Kenya’s trade war with Tanzania shows no sign of abating

Oct 10, 2018

PK Gum Wrigleys
Kenyan confectionery exports fell by KSh136m ($1.35m) in the six months ended June compared to the same period in 2017 – the result of an ugly trade war that has seen Tanzania and Uganda put a 25% tax on imported sugar confectionery, gum, chocolate, ice cream, and sweet baked goods such as biscuits. But it’s not just about tariffs.

The ongoing trade war in East Africa, primarily between Tanzania and Kenya, shows no sign of abating. In this case, the new tariff on imported sugar product came after Kenya received permission in July 2017 from the East Africa Community (EAC) July 2017 to import granulated (table) sugar duty free for twelve months following a drought. The Tanzanian and Ugandan government both claimed that Kenyan manufacturers used this zero duty window to import industrial sugar.

Sugar is normally subject to a 10% import duty under the harmonized EAC Common External Tariff. The East Africa Community common market comprises Burundi, Kenya, Rwanda, Tanzania and Uganda. It allows the free movement of locally manufactured goods within the common market.

Kenya has nine major confectionery manufacturers, including US giant Wrigley’s (now owned by Mars), which this year has built a $69m factory in Athi River, south east of Nairobi. The other main players are Kenafric Industries, Mzuri Sweets, Patco Industries, Kenya Sweets, Candy Kenya, Rok Industries, Sweet R Us and Confini. Together they employ 3,500 people and supply confectionery across East Africa. To compund problems, The Kenyan government’s 2018 Finance Bill has proposed a tax of KSh20/kg ($0.20/kg) on sugar confectionery and chocolates, apparently to limit consumer appetite for sugar products and help limit the growth of obesity.

The underlying issue is that Kenya’s domestic manufacturing capabilities for consumer goods are considerably larger and more sophisticated than those in any other East African country. Tanzania, particularly, is seeking to build its domestic manufacturing sector and increasingly wary of what it sees as price undercutting by Kenyan manufacturers. Tanzania is Kenya’s second most important market in East Africa. Kenyan exports to Tanzania grew from $169m in 2004 to $423m in 2014 before declining in 2015 as the trade war escalated. Over the same period, exports from Tanzania to Kenya grew from $21m to 182m in 2014, also before declining in 2015.

Manufacturers of confectionery in Kenya, oil and fats in Uganda and a wheat and juice producer in Tanzania have all reported tariff and non-tariff barriers that blocked them from entering regional markets. In mid 2018, Tanzania introduced sweeping tariff increases from 10% to 35% on products  such as confectionery, oils, tomato paste, meat products, biscuits and bottled water. Kenyan authorities have hit back with new tariffs on Tanzanian flour, which it claims is made with imported wheat. In September, Kenya banned the import of Tanzanian rice.

Customs bodies in Kenya, Uganda and Tanzania are also using go-slow inspections at the border and rejecting certificates of origin (which enable the free movement of goods under EAC rules). So, for example, in the case of confectionery from Kenya, Tanzanian authorities have rejected Kenyan certificates of origin that showed manufacturers had paid the 10% import duty on sugar. Kenyan traders also report substantial queues for goods entering Tanzania.

A further complication is that Uganda is seeking to limit Kenya’s influence in Lake Victoria, mindful that potential fishing revenues from the lake are estimated at $800m annually.

The escalation of trade wars comes at a time the physical infrastructure to move goods between the countries in being vastly improved. There are two major projects, both of which seeking to become the primary route for goods moving from port into East Africa: a Kenyan-managed line from Mombasa, and a Tanzanian-managed one from Dar es Salaam.

The proposed standard gauge rail (SGR) network between ports in Kenya, Tanzania and the rest of East Africa is hitting some funding hurdles. Kenya’s SGR  plans aim to build a line from Mombasa through to Nairobi, Kisumu and Malaba in Kenya. It is proposed to link the line to Kampala, and then extend into Kigali. Subsequent extensions could include Burundi and eastern DRC and Juba in South Sudan. Once complete, the route would reduce the transit time for goods from Mombasa to Kampala to two days, from 14 days currently. The section from Mombasa to Nairobi was completed in 2017, is already operational and considered a success.

China is providing much of the finance and technical expertise. Kenya had committed to build the line from Mombasa to Nairobi and onto Kisumu. Uganda would then work with Kenya to extend it to Kenyan border at Malaba (in Kenya). In late 2016 Uganda insisted that Kenya had to build the line through to Malaba, or else it would not support Kenya’s bid to get financing from China for the project. In September 2018, China’s Exim Bank cut funding for Kenya’s SGR project, throwing the viability of the line from Nairobi to Kisumu and Malaba into question (and by implication, any line into Uganda via Kenya). It has insisted that Kenya itself fund the entire Nairobi to Malaba line, partly because of fears that Kenya is unable to pay back existing debt on the Mombasa to Nairobi line.

Uganda has also sought to take a rail line from Dar es Salaam in Tanzania, which is less distance and would also link with Burundi and Rwanda and possibly DRC. Tanzania has already secured Turkish funding for $1.2bn to build the line from Dar es Salaam to Morogoro, with work due to be completed in late 2019. In September 2018 Tanzania secured a $1.46bn loan from the Standard Chartered Bank’s Group to fund its standard gauge railway line between Morogoro (halfway between Dar es Salaam and Dodoma) and Dodoma. Its line is being built by a consortium of Turkish and Portuguese companies. Tanzania’s line is electric, whereas the Kenyan line will use diesel locomotives.

The trade war, then, is not just about tariffs and disputes about the origin of goods. It is fundamentally about two things: the protection of domestic manufacturers and a much larger competition for status, power and economic growth between Tanzania and Kenya as to which country will be the leader in trade and exports in East Africa.

 

 

 

 

Loading...

Looking for more trends and insight on FMCG in Africa?

Join Trendtype's mailing list for news, events and more.

Thank you for joining us. Speak to a member of our team today on +44 333 567 9995

Looking for more trends and insight on FMCG in Africa?

Join Trendtype's mailing list for news, events and more.

Thank you for joining us. Speak to a member of our team today on +44 333 567 9995