Kenya may benefit from the Brexit

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Agronomist Obed Kamoni inspects eggplants during the 2016 Mombasa ASK Show. Kenya and Africa may benefit from the Brexit. Photo by Laban Robert.

The Kenyan agricultural exports, which dropped after the Brexit vote, are regaining with the UK’s growing interest for an alternative import market after the shock waves of the June 2016 referendum, which allowed Britain to leave the Europe Union.

A post-Brexit vote survey by Barclays says that 38 per cent of UK retailers are eying Africa for agricultural imports - with South Africa and Kenya being the major beneficiaries.

“We anticipate a change in the near future when the (exiting) process is complete, though the UK has never needed to buy only from the EU because there have always been direct links to Africa,” Homefresh Exports Limited Marketing Manager Sheila Wambui said.

A quarter of fresh produce in the UK is from Kenya. The fresh produce includes beans, cut flowers, and peas.

But Kenya’s domestic exports to the UK steadily dropped from June to November last year, as the exchange rate between the Kenyan shilling and the British pound saw the pound drop by more than 20 per cent, making Kenyan produce far more expensive in the UK.

As a result, where Kenya exported 3,106tonnes to the UK in June, the quantity dropped sharply from there, to 2,115 tonnes by October, representing a fall of more than 30 per cent in volumes.

However, in November and December, the country’s exports recovered somewhat, to above 3,000tonnes, according to the Kenya Revenue Authority.

Most of the fall came in horticultural products, such as beans. The export earnings for cut flowers remained relatively stable for the seven months after the June Brexit vote,but fruits dropped somewhat in quantities.

However, Wambui said the export market is now stabilising as the sterling pound recovers against the US dollar and the Euro.

The weakening of the sterling pound against the dollar as a result of political and market uncertainty - among other factors - negatively affected trade for most of the UK’s trading partners.

The drop was, however, not prolonged as Theresa May took over as the prime minister of the UK after David Cameron resigned on June 24, 2016 - a day after the referendum.

From June 2016, Kenya coffee export dropped from 4,982tonnes to 2,885tonnes in December. Only November posted 3,928tonnes, which was still lower than that of June.

Tea export dropped from 52,175tonnes in June to 29,655tonnes in October. November posted 41,138tonnes while December recorded 39,396tonnes.

The UK has invoked its exit process, which is expected to take about two years or so. One of the possible impacts is that the country may no longer enjoy free trade tariffs with the remaining 27 members.

With the exit of the UK from the EU, which is the source market for about 71 per cent of its imports, traders are turning their eyes to  Kenya and Africa for better prices to cushion their consumers against the possible  border tariffs that would make goods expensive.

The exit may mean that the UK also losses Custom Union agreement rights, which exempt custom checks of goods at the borders of the members.

The EU’s tariff is about 4.8 per cent. Imposing the tariff on all the about 71 per cent imports from the EU could mean a loss of about Sh576.9bn (£4.5bn) per year, according to the Independent newspaper.

Before the Brexit vote, agriculture, which contributes more than 25 per cent to Kenya’s gross domestic product, was predicted to suffer most.

This could have negatively affected other sectors of the economy given that it employs about 61 per cent of Kenyans while 75 per cent of the population depends directly on the sector.

With the strengthening of the dollar and the Euro against the sterling pound after June, Kenyan exporters to the UK suffered. The dollar gained against the pound by 15 per cent after the referendum.

Kenyan exporters bought the US dollar to pay for freights of goods to the UK, but they were paid in pounds, according to the chairman of the Fresh Produce Exporters Association of Kenya Dipesh Devraj.

The chairman said in June they were losing about Sh8million per day, by then.

Wambui said Kenya may benefit more after the UK exits the EU basing the argument on the steady recovery of the major exports in the third quarter of 2016.

“Right from the beginning of the process, there was a huge change in the exchange rates on the downward trend, but over the last few months the situation has stabilized,” she said.

At the completion of the exit process, Kenya and other Africa states my benefit more if the UK offers better terms as it also shields itself against the possible losses of importing from the EU.

Moving into Africa and other sources could be seen as an alternative of keeping the prices of imports low for consumers.

In fact the UK’s High Commission to Kenya Nic Hailey in January said better deals would be struck between the two states after the official exit.

Speaking in Mombasa, the diplomat said membership restrictions of the EU trade bloc will no longer limit the UK from negotiating a better pact for more export of agricultural products.

This would be for the benefit of the two countries.

The rate of inflation in the UK increased to 0.7 per cent from 0.6 per cent after the referendum, according to the Office for National Statistics.

The Financial Times reports that the economy accelerated in the second half of 2016 after the referendum to reach 2.6 per cent.

But the economy accelerated in the second half of 2016 after the referendum to reach 2.6 per cent.

But other actions by the financial institutions and the UK government may reduce the impact of the Brexit given that Britain is also a big exporter into the EU and the rest of the world.

Currently the UK is among the top five export markets for Kenya. In 2015 the country imported goods worth Sh40.2bn ($391m) from Kenya.

After the Brexit, Kenya hopes to cash in more from the more open market in the UK as the agribusiness industry continues to grow, although this would depend on the terms of European inter-country ‘local’ trade arrangements with Britain.

Even without such formal engagement deals with Kenya, the agribusiness industry would still thrive borrowing from the fact that the US remains one of the biggest trade partners of the UK even without a binding treaty as that of the EU.