to the exponential growth of China’s investments in the past two decades, the country is nonetheless far from becoming a vassal state of China. On the contrary, Kenya wisely strikes a balance between the potential partners.

STATUS QUO: How close is Germany and Kenya's current cooperation in this area?

Kenya is the only country in the East African Community (EAC) to have ratified the Economic Partnership Agreement (EPA) negotiated with the EU in 2014. The EPA is a decisive building block for Germany’s future trade relations with Africa, because the Cotonou Agreement, which until now has provided unilateral preferential access to the European market for most sub-Saharan African states including Kenya, expires on 30 November 2021. After the expiry of the agreement, Kenya, being the only country in the EAC that is no longer part of the group of Least Developed Countries, will not be able to take advantage of the European Everything But Arms initiative, under which 33 African countries are granted duty-free and quota-free access to the European market. Only a mutual agreement like the EPA would continue to allow WTO-compliant, preferential access to the European market.

It is also true, however, that there are conflicting trade policy interests in Kenya. On the one hand, influential groups protect their vested interests through tariffs and non-tariff trade barriers. And mistrust of neighbouring countries with whom Kenya currently does not enjoy good political relations will make the implementation of regional free trade arrangements unlikely in the near future. Moreover, in the shadow of the Covid pandemic, arguments against a further opening of the market are becoming more and more popular, which could also make progress in the African Continental Free Trade Area (AfCFTA) more difficult.

On the other hand, there is certainly interest in more trade with Germany and Europe, especially in the export-oriented agricultural industry, but also in the very engaged start-up scene, which depends on Western investors.

POTENTIAL: What is the potential for strengthening the partnership between Germany and Kenya in this area?

There is great potential for more intensive cooperation, especially in the agricultural industry. There is demand for modern agricultural technology and innovative farming methods. So far, however, there have only been large-scale purchases in Europe of products that do not compete with subsidised European products, in particular cut flowers, coffee and tea. Due to the global transport restrictions resulting from the Covid pandemic, Kenya’s agricultural exports completely collapsed for a while. It is still unclear whether the original structures can be restored. However, this process can also be used for export diversification.

In addition to numerous start-ups, there are also many small light industry companies in Kenya that could be integrated into the value chains of German industry due to a relatively good infrastructure. However, Kenya’s potential could only be fully exploited if free trade rules were achieved, at least on the regional level. Any further integration within the African Continental Free Trade Area (AfCFTA) would further strengthen Kenya’s importance as an attractive place for investment and technology.

POLICY RECOMMENDATION: What in German foreign policy has to change in order to fully exploit this potential?

Germany should continue to campaign for trade agreements with African countries at the European level. Whether the EPA between the EU and the EAC is still the best way to go about this should be reviewed. If the other EAC member states continue stonewalling, the focus could be shifted from a regional approach to closer bilateral cooperation with Kenya.

There should be constructive and sustained support for the implementation of the AfCFTA, which officially came into force on 1 January 2021. A speedy implementation would be a blessing for Kenya as well as for German companies that could serve the entire continent from their base in Kenya. However, the continuing conflicting interests of the elites of many African countries (including Kenya) must not be graciously ignored. It is not likely, therefore, that the agreement will be quickly implemented. In the case of successful implementation, however, Germany should actively lobby for starting negotiations for a comprehensive EU-AU agreement.

Given the fact that two thirds of Kenyan exports are agricultural products, a project such as this also requires radically rethinking the EU’s common agricultural policy. Duty and quota- free access to the European market for Kenya and other sub-Saharan African countries is of little value if competition is distorted by subsidising European producers. Kenya would have great potential as a supplier, particularly in milk and meat production, as well as for fruit and vegetable varieties that are also produced in Europe.

In the agricultural sector, investment in the mechanisation and intensification of conventional and organic agriculture should be promoted, rather than continuing to consolidate the small-scale and subsistence-oriented structures. Germany, with its strengths in agriculture, the food industry and agricultural machinery, could benefit at all stages of the value chain.

In the technology sector, despite impressive developments, Kenya still has to resolve major issues. As elsewhere in Africa, gaining access to capital is particularly difficult or even impossible for small businesses, including start-ups, which smothers innovation. Additional access to capital could be created via German and European development banks, which also provide longer-term financing. However, it must not be ignored that corruption at all levels of government remains the central inhibitor to innovation and investment. German foreign and development policy must develop a long-term approach to systematically work against these practices.

In addition, structures for the exchange of knowledge between Germany and Kenya should be created, such as the German-East African University of Applied Sciences that has not been given the green light yet although both sides have signed a joint declaration of intent. Germany’s capacity for innovation would also benefit enormously from this exchange with the young Kenyan population.

Jan Cernicky is Policy Advisor for International Trade and Economy in the Analysis and Consulting Department and headed the KAS Office in Kenya until August 2020;
Gunter Rieck Moncayo is Policy Advisor for Economy and Trade in sub-Saharan Africa in the European and International Cooperation Department.

Last update: August 24th, 2021

KENYA

  • Population: 53,771,296
  • Capital: Nairobi
  • Interest: Safeguarding our Prosperity via Free Trade and Innovation
  • Region: Sub-Saharan Africa
  • Potential partner countries: Botswana, Ethiopia, Ghana, Kenya, Mozambique, Rwanda, South Africa

04 — The region

Sub-Saharan Africa

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SOUTH AFRICA

According to Federal Minister Müller, Africa is to become the “green continent of renewable energies”. South Africa, the continent’s most developed economy, is pursuing ambitious goals in this field, similar to what is being debated in Germany. Examples include the reduction of CO2 emissions and minimizing the dependence on coal. In order to do so, South Africa has introduced a carbon tax in 2019.

  • Population: 59,308,690
  • Capital: Bloemfontain, Capetown, Pretoria
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KENYA

Kenya is the most stable country in East Africa and is an economy that is oriented toward the west. With consistently strong economic growth in the twelve years before the coronavirus crisis and a GDP of just under 88 billion US dollars (2018), Kenya is the largest economy in East Africa and a growth engine for the entire region. Thanks to the port of Mombasa and the airport in Nairobi, the country is an important hub for trade and finance. Many international companies have chosen Kenya as the seat of their (East) Africa branches.

  • Population: 53,771,296
  • Capital: Nairobi
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GHANA

Despite its relatively small population of approximately 28 million inhabitants, Ghana is growing in relevance for Germany. This is evident not least of all from the fact that Ghana has been included in the Compact with Africa project since 2017 and became one of Germany’s reform partner countries in the same year. Ghana’s willingness to accept reforms in the economic and fiscal policy sector, along with its framework, which is relatively stable and reliable compared to many other Sub-Saharan African countries, made Ghana an interesting partner for the G20, and especially for Germany (as a reform partnership).

  • Population: 31,072,940
  • Capital: Accra
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NIGERIA

With a population of around 200 million, Nigeria is not only the largest country in Africa, but it has also been the continent’s largest economy for some years now. The country is rich in oil and gas and is one of the largest oil exporters in the world. Nonetheless, Nigeria faces immense security and economic problems, which are worsening as a result of the coronavirus pandemic and could further destabilise the entire region in the medium to long term, posing major challenges for Europe. This applies both to the European interest in supporting the Sahel states in their fight against terrorism and to reducing irregular migration from Africa.

  • Population: 206,139,589
  • Capital: Abuja
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NIGER

The unstable security situation throughout the Sahel region reveals the weakness of state authorities in the region. Niger’s security forces are also struggling to exercise effective control of the country. Several terrorist groups, such as the Islamic State or Boko Haram, regularly attack military bases and also civilians. Niger is also one of the poorest countries in the world and is dealing with numerous governance problems, including regular accusations of corruption against government representatives or officials. There have even been deaths during demonstrations by young people against the rampant corruption and bad governance. The Nigerien government’s measures against the coronavirus, especially the closure of mosques, have also led to violent clashes between mainly young demonstrators and the security forces. Amnesty International is also protesting against the use of the controversial cybercrime prevention law to suppress voices critical of the government in the context of the coronavirus pandemic.

  • Population: 24,206,644
  • Capital: Niamey
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