No longer at ease - Key lessons for Kenyan flower industry from EPA, Brexit on market diversification
The Kenyan flower and by extension horticulture industry is going through very interesting times that could make or break it. Yet this is a sector that has played such a crucial role in its contribution to the country’s purse.
Last year for example earning exports from Kenyan flowers grew 5 per cent to $620 million up from $590 million the previous year. It was also a year production increased considerably. The jump in production and earnings was attributed to the successful renewal of the trade agreement with the European Union in late 2014. And ironically there lies the problem.
This year, the trade deal, commonly referred to as the Economic Partnership Agreement, are up for signing again. Failure to renew on time the agreement with the trading bloc in 2014 saw Kenya flower exporters slapped with taxes. The country lost Sh1billion in tax penalties within the three months because of the duties.
We are back to the same spot and the script almost reads familiar. Tanzania has stuck to its guns insisting that it would not sign the trade deal which is supposed to be negotiated as a block. The talks were supposed to be harmonized and completed within the East African Community by end of July before the official ratification with the EU in October.
Arguments have been advanced that Tanzania is trying to capitalize on its access as a least developed country to increase its market share against Kenya. Interestingly Tanzania pulled a similar move in 2014 which saw Kenya placed under harsher tax regime.
And in a dramatic turn of events, Uganda has joined the fray insisting that it needs a thorough review of the agreement before it can ink the deal.
If the trend persists Kenya will be the biggest loser. Tanzania and Uganda will continue enjoying preferential treatment for their exports to EU since they fall under the category of least developing countries.
Kenya is the only country from the EAC that was dropped from this list after it was classified as a middle-income country, which has seen it lose out on some of the trade privileges it used to enjoy.
Flower exporters are also in this second half of the year coming to terms with Britain’s exit from EU and what it means for the flower industry. Immediately the exit news were announced the British pound plunged to its lowest levels in three decades. The Euro also took some shock.
Though not quantified, flower farms in the country, which mostly use the euro, expect higher costs due to fluctuation of the European Union’s common currency and the pound. UK is one of the key export destinations for the Kenyan flowers. The exit now would mean that Kenya would need to renegotiate its deal with UK in order to have access to the new markets. The comforting bit about this though is that the two countries still enjoy good diplomatic ties.
While the above two developments this year are enormous and will definitely have far reaching implications for the industry, they are also offering us very key lessons on diversification.
It is estimated that up to 40 per cent of all cut flower imports to EU come from Kenya which prides itself in enjoying the lion share in that market. But it also means Kenya becomes heavily bruised in case of market upsets like what is currently happening.
Time is therefore ripe for Kenya to seriously think about diversifying its markets. It is already good news to learn that we are already exporting our flowers to 60 destinations around the world.
It was even music to the ears during this year’s International Flower Expo, IFTEX, to see buyers from virgin markets from as far as North America flying all the way to meet growers first hand in Nairobi. It is a statement of confidence on what the Brand Kenya flower has prided itself in; quality.
Such markets mean that in case of shocks the industry has a fall back plan and we don’t have to run amok trying to save an industry from political machinations. We have come from far, we can’t slam the brakes now, not when today and the future looks so rosy.
Multiple award winning Kenyan journalist Bob Koigi is Chief Editor East Africa at Africa Business Communities