Kenya general election ‘could delay’ trade deal with UAE

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• UAE is Kenya’s third largest trading partner after China and India
• Incoming government faces issues of inflation and drought
• Agricultural sector of interest to UAE with food security focus  

The UAE and Kenya are launching talks to form a free trade agreement to boost bilateral economic ties.

But political uncertainty in the east African country could hamper efforts to collaborate on shared priorities such as oil, gas, technology and ports, experts say.

The two countries signed a joint statement on July 28 pledging to start negotiations to create a Comprehensive Economic Partnership Agreement.

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Such a deal would aim to remove trade barriers between the UAE and Kenya, for example by cutting import and export taxes on a range of goods and services.

The agreement would be the first bilateral trade deal the UAE has sought with an African nation, according to the Emirates’ state news agency WAM.

It is intended to “deepen trade and investment between Africa and the Middle East and boost the total value of UAE-Kenya non-oil bilateral trade from $2.3 billion [as of last year]”, WAM reported. Official talks are set to begin to the coming months.

Analysts told AGBI a UAE-Kenya FTA would be a valuable tool in expanding the commercial relationship between the two countries.

The UAE is already Kenya’s third largest trading partner behind China and India, importing around $1.62 billion of goods from the UAE, according to 2021 figures from the International Monetary Fund. Kenya, meanwhile, exports around $315 million of goods to the UAE.

However, Kenya’s general election on August 9 could mean the talks are delayed in the near term.

“An incoming government will have more pressing issues to address such as high inflation and a drought,” Patricia Rodrigues, senior analyst at consultancy Control Risks, said.

“The new government may not view negotiating a trade deal with the UAE as a priority. Any FTA will likely take a long time.”

Afshin Molavi, a senior fellow at the Johns Hopkins School of Advanced International Studies in Washington, who studies the links between the Middle East and the global economy, said: “Elections are not good news for the quick delivery of free trade agreements – it takes a while for new governments to set priorities and outline their vision.

“Having said that, given Kenya’s multiple economic challenges, from drought to inflation to moderating growth, an FTA with the UAE that could unleash a new round of investment in the country would serve any new administration well.”

Molavi added that the “ball is in Nairobi’s court” as to how fast they would like to move on the deal with the UAE.

Kenya and other east African nations are suffering their worst drought in 70 years, causing food shortages for millions of people and impacting economic growth.

The IMF has been supporting Kenya with a $2.34 billion loan programme of which around $1.17 billion has been awarded to date, and a recent pick-up in agriculture and ongoing recovery in services and other sectors following the Covid pandemic prompted the fund to forecast GDP growth of 5.7 percent for 2022.

Victory for Odinga good for UAE-Kenya deal

For a UAE-Kenya trade deal, a win for frontrunner Raila Odinga would be the most positive result, as Odinga has signalled his intent to deepen diplomatic ties with the UAE and has already taken steps to build a relationship with Emirati leaders, Molavi added.  

“If Odinga wins, one can expect the momentum toward the agreement to continue. He has clearly stated his admiration for the UAE as an economic model, and has visited often, including recently on a private visit,” Molavi said.

Whatever happens after the election, the UAE is expected to vigorously pursue a deal with Kenya, which it views as a crucial trading partner.  

“Kenya will be an important partner for the UAE as it is the largest and most diversified economy in the East and Horn of Africa, plays an important diplomatic role in the region, and is an important ally for Western countries as well as China,” said Control Risks’ Patricia Rodrigues. 

“An FTA would work to cement good relations between the two countries, and better ease access for Emirati companies to the Kenyan economy, and vice versa.”

Shahram Safai, a Dubai-based partner at law firm Afridi and Angell, added: “In its quest to become a global business hub, the UAE is entering into an economic agreement with Kenya to remove trade barriers. Kenya is one of the largest economies in Africa and Africa and is one of the last frontiers of untapped markets in the world offering high availability of raw materials and arable lands, a young workforce, low costs and a large consumer base.”

There are several economic synergies between the two countries, analysts noted.

“Both regions have rapidly growing digital economies fuelled by high internet growth rates; rising middle classes, and increased interest in building sustainable entrepreneurships ecosystems,” said Wesley Schwalje, chief operating officer of Dubai-based advisory firm Tahseen Consulting.

“With 60 percent of Africa’s population and 46 percent of the Arab World’s population under 24, both regions have young, increasingly digitally connected populations.

“Africa also has the highest global internet growth rate, while the Arab world in general has the second highest.

“For this reason, technology cooperation will be high on the agenda of trade and investment talks.”

There is also significant interest within the UAE and Kenya to collaborate on tourism, infrastructure, oil and gas, mining, energy, transport, logistics and ports in particular – “given the importance of Kenya’s ports and transport networks for regional trade in east and central Africa”, said Control Risks’ Rodrigues.

Kenya’s burgeoning agricultural sector will be another sector of interest, as the UAE seeks to ramp up its food security, while the UAE will also look to protect the interests of Emirati investors in Kenya’s energy sector.

According to Schwalje, the African Continental Free Trade Agreement, a regional FTA that came into effect in 2021, “left GCC countries on the sidelines a bit, despite their significant investments in Africa, and shifted the regional power balance towards a more inward-looking pan-African approach.” 

The Gulf – and especially the UAE – is now having to be more assertive in its trade and investment development than ever before, “to preserve its influence in Africa’s evolving growth story”, Schwalje said.  

The UAE has made it clear that it prioritises a more robust trade relationship with Kenya, in its ‘Projects of the 50’ strategy published last year.

In the document, the UAE listed eight countries with whom it aims to “undertake comprehensive economic partnership agreements” in order to boost overall trade volumes to $10 billion – including Kenya, Ethiopia, Israel, India, Indonesia, the UK, Turkey, and South Korea.

Shortly after the document was released, the UAE negotiated FTAs with Israel and India, and a similar agreement with Indonesia was reached in June.

Molavi said: “Normally, negotiations around free trade agreements are slow, painstaking, and rife with setbacks.

“By contrast, over the past few months, the UAE has struck three comprehensive trade pacts with India, Indonesia, and Israel in record time.

“This is a reflection of the highest priority given to delivering on the pledged trade agreements with the eight countries cited.

“More broadly, it’s a reflection of the highest priority given to accelerating and expanding UAE’s global trade relationships.”

He added: “As demonstrated by the dizzying speed in which the UAE has completed free trade pacts with India, Indonesia, and Israel in recent months, the UAE is keen to move fast and deliver on an agreement with Kenya.

“If Kenya is keen, then strap on your seat belts because this process could move faster than you expect.”