As Kenya approaches a critical juncture in its trade relations with the United States, the country is racing against time to finalize a Strategic Trade and Investment Partnership (STIP) agreement. With the U.S. presidential elections looming, the stakes have never been higher for Kenya, which risks having its progress on the deal derailed depending on the outcome of the November 5 election.

The STIP negotiations, launched in July 2022, are part of a broader effort to deepen trade and investment ties between the two nations. Despite seven rounds of talks, none of the 11 chapters envisioned in the agreement are fully complete. The chapters cover key areas including agriculture, digital trade, environmental sustainability, and workers’ rights, among others. The complexity and interdependence of these chapters have necessitated a “single endeavor principle,” meaning that no chapter will be considered complete until all are finalized.

High Stakes Amid Political Uncertainty

Kenya’s urgency in concluding the STIP is compounded by the upcoming U.S. presidential election, which pits Democratic candidate Kamala Harris against Republican Donald Trump. The outcome of this election could significantly impact the trajectory of the trade talks. While Kamala Harris is expected to maintain some continuity with current Democratic policies, her stance on global trade has been nuanced. As a senator, Harris expressed skepticism about free trade agreements that do not prioritize American standards, a position that could influence her approach to the STIP if elected.

Donald Trump, on the other hand, is known for his protectionist policies and preference for bilateral agreements that prioritize American interests. During his first term as president, Trump initiated free trade agreement (FTA) negotiations with Kenya, which were halted by the Biden administration in favor of the STIP. A Trump victory could see a return to the FTA framework, or a complete overhaul of the ongoing negotiations.

The Strategic Importance of the U.S.-Kenya Relationship

Kenya’s economic relationship with the United States is multifaceted, extending beyond trade in goods to include significant security and foreign assistance. The U.S. views Kenya as a strategic partner in the East African region, with Kenya playing a pivotal role as a hub for U.S. security initiatives. The U.S. Embassy in Nairobi is the largest in sub-Saharan Africa, underscoring the importance of the bilateral relationship.

Kenya is also a major beneficiary of the African Growth and Opportunity Act (AGOA), which provides duty-free access to the U.S. market for eligible products. In 2022, Kenya was the second-largest beneficiary of AGOA by value of eligible imports, excluding crude oil. The STIP is seen as a potential successor to AGOA, which is set to expire in 2025, offering a more comprehensive and modernized framework for trade between the two countries.

Progress and Challenges in the STIP Negotiations

The STIP negotiations have been characterized by a series of intense discussions focusing on a wide range of issues. The seventh round of talks, held on August 5, 2024, saw both sides exchanging views on eight of the 11 chapters. These included agriculture, customs and trade facilitation, environment, good regulatory practices, inclusivity, and workers’ rights.

One of the key proposals from the U.S. side has been the introduction of measures to streamline customs procedures and enhance transparency. The proposed text on customs aims to create a paperless border environment, reduce red tape, and establish a single window system for the electronic submission of trade documentation. This is expected to significantly improve the efficiency of trade between the two countries, benefiting businesses on both sides.

However, the STIP does not address tariff barriers, which would be a key component of a comprehensive FTA. This has raised concerns among some stakeholders in Kenya, who fear that the country may not gain as much market access to the U.S. as it would under an FTA. The lack of progress on tariff-related issues could also be a sticking point in the negotiations, particularly if there is a change in U.S. leadership.

Kenya’s Domestic Considerations

Domestically, the Kenyan government is under pressure to secure favorable terms in the STIP that will support its broader economic goals. President William Ruto, who visited Washington D.C. for a state visit in May 2024, has emphasized the importance of the STIP in promoting sustainable and inclusive economic growth in Kenya. The agreement is also seen as a key tool in supporting the government’s agenda to boost the participation of women, youth, and small and medium-sized enterprises (SMEs) in the economy.

The Kenyan government is particularly keen to secure commitments on digital trade and environmental sustainability, areas where Kenya has made significant strides in recent years. The country is home to a burgeoning tech industry, often referred to as “Silicon Savannah,” and has been a leader in mobile money and digital innovation. Ensuring that the STIP includes provisions that support the growth of this sector is a top priority for Kenyan negotiators.

The Role of the U.S. Congress and Business Community

The U.S. Congress will play a critical role in the finalization and ratification of the STIP. With the elections looming, there is a possibility that the current administration will push for a fast-tracked negotiation process to conclude the deal before a new Congress is sworn in. However, any agreement reached will still require approval from Congress, where it could face scrutiny from both sides of the aisle.

The U.S. business community has also shown keen interest in the STIP, with many seeing Kenya as a gateway to the East African market. U.S. companies are particularly interested in sectors such as agriculture, technology, and manufacturing, where Kenya offers significant growth potential. The outcome of the STIP negotiations could have a substantial impact on the level of U.S. investment in Kenya in the coming years.

Looking Ahead

As the clock ticks towards the U.S. presidential election, the Kenyan government is pulling out all the stops to ensure that the STIP negotiations are concluded in a manner that secures the country’s economic interests. The next round of talks, scheduled for September 2024, will be crucial in determining whether the two sides can reach a comprehensive agreement before the November election.

Regardless of the outcome of the U.S. election, Kenya’s strategic importance as a regional economic hub and a key partner in U.S. security initiatives is likely to ensure that the relationship between the two countries remains strong. However, the form that relationship takes, particularly in terms of trade, will depend on the ability of both sides to navigate the complex political and economic landscape in the months ahead.

For Kenya, the stakes are high. A successful STIP agreement could open new avenues for trade and investment, bolstering the country’s economic growth and securing its position as a key player in the East African region. On the other hand, a failure to conclude the agreement before the U.S. election could see Kenya’s efforts set back by years, with potential repercussions for the broader East African economy.

The coming months will be critical in shaping the future of U.S.-Kenya trade relations, and by extension, the economic trajectory of East Africa. The outcome of these negotiations will not only affect the two countries directly involved but could also set a precedent for U.S. trade policy in Africa and beyond.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

16th August, 2024