President Uhuru Kenyatta’s latest deals with his Ugandan counterpart Yoweri Museveni, which have sparked heated political debate since his weekend trip to Kampala, were part of the Jubilee government’s effort to stop ongoing decline in Kenyan exports to its western neighbour.
Uganda remains the top export market for Kenyan goods that produces a multibillion-shilling trade surplus every year with its absorption of a wide range of goods, including cement, steel bars, common salt and beer.
This favourable trade dynamic has, however, deteriorated steadily in the past three years when Ugandan imports rose to new highs as Kenyan exports slid, drawing the attention of Kenyan authorities.
Mr Kenyatta’s growing dalliance with the Ugandan strongman is therefore being seen as a calculated effort to clear the numerous non-tariff barriers that have partly contributed to the stagnation of Kenya’s exports to the neighbouring country.
Mr Kenyatta has since coming to power in March 2013 struck mega deals with Kampala, including the concession that allowed Ugandan tax officials to sit at the Mombasa port to help speed up clearance of Ugandan goods.
Slow movement of goods through the port and Kenyan roads has long unsettled Ugandan traders and irked Mr Museveni who took the concession as one of his biggest diplomatic achievements with Nairobi during his three-decade stay in power.
Mr Kenyatta has also negotiated with Kampala the development of mega infrastructure projects worth billions of shillings, including the ongoing construction of the standard gauge railway and an oil pipeline that will run through Kenya to the port of Malindi.
Kenya has also promised to support Uganda’s plan to build an oil refinery for the massive deposits it is about to start drilling close to its western border a near coup for Kampala coming just two years after Kenya shut down the region’s only refinery in Mombasa.
It was therefore not lost to keen observers of Kenya’s relations with Uganda that Mr Kenyatta would offer Kampala any sweetener that could culminate in Uganda removing some of the many barriers it has erected against Kenyan goods despite the political heat it was likely to generate.
READ: Win for Museveni as Kenya cedes sugar regulation
In defending the controversial sugar deal, Mr Kenyatta has restated Kenya’s position as a net importer of sugar that could enhance its economic interests by sourcing the commodity from neighbouring Uganda as opposed to distant places such as Brazil with which it has tenuous links.
Official statistics show that Kenya will keep importing sugar from other markets as well since Uganda’s estimated surplus of 26,000 tonnes is only about 17 per cent of Kenya’s annual sugar imports that now stand at an annual average of 149,000 tonnes. In addition, Kenya mostly imports industrial sugar that no miller produces throughout East Africa.
Disjointed communication from the government on the deal it struck with Uganda last weekend has given the opposition ammunition to go on the offensive, arguing that it was a well-calculated ploy to give politically-connected individuals a licence to kill the local sugar industry.
READ: Raila faults Uganda sugar imports deal
Foreign Affairs secretary Amina Mohamed on Wednesday denied that Kenya signed any agreement on sugar imports from Uganda, contradicting Mr Kenyatta who reiterated the government’s intention to absorb Uganda’s sugar surplus.
Things have not been made any easier by the fact that the government is yet to make the agreements public, a move that would have given an indication of what volumes Kenya wants to import from Uganda and any safeguards it put in place to protect the local sugar industry.
“What safeguards are in place to stop sugar from the rest of world coming into Kenya via Uganda (including by Kenyan sugar barons who can use Uganda as a base)?” opposition Coalition for Reforms and Democracy (CORD) said in a statement.
“We believe the sugarcane farmers have been sacrificed by a government pandering to narrow corporate and personal interests.”
CORD says it wants the sugar deal to be cancelled, with the political fallout gaining momentum Thursday after Western Kenya MPs snubbed Mr Kenyatta’s invitation to State House, Nairobi to discuss the controversial deal, insisting its contents be made public first.
READ: Western MPs snub Uhuru call for talks on sugar
Besides volumes, there are fears that the imported sugar would be significantly cheaper compared to the locally produced commodity and ultimately hurt local millers, including Mumias which only recently received a government bailout.
Data from the Kenya National Bureau of Statistics show that Kenya imported sugar at an average price of Sh55 per kilogramme in the five years ended 2013 a significant price advantage for the imported commodity.
Treasury secretary Henry Rotich recently announced higher taxes for imported sugar, a move that should boost the competitiveness of local millers.
Imported sugar is to be charged duty at the rate of $460 (Sh46,000) per tonne, a 130 per cent increase from the current $200 (Sh20,000).
While the merits of the sugar deal remain debatable, Kenya will definitely benefit from the agreement that allows its traders to export beef and related products to Uganda unrestrained.
Uganda produced 197,000 metric tonnes of beef and related products in 2013 against a consumption demand of about 250,000, leaving a deficit that Kenya is seeking to plug with increased exports.
Kenya’s total food exports to Uganda, including beef, rose to a record Sh1.6 billion in 2013, having grown steadily from a paltry Sh13 million in 2009.
The deal could also help Kenya boost its livestock and meat exports that stood at Sh2.9 billion in 2013, having increased 10.7 per cent from Sh2.6 billion the year before.
Kenya exported goods worth Sh60.7 billion to Uganda last year, making it the biggest market ahead of Tanzania, which absorbed Sh42.7 billion worth of Kenyan goods.
The Sh60.7 billion worth of exports to Uganda, however, marks the third successive decline since the peak of Sh75.9 billion in 2011, and stands in contrast to imports from the neighbouring country that rallied to peak at Sh17.5 billion last year.
READ: Uganda loses more ground as Kenya’s leading market
While Kenya remains in a trade surplus position against Uganda, the decline in its exports diminished its net exports to Sh43.2 billion last year.
The surplus, which has been on a slide for three consecutive years, last peaked at Sh65.6 billion in 2011.
Uganda’s primary export to Kenya is tobacco, which earned it Sh6.1 billion last year alone, and the sugar deal offers it an opportunity to diversify its exports to Kenya.
Kenya is keen on protecting its favourable trade with African countries like Uganda and Tanzania to balance the huge trade deficits it has with major economic powers like China and the US.
Kenya’s total trade deficit worsened to Sh1 trillion last year, reflecting the absorption of more expensive goods, including machinery and vehicles, against the export of mainly primary goods like tea and coffee.
This trade imbalance has been cited as a factor in the weakening of the shilling and its attendant negative effects on the broader economy.