Kenya taxes Egyptian imports raising specter of African trade war

Kenya has decided to impose taxes on the imports coming from Egypt, following its unilateral retreat from the COMESA agreement.

al-monitor Delegates of the 19 countries that are members of the Common Market for Eastern and Southern Africa (COMESA) attend a summit, Kinshasa, Democratic Republic of the Congo, Feb. 26, 2014. Photo by Junior D. Kannah/AFP via Getty Images.

Sep 24, 2020

Egyptian exporters told Al-Monitor that the Kenyan authorities decided to impose customs duties on their merchandise, causing a stir regarding the fate of their remaining shipments in the Kenyan port of Mombasa.

Egyptian companies that export to Kenya rely on the privileges of the Common Market for Eastern and Southern Africa (COMESA) agreement and mutual customs’ exemptions.

On Sept. 9, the Kenya Revenue Authority informed the Egyptian exporting companies that it will impose a 25% tax on products, because the Kenyan government is considering the unilateral withdrawal from COMESA.

Egypt and Kenya are members of COMESA, which is a free trade zone established in 1994 and includes 21 member states. It aims at promoting trade exchange and liberating the flow of merchandise between the countries of eastern and southern Africa.

The Egyptian government is currently negotiating with its Kenyan counterpart to rescind its decision to impose taxes, according to government sources that spoke to the Egyptian Shorouk newspaper Sept. 17.

Sharif al-Jabali, chairman of the African committee in the Federation of Egyptian Industries and head of Abu Zaabal Company for Specialty Chemicals, said that Egyptian exporters have decided to suspend shipping their merchandise to Kenya due to the current ambiguity, until matters clear up.

Jabali told Al-Monitor that Kenya constitutes an important market for Egypt, since it is one of the most developed in Africa. He said that the Kenyan decision is not directed against Egypt only, but against all COMESA states.

The Kenyan market is important for Egypt because it is an entry point for exports to four neighboring landlocked countries — Uganda, Congo, Burundi and South Sudan. As part of its endeavors to increase its exports to Africa, Egypt was planning on doubling its trade exchange with Kenya to reach $1 billion by 2021, Hossam Farid, chairman of the Egyptian-Kenyan Business Council, had told the Eyptian Al-Mal newspaper in November 2019.

Atiya Issawi, an expert on African affairs, told Al-Monitor that Egypt was hoping its membership in COMESA would facilitate its exports to African countries through the port of Mombasa. But he thinks if Kenya insists on its decision to impose taxes, Egypt has other alternatives to export to Africa through the ports of Sudan, Tanzania and Djibouti.

Kenya spearheads African countries in welcoming Egyptian exports at a value of $115.3 million of Africa’s total exports that amounted to $1.2 billion during the first quarter of 2020, according to the government’s Central Agency for Public Mobilization and Statistics.

The list of Egypt’s non-petroleum exports to Kenya comprises 41 commodities in the industries of engineering, food, chemicals, metals and construction material. Meanwhile, tea, coffee and spices account for more than 90% of Egyptian imports from Kenya.

Trade exchange between Egypt and Kenya reached $640 million in 2018, while Egyptian exports to Kenya recorded $353 million, compared to a total of $288 million of Egyptian imports from the Kenyan market.

Egyptian exporters who spoke to Al-Monitor expect huge losses for hundreds of Egyptian companies, if commitment to the COMESA agreement is completely nullified and Kenya reimposes taxes on imports. COMESA is among the biggest and most important economic conglomerates in Africa. Besides, Egyptian companies are still gradually recovering from the recession that has lasted for months due to the coronavirus pandemic.

The Egyptian Ministry of Trade and Industry has been making a series of calls with export councils in the Kenyan market to assess the magnitude of potential losses from these taxes.

Exporters called for increased negotiations between the Egyptian government and the Kenyan authorities to rescind their decision to impose customs’ duties or to reduce them at least, or to implement the reciprocity norm and impose equivalent taxes on Kenyan imports.

Jabali, however, expects a solution due to the pressure from Kenyan exporters on the Kenyan government to reconsider its decision. He said that Egypt is among the main importers of Kenyan tea at an annual value of $300 million.

He noted, “Trade between both countries will be affected, but Kenya will be hit harder.”

He added that the COMESA member states are currently considering a proposal to extend the agreement until June 2021.

Issawi said that COMESA will be on the verge of collapse if the Kenyan incident recurs. This might dissipate hopes that this economic conglomerate will increase intraregional trade between the member states to 40%.

In 2019, Egypt’s total exports to the COMESA countries reached $2.1 billion, while Egypt’s imports from COMESA countries reached $1.1 billion.

The Kenya National Chamber of Commerce and Industry (KNCCI) called on the Kenyan government to rescind its decision to impose trade barriers on products coming from COMESA member states. The chamber noted in a statement Sept. 15 that this step might lead to a possible trade war between Kenya and the other COMESA states. The COMESA states’ markets account for more than 73% of Kenya’s total exports to Africa, according to the KNCCI.

Kenya is pushing for the enforcement of the Tripartite Free Trade Area (TFTA) agreement, which includes COMESA, the East African Community (EAC) and the Southern African Development Community (SADC), as a substitute to these three independent conglomerates, because this would allow full customs’ exemptions for trade among the member states.

The Kenyan government indicated in a statement Sept. 14 that it is useless for the member states to work according to different trade arrangements because of their membership in different trade conglomerates. Therefore, the agreements must be united, it added, calling on COMESA member states to expedite the TFTA ratification.

The TFTA was supposed to enter into force early 2020, but delays resulted from some countries’ reluctance to sign.

Jabali believes the African Free Trade Zone (AFTZ) agreement, which includes all African countries, will solve the problem of customs’ duties. He added that the agreement was to enter into force among African countries as of July 1, 2020, but the coronavirus crisis has delayed the process.

The AFTZ, which includes 54 African countries, aims at lifting inter-border free trade barriers to movement of goods in Africa. He noted that the parliaments of 30 countries adopted the agreement, but 24 countries still haven’t given their final approval. He expected the agreement to enter into force at the end of 2020 or early 2021.

Once implemented, the AFTZ will unite more than 1 billion people, with production exceeding $3 trillion. This will increase trade in the region by 15% to 25% in the medium term.

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