The Economic Partnership Agreement (EPA) between Kenya and the European Union (EU) took effect on July 1, 2024, marking a significant milestone in the trade relationship between the two regions. This agreement, approved by the Council of the European Union, the Kenya National Assembly and the European Parliament, aims to liberalise trade and foster economic growth. 

The EPA’s primary objective is to liberalise trade, ensuring that all Kenyan goods, except arms, can enter the EU market without tariffs or quotas. Kenya, in return, will gradually open its market to EU imports, with provisions to exclude sensitive products and benefit from special safeguards for agriculture, food security measures, and infant industry protection.

Kenya’s trade with the EU is substantial, with the EU being the East African country’s second-largest trading partner, accounting for 13.6% of its total exports. In 2023, total trade between the EU and Kenya reached €3 billion, reflecting a 16% increase since 2018. The EU imports a variety of goods from Kenya, mainly vegetables, fruits, and flowers, amounting to €1.2 billion. Conversely, the EU primarily exports mineral and chemical products and machinery, totalling €1.7 billion to Kenya.

Cardinal to this discussion is the unprecedented benefits the EPA offers to Micro, Small and Medium Enterprises (MSMEs). Traditionally, large corporate firms have had better access to the EU market. With the EPA, these opportunities are bound to trickle down to MSMEs. The agreement includes provisions that consider Kenya’s development needs, allowing MSMEs to compete effectively and gain a foothold in the EU market.

Agriculture

Kenya’s agricultural sector, contributing over 20% directly and over 40% in aggregate to the GDP, is crucial to its economy. The sector grew by 7% in 2023, driven by government interventions like the fertiliser subsidy programme and favourable weather conditions. To maximise the benefits of the EPA, Kenya must diversify its agricultural exports beyond traditional products like coffee, tea, and cut flowers. Developing SME value chains in fruits, nuts, oilseeds, and protein crops is essential, as these products represent a significant portion of the EU’s agri-food imports.

Manufacturing

Manufacturing in Kenya has faced challenges, with its contribution to the GDP declining from 8.4% in 2019 to 7.6% in 2023. To reverse this trend, Kenya must enhance the value proposition of its county aggregation industrial parks (CAIPs) for SMEs. By focusing on top EU manufacturing imports, such as electrical and electronic equipment, organic chemicals, pharmaceuticals, and furniture, Kenya can create market opportunities for locally manufactured products under CAIPs. This strategy can lead to technology transfer, boosting MSMEs’ capabilities and economic dividends.

B2B Manufacturing

The EPA promotes B2B collaboration between Kenyan and EU manufacturers, enabling technology transfer and greater economic benefits for Kenya. By partnering with EU companies, Kenyan MSMEs can participate in manufacturing processes rather than importing finished products, thus fostering local industry growth.

Trade in Services and Innovation

Kenya must prioritise innovation in trade in services. Engaging innovation stakeholders and associations such as TESPOK, KICTANet, and ASSEK is vital for successful negotiations. The EPA includes provisions that create room for trade in services, competition policy, investment, and sustainable development, which can significantly benefit Kenya’s innovation ecosystem. Offering startup visas, developing linkages to high-value business process outsourcing (BPO) value chains, and providing incentives for EU investors in Kenyan startups are essential steps to leverage the EPA for innovation.

Competitiveness and Ease of Doing Business

To maximise the benefits of the EPA, Kenya must abolish redundant levies and internal taxes that hinder MSMEs’ competitiveness. Simplifying regulatory and licensing regimes at both national and county levels is crucial. Supporting MSMEs in export readiness and integrating them into mainstream business activities will ensure they thrive under the EPA.

In summary, the Kenya-EU EPA presents vast opportunities for MSMEs, agriculture, and manufacturing sectors. By focusing on innovation, competitiveness, and strategic partnerships, Kenya can harness the full potential of this agreement to drive economic growth and development.