KENYA-ECONOMY: Free Trade Woes

By Moyiga Nduru Reprint | | Print |

Moyiga Nduru

NAIROBI, Feb 9 1996 (IPS) - Kenya Breweries Limited (KBL) managing director John Karanja isn’t one to adhere slavishly to the doctrine of unfettered free trade that appears that has come into fashion in recent years.

He cannot afford to. His firm is one of those hardest hit by an invasion of South African brews over the past four years.

“These days people are shying away from the phrase ‘protection of local industry’. There is nothing wrong with protection of local industries. In fact it is desirable,” argues Karanja.

South African companies began entering Kenya after donors forced the government of President Daniel arap Moi to embrace economic liberalisation in 1992. Since then, about a dozen varieties of foreign beer have entered the Kenyan market.

Of all the brands, the most popular is ‘Castle’. “It’s liked by consumers in this city,” says a bartender in Westland, a suburb of Nairobi.

But it is precisely South African brands like ‘Castle’ that the KBL is worried about since, he says, they have an unfair advantage. “Beers from South Africa have a 17-percent export compensation and should therefore be charged variable duty. This is not happening,” says Karanja.

Under South Africa’s General Export Incentive Scheme (GEIS) semi-processed and finished goods sold abroad earn an export compensation equivalent to three and 14 percent of their value respectively.

However, from 1997 the incentives are expected to be scrapped, according to Andrea Phillips, an incentive consultant at the South African Foreign Trade Organisations.

“All this is in line with World Trade Organisation regulations which are against government’s subsidising exporters,” noted Phillips.

But, in the meantime, the KBL wants Kenya’s government to protect it by levying duty on South African beer.

“We have circulated documents which show clearly that any imported beer selling for less than 60 shillings (1.09 dollars) per 330 ml container is unlikely to have paid any duty,” says Karanja. “These (South African) beers are meant for the Armed forces and do not attract any duty. However they are on sale in bars in Nairobi for 45 Kenyan shillings (82 cents) per can.

“You may recall the heated exchange between Japan and United States on Japanese car imports. If the biggest economic power in the world worries about protection of local industries why shouldn’t Kenyans be concerned about tax evasion and the threat to job opportunities.”

A business journalist here agrees: “Our goods are taxed before they leave the country. We are being hit left, right and centre”.

Even government officials, like the minister of information, Johnstone Makau, have warned Kenyans to be more careful about South Africa, as it may cripple local industries “with its highly subsidised goods”.

Some here point to the fact that South Africa itself imposes high tariffs on imports and that this has helped keep the trade balance between the two countries titled heavily in Pretoria’s favour.

South Africa exports animal, vegetable and metal products, machinery, electronic equipment and vehicle parts to Kenya and buys Kenyan vegetable products, prepared foodstuffs, mineral products, textiles and works of art.

But in 1994, South Africa’s sales to Kenya amounted to 185 million dollars, while its imports from the East African country were worth just 7.5 million dollars.

Some South African firms also get their products onto the Kenyan market by setting up subsidiaries here, like Stellenbosch Farmers Winery, Johannesburg’s largest wine manufacturer, which operates through a Kenyan daughter company called Winemakers.

Kenya’s leading economist, Robert Shaw dismisses calls for protectionism.

“I don’t see any problem at all,” he told IPS. “If South Africans see investment and export opportunity in Kenya, what’s wrong with it. That’s healthy. I would only have reservations when their exports are being subsidised at home. That’s what we should take note of.”