Trade Policy Reforms and Poverty in Kenya: Processes and Outcomes

A Background Paper

By Walter Odhiambo and Gloria Otieno Kenya Institute for Public Policy Research and Analysis (KIPPRA)

Bishops Garden Towers, Bishops Road P .O Box 56445, Nairobi, Kenya

Paper Prepared for the Policy Round Table discussion on the Linkages between Trade, Development and poverty Reduction

July, 2005

DRAFT NOT FOR CITATION

ii

TABLE OF CONTENTS ABBREVIATIONS ........................................................................................................... iii I Introduction................................................................................................................. 1 II Trade Liberalization and Poverty: Conceptual Issues ................................................ 1

2.1 Rationale, costs and benefits............................................................................... 1 2.2 Implementing trade reforms................................................................................ 2

2.2.1 Initial timing of reform ............................................................................... 2 2.2.2 Sequencing and pacing of reforms.............................................................. 2 2.2.3 Political economy of reforms...................................................................... 3

2.3 Theoretical linkages between trade reforms and poverty ................................... 3 2.3.1 Trade liberalization and Growth ................................................................. 3 2.3.2 Relationship between Trade and poverty.................................................... 4

III Nature and Processes of Trade Reforms in Kenya ................................................. 5 3.1 Trade Liberalization in the era of Import Substitution ....................................... 5

3.1.1 The pre-SAP period .................................................................................... 5 3.2 Trade Liberalization under SAPs.............................................................................. 6

3.2.1 Reforms in the 1980s .................................................................................. 6 3.2.2 Reforms in the 1990s .................................................................................. 7

3.3 Implementation of SAPs in Kenya ..................................................................... 8 3.4 Liberalization under the WTO arrangement ....................................................... 9

3.4.1 Trade Policy Formulation and Implementation Process.................................. 10 3.4.2 Institutional Framework for WTO Participation.............................................. 11

3.5 Liberalization under the regional trade initiatives ............................................ 12 3.5.1 Liberalization within COMESA ............................................................... 12 3.5.2 Liberalization within the EAC.................................................................. 12

3.6 Macro-economic effects of trade reforms in Kenya ......................................... 13 IV Implications of Trade Reforms on Poverty in Kenya ........................................... 15

4.1 The poverty situation in Kenya......................................................................... 15 4.1.1 Characterization of the poor...................................................................... 16 4.1.2 Causes of Poverty ..................................................................................... 16 4.1.3 Poverty trends and profiles ....................................................................... 17

4.2 Sectoral Impacts of trade liberalization in Kenya: Winners and losers ............ 17 4.2.1 Agriculture ................................................................................................ 17 4.2.2 The non-agricultural sectors ..................................................................... 26 4.2.3 The Services Sector................................................................................... 28

4.3 Impact of Liberalization on employment, Incomes and Consumer prices ....... 31 V Trade Policy Agenda and Pro-Poor Trade Policies in Kenya................................... 32 VI. Concluding Remarks............................................................................................. 35 References......................................................................................................................... 37

iii

ABBREVIATIONS ACP African Caribbean and Pacific AGOA American Growth and Opportunity Act AoA Agreement of Agriculture ATC Agreement on Textiles and Clothing CBS Central Bureau of Statistics CET Common External Tariff CIF Cost, Insurance and Freight COMESA Common Market for Eastern and Southern Africa DFID Department for International Development EAC East African Community EPZ Export Processing Zones ERS Economic Recovery Strategy EUREPGAP European Retailer Produce Working Group on Good Agricultural Practices FTA Free Trade Area GATS General Agreement on Trade in Services GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GoK Government of Kenya GSP Generalized System of Preferences ICT Information Communication and Technology IFAD International Fund For Agricultural Development IPAR Institute for Policy Analysis and Research IMF International Monetary Fund JITAP Joint Integrated Technical Assistance Program KEBS Kenya Bureau of Standards KEPHIS Kenya Plant health Inspectorate Services LDC Least Developed Country MFN Most Favored Nation MTEF Medium Term expenditure Framework MTI Ministry of Trade and Industry MUB Manufacturing Under Bond NEP National Enquiry Point NCWTO National Council for World Trade Organization PRSP Poverty Reduction Strategy Paper PTA Preferential Trade Area QSACS Quality Systems Accreditation Committee SAL Structural Adjustment Loan SAP Structural Adjustment Program SPS Sanitary and Phyto-Sanitary SUCAM Sugar Campaign TBT Technical Barriers to Trade TRIPS Trade-Related Intellectual Property Rights UNIDO United Nations Industrial Development Organization URAA Uruguay Round of Agreement on Agriculture VAT Value Added Tax WTO World Trade Organization

1

Trade Policy Reforms and Poverty in Kenya: Processes and Outcomes

A Background Paper

By Walter Odhiambo and Gloria Otieno Kenya Institute for Public Policy Research and Analysis (KIPPRA)

Bishops Garden Towers, Bishops Road P .O Box 56445, Nairobi, Kenya

I Introduction This background paper reviews Kenya’s experience with the implementation of trade reforms and their implications on sustainable development. The aim is to assist in understanding the role and effects of policy reforms in achieving sustainable livelihoods in the country. The paper is concerned with a number of critical questions. Did the government make the changes in order to meet domestic political objectives or international requirement? How were trade reform policies adopted and implemented in Kenya? How have previously implemented policies succeeded or failed in promoting sustainable development? Have the changes improved access to international markets? How should current policies be changed or reforms deepened for poverty reduction? The review starts by presenting a brief conceptual framework on the trade poverty nexus. This is followed by an assessment of the nature and processes of trade reforms in Kenya. Based on research findings of different studies, the paper then reviews the impact of trade reforms on poverty in Kenya. Finally, the paper draws lessons for the design of pro-poor trade policies in the country. II Trade Liberalization and Poverty: Conceptual Issues 2.1 Rationale, costs and benefits Trade liberalization comprises of policies that diminish restrictions to the free international movement of goods and services. More particularly, it entails mitigations of import quotas and lowering import tariffs, the elimination of restrictions to exports and the lowering of export taxes. Trade liberalization is associated with a number of costs and benefits. Among the benefits is the fact that, liberalization, by definition, reduces barriers to trade. In general, when markets are functioning effectively, domestic prices are lower on account of cheaper foreign goods or the reduction of rents that may have previously been captured by domestic producers. Trade liberalization increases the degree of competition faced by domestic producers and this may in the long run increase efficiency and encourage specialization and re-allocation of resources towards activities that reflect the country’s comparative advantage. A further benefit of openness may come through improved access to new ideas and technologies embodied in foreign goods. Such access can, in principle, enhance a country’s technological capability and assist in productivity improvement. Trade openness is at the same time associated with a number of costs. The main objection of trade liberalization from the developing country perspective has been due to competition domestic producers face from liberalization. Such liberalization can result in closure of uncompetitive industries and consequent loss of employment. Further, many developing country governments fear that trade liberalization will enable large foreign companies to eliminate small

2

domestic rivals through ant-competitive behaviors. It has also been argued that trade openness precludes the possibility of trade measures to protect strategic and infant industries. This is disadvantageous to small economies wishing to industrialize. It is worth mentioning here that the Asian Tigers were able to industrialize partly because they initially protected their industries. Openness has also been objected to because it is usually associated with volatility and loss of sovereignty. 2.2 Implementing trade reforms The manner in which trade reforms are implemented has a strong bearing on the outcomes. According to McCulloch et al (2001), three important questions are generally asked in implementing trade reform; (i) Should trade liberalization be implemented alongside or after economic stabilization; (ii) In what sequence should different account be liberalized; and (iii) At what speed should liberalization take place. Yet a fourth relates to the capacity and engagement of different institutions for trade reforms. 2.2.1 Initial timing of reform The prevailing conditions in a country are important in determining the likely outcomes of trade reforms. According to McColloch et al (2001), many countries undertaking reforms have been doing so in the context of general macro-economic problems that require stabilization before reforms are taken. Undertaking reforms in an environment of macro-economic instability is likely to worsen the situation. It would seem prudent therefore that stabilization of the economy precedes liberalization. However stabilization can be competently handled, there may be merit of carrying out the two processes simultaneously. As will be seen in the next section, Kenya is one country that implemented trade and other reforms against a background of poor economic performance and general macro-economic instability. 2.2.2 Sequencing and pacing of reforms Sequence and pace of reform policies are important factors that determine the success and sustainability of reform programmes. It is often the case that countries requiring reforms in trade will at the same time require other reforms, say in the money market or even in the public service. The question of how to sequence the reform thus becomes an important one. And even if it was only trade reforms, the question of what to liberalize first and what should follow is equally important. Smith and Spooner (1990) argued that failure to understand the need for proper policy sequencing has contributed to the poor performance of adjustment in Africa. The pace of reforms relates to the speed of implementation. In the reforms literature, reference is often made of ‘shock treatment’ or ‘gradual reforms’ depending on the speed of implementation. The former mode refers to the introduction of reforms all at once as a single dose while the latter relates to phased reforms. There are advantages and disadvantages of each of the modes. Bhattachraya (1997) and Greenaway and Morrison (1993) identify two main advantages of ‘shock treatment”. According to them, in a highly distorted economy, gradual reforms can make a situation worse as improved efficiency in one market can increase the cost of the remaining distortions in others. Secondly, they note that benefits may take longer if reforms are gradual, whereas rapid reforms would give strong signals to economic agents to respond to price changes. Collier and Kidane-Miriam (1995) further argue that gradualism in the implementation of reforms has also been associated with a number of advantages. Gradualism is thought to be particularly good as it is associated with lower adjustment costs. This is, according to Ismael (undated)

3

especially important for poor, immobile groups in backward regions, who may suffer severely if they are denied time to adjust. Further more, Ismael (undated)contends that not all governments may be able to administer, or to maintain sufficient political consensus for comprehensive reforms in a short period of time. 2.2.3 Political economy of reforms In reality, a policy proposal is merely the beginning of a process that is political at every stage – not merely the process of legislation but also the implementation, including the choice of formation of an administrative agency and the subsequent operation of this agency. Broadly, three stages of a policy process can be distinguished: (i) Agenda setting i.e how do issues get to the policy agenda? (ii) Criteria and influences which determine the formulation or content of policy and (iii) the implementation of policy (Soludo & Osita, 2004) Thus formulation and decision should be governed by responsibility and awareness of interests; and by the motives of those involved in the implementation; whereas sustainability depends on correctly anticipating the likely public and political support for policy reforms, it is through this process that policy can be influenced by bureaucratic politics or politics of public choice interest groups (Soludo & Osita, 2004). 2.3 Theoretical linkages between trade reforms and poverty Conventional wisdom holds that the link between trade, poverty reduction and human development is through economic growth. Trade flows can be a powerful source of economic growth and trade liberalization is the common policy prescription for increasing trade flows (Mculloch et al., 2001). Trade policy and trade rules affect the performance of a country’s trade, both internationally and domestically. McCulloch et al (2001) identify three channels by which trade policy change might affect poor individuals and households; enterprise (through profits, wages and employment), distribution (the transmission of changes in border prices to consumers), and government (in which trade reform affects government revenues and thus the scope for pro-poor expenditures). 2.3.1 Trade liberalization and Growth Controversy rages about the link between trade liberalization and growth. There is a widespread belief that openness, fairly broadly defined, stimulates growth, although the most commonly cited studies - e.g. Dollar(1992), Sachs and Warner (1995), Edwards (1998) - have received pretty rough treatment recently from Rodriguez and Rodrik (1999).There is quite strong evidence that even allowing for adjustment strains, trade liberalization typically boosts growth in the relatively near term (see, for example, World Bank, 1992; and Greenaway et al., 1998). The important long-run issue, however, is not whether a single act of liberalization boosts growth, but whether its outcome – the state of greater openness – does so. Numerous studies have examined the relationship between different measures of openness and economic growth. Typically, these studies construct a measure of the openness of trade policy and then see if it is statistically related to growth across a large number of countries. Over the 1990s, there was a growing conviction that openness was good for growth due to the results of some visible and well-promoted cross-country studies (for example, Dollar, 1992; Sachs and Warner, 1995; and Edwards, 1998), all of which found openness to be strongly positively associated with growth. Dollar and Kraay in 2001 identified a group of developing countries with high levels of participation in international trade which saw economic growth rates accelerate through the 1970s, ‘80s and ‘90s (e.g. India, China)

4

while other countries in both the developing and developed world have seen growth rates decline despite their liberalization efforts, which they attributed to a lack of complementary and consistent macroeconomic and structural policies to foster adjustment and growth especially in those countries which did not experience growth. Recently, however, these studies have been strongly criticized by Rodríguez and Rodrik (1999), who argue, among other things, that the measures of openness used in these papers are flawed and their econometrics weak. This adds to earlier concerns that the results are dependent on the chosen measure of openness and the specification used (see Harrison, 1996; and Harrison and Hanson, 1999a, who claim that the measure of openness introduced by Sachs and Warner ‘fails to establish a robust link between more open trade policies and long-run growth’). Others like Baghwati & Srinivasan (undated) argue that, it is equally clear that, if a country wishes to maintain an export-promoting strategy, as distinct from an import-substituting one, so that it is generally speaking opting for freer trade, then it will have to maintain macroeconomic stability. Thus, such macroeconomic stability must be regarded as endogenous to the policy choice in favor of freer trade. According to UNCTAD(2002) Least Developed Country Report, there is little correlation between trade liberalization and poverty reduction in LDCs: poverty appears to be increasing unambiguously in the least developed countries with the most open and the most closed trade regimes. But between those extremes, poverty is also increasing in countries that have liberalized trade more. While these findings do not prove that trade liberalization increases poverty, they do show that it does not automatically reduce poverty. The least developed countries that experienced economic growth in the 1990s also became more export oriented; but that does not mean that increased export orientation was associated with growth. In the same study GDP per capita declined or stagnated in 8 of the 22 least developed countries with increasing export orientation between 1987 and 1999. And in 10 of these countries poverty actually increased. Sustained economic growth was the key to reducing poverty in the least developed countries especially those with rising GDP per capita which saw poverty fall. So, unless accompanied by sustained growth, greater export orientation was not associated with reduced poverty. In addition, while openness can stimulate growth it is also associated with considerable risks. For countries with highly specialized economies, openness can be negative, as they are exposed to risks concerning changes in the price of the goods and the inputs used in the production of those goods. So for them, openness may threaten rather than promote growth (Bird et al., 2004). Trade liberalization does have a positive role, however, as part of a package of measures promoting greater use of the market, more stable and less arbitrary policy intervention, stronger competition and macro economic stability. With the exception of the last, an open trade regime is probably essential to the long-run achievement of these stances, and thus should be seen as a major contributory factor in economic development (Baghwati & Srinivasan, undated). 2.3.2 Relationship between Trade and poverty Perhaps the most important benefit claimed by proponents of openness is its positive effect on economic growth, which in turn is the key to permanent poverty alleviation. It is also strongly related to contemporaneous reductions in poverty (Bruno et al., 1996; or Roemer and Gugerty, 1997). Unless growth seriously worsens income distribution, the proportion of the population living in absolute poverty will fall as average incomes increase. The balance of the evidence seems to be that although growth can be associated with growing inequality (or economic decline

5

with narrowing inequality), the effects on poverty tend to be dominated by the advantageous direct effects of growth (Demery and Squire, 1996, on Africa). In developing countries experiencing sustained growth, poverty is reduced in an income distribution neutral way as exports create jobs and increase sales of goods produced by the poor as consistent with findings of Krueger and Berg (2002) note in this regard: “… trade openness, conditional on growth does not have systematic effects on the poor. The aggregate evidence shows that the income of the poorest tends to grow one-for-one with average income. The micro-evidence from a large number of individual liberalization episodes also shows no systematic relationship between trade liberalization and income distribution, [in sum] trade openness has contributed to growth that has resulted in an unprecedented decline in absolute poverty over the past 20 years”. Whether changes in trade can reduce poverty depends on the nature of the economy and its bottlenecks and transmission mechanisms. Focusing on transmission mechanisms, trade liberalization affects the poor through three distinct channels: distribution, enterprises and the government (McCulloch et al., 2004). Firstly, trade liberalization can affect prices of goods and services consumed by the poor and in the process affect their real incomes. Second, trade liberalization can affect the performance of firms with implications for wages and employment. It is possible in the context of developing countries that trade liberalization may increase the availability of low skilled employment, tighten the labor market and increase the relative wages of low-income workers. Where this is the case, then liberalization can contribute to poverty reduction. If trade liberalization raises the price of an exportable output, then employment is likely to increase and poverty will be alleviated. On the other hand, trade reform will reduce the prices obtained by firms producing importable goods. This is likely to reduce employment with adverse consequences for poverty. Lastly, trade liberalization can enhance government revenues that in turn enable additional pro-poor spending (Bird et al., 2004). However government spending must also be structured in a way that equity issues are prioritized and ‘trickle down’ affects of growth are also felt by the poor. Factor markets (labour and capital) are the critical links in transmitting trade growth into reductions in poverty (Reimar, 2002, in MTI, 2003). However, the economic growth, which may occur as a result of growth in trade, does not automatically lead to poverty reduction, as pro-poor policies are required to make the link (Ravaillon 2003, in WTO, 2003). The extent to which trade reduces poverty depends on the nature of the economy and its bottlenecks and transmission mechanisms. III Nature and Processes of Trade Reforms in Kenya 3.1 Trade Liberalization in the era of Import Substitution 3.1.1 The pre-SAP period Kenya has since independence embarked on structural and macro-economic reforms, including trade to establish a more growth-conducive economic environment. At independence, Kenya inherited a policy of import substitution from the colonial government, which was seriously pursued from 1967, with devaluation practices being rampant. After the foreign exchange crisis in 1971 the government chose to introduce strict import controls rather than devalue and at the same time undertake macroeconomic adjustment (Bigsten & Durevall, 2004). During this period controls included: (i) Quantitative Restrictions (QRs); (ii) high tariffs on competing imports; (iii)

6

overvalued exchange rates; (iv) controls on importation and licensing; (v) controls on domestic prices and wages; and (vi) taxation of exports (N’geno et al, 2003). (vii) requirement of “no objection certificates” from domestic producers. These controls were however relaxed temporarily when the coffee boom led to massive inflow of foreign exchange (Bigsten & Durevall, 2004).

During this period there was an impressive economic performance with an average GDP growth rate of about 6.2%. This growth was mainly attributed to dynamism and prudent macro-economic management; increased protectionism and a stable political and economic environment that was attractive to both domestic and foreign investors (Ikiara et al, 2004 in Soludo et al, 2004). However as coffee prices shot down and oil prices shot up in 1979; coupled with the small size of the domestic market; the economy slowed down leading to serious balance of payment problems (Ronge & Nyangito 2000). Kenya was forced to seek financial aid from the World Bank and the International Monetary Fund (IMF); there were certain pre-conditions accompanied with this assistance and this initiated trade liberalization through the Structural Adjustment Programs (SAPs) which we now turn to.

3.2 Trade Liberalization under SAPs 3.2.1 Reforms in the 1980s Structural Adjustment programmes (SAPs) in Kenya consisted of a set of policies designed to make production and resource allocation more efficient. The broad aim of the adjustment was to shift the economy from a highly protected import-substitution strategy to policies that encourage exports, generate more employment and increase use of local resources. Apart from trade liberalization, the other important elements of SAPs were public sector reforms, privatization of parastatal enterprises, and the support of the private sector, including the medium and small enterprises (MSEs). Kenya signed the first Structural Adjustment Loan (SAL) in March 1980 and this marked the beginning of the SAPs in the country. With this loan the World Bank emphasized promotion of non-traditional exports and market liberalization as part of its overall Structural Adjustment Package (IPAR Policy debate, 1995). Thus Kenya had to commit to adopt a more outward oriented industrial strategy, reform its interest regime and initiate trade liberalization. In November 1981 the government stopped requiring “no-objection certificates” from domestic producers, gradually replacing quantitative restrictions with equivalent tariffs (Bigsten and Durevall 2004). However, little of these changes were adopted and again the country resorted to borrowing in 1982. Macroeconomic problems made the government halt some of the reforms in the same year, but the reform process started slowly again in 1983. In the 1984-88 development plan, there was an emphasis on the role of private enterprises in industrial development and promises to support export oriented industries, while on the other hand, some of the apparatus of import substitution such as import licensing and Government’s direct involvement in production were maintained (IPAR Policy debate 1995). By 1985, the weaknesses of the import substitution strategies were clear and the SAPs were not being implemented. This occasioned the publication of Sessional Paper No. 1 of 1986; entitled Economic Management for Renewed Growth. This Sessional paper proposed a broad strategy of economic change for the remainder of the century. There was an emphasis on change from reliance on import substitution and protectionism towards a policy of exposing industry to

7

international competition and encouraging non-traditional exports (GOK, 1986 p. 3), which marked the beginning of export promotion strategies. The paper committed the government to movement away from restrictive import licensing and gradual reduction in tariffs and laid out a system of incentives designed to encourage exports which involved; (i) Manufacturing Under Bond (MUB) – in which import duty and other taxes on imports used for manufacturing export goods were waived; (ii) General import duty and VAT exemption scheme; (iii) The “Green Channel system”- to hasten administrative approvals; (iv) Government financed export credit guarantees and (v) Proposal of a fully functioning Preferential Trade Area (PTA). Apart from the Export promotion strategy, in the period of 1985 to 1990, there were other changes such as the adoption of tariffication of quotas and harmonization of tariffs. 3.2.2 Reforms in the 1990s The second push to liberalize the trade regime in Kenya began in 1988 and was more successful. The 1989-93 Development plan elaborated on the export promotion strategy which centered on the creation of an enabling environment for export growth through institutional reform; reduction and restructuring of tariffs; abolition of export duties; introduction of export retention schemes; improvement of foreign exchange and insurance regulations and the establishment of National Export Credit Guarantee Corporation. It is during this period that commercial attaches were stationed in major trading partner countries and trade missions were organized to emerging markets (Ng’eno et al 2003). The same plan acknowledged that some of the incentives announced earlier like the MUB, the green channel and export compensation were not yet operating as envisioned and therefore it recommitted the Government to their implementation (Kenya Development Plan 1989). Other trade liberalization measures during this period included (i) Introduction of the foreign exchange bearer certificates and the abolition of the foreign exchange allocation license. (ii) Re-introduction of foreign exchange retention accounts for exporters of traditional products and liberalization and expansion of coffee and tea-marketing systems (iii) Completion of domestic price decontrols (iv) Reduction of Maximum Tariffs from 170% to 25% and the number of tariff bands reduced from 24 to 4. The average tariff fell from 49% to 17% (O’Brien and Ryan 2001). (v) Import licensing schedules were abandoned in 1993 and virtually all capital account transactions were fully liberalized and Kenya was classified as fully “open”. The 1994-96 Plan announced two changes in export incentives that had already occurred: The Export Compensation Scheme had been discontinued due to limited product coverage and administrative problems, and a Duty/VAT Exemption scheme was introduced in 1991. The plan also proposed regulatory changes designed to make investments in bonded factories and export processing zones more attractive. By the end of 1994, 40 enterprises were approved to operate in six gazetted Export Processing Zones (EPZs) (IPAR, 1995,) and, by the end of 1995; imposition of countervailing duties was the only barrier to international trade remaining. The trade liberalization under SAPS was characterized by the tariffication of all quantitative barriers to trade, subsequent reduction of tariffs and the reduction of the dispersion of the same. Table 1 below shows the evolution of trade policy as represented by tariffs over this period. Its shows the coverage of goods by different tariff levels.

8

Table 1: Distribution of Goods By Tariff bands 1990/91 to 2002/2003 Tariff Rates(%)

90/ 91

91/ 92

92/ 93

93/ 94

94/ 95

95/ 96

96/ 97

97/ 98

98/ 99

99/ 00

00/ 01

01/ 02

02/ 03

0 6.1 3.7 2.9 3.1 3.2 3.3 3.3 3.3 3.2 3.2 3.5 6.9 20.2 1-10 1.6 4.0 4.6 5.2 4.9 1.8 12.8 13.2 14.9 19.1 22.3 19.7 7.4 11-30 37.4 47.6 47.6 26.5 67.8 71.8 60.0 83.6 81.9 77.7 66.1 56.3 56.2 31-50 21.6 17.7 20.9 35.2 24.1 23.1 23.9 - - - 8.1 17.0 15.8 51-60 6.3 3.0 24.0 - - - - - - - - - 0.4 61-70 - 24.0 - - - - - - - - - - - 71- 27.0 - - - - - - - - - - 0.1 0.1 Total 100 100 100 100 100 100 100 100 100 100 100 100 100

Source: Ronge, 2005 Table 1 shows coverage of goods as tariffs evolved over time under the trade liberalization programme. It is clear from the table that over time the number of imported goods attracting tariffs over 50% has gradually declined. This trend has been reinforced and made more predictable by the recent signing of the East African Community Customs Union protocol in February 2004. The Common External Tariff approved under this trade agreement were placed in three bands with 25% being the top band for finished goods, 10 percent for intermediate goods and zero per cent for capital goods. This negotiated tariff structure was agreed upon in order to protect the existing private sector interests. 3.3 Implementation of SAPs in Kenya Progress in the liberalization of trade regime in Kenya has been sporadic, with periods of significant progress followed by slower movement and even reversals. This in many ways is indicative of the lack of a shared vision among the key actors in the reform process, namely the government, donors and Kenyans themselves. Thus much of the aid conditionalities in the 1980s were focused on forcing the country to adopt and then implement the policy of liberalization and re-orientation of the government’s role. Kenya was forced to implement SAPs at a time when the country was facing severe macro-economic instability. Thus the total SAP reform agenda proved to be extremely demanding for the country. Undertaking major policy reforms simultaneously across the entire span of the economy proved beyond the capacity of the government. A number of external factors such as adverse weather conditions, public resistance and political developments such as the Coup attempt in 1982 made matters worse. The IMF and the World Bank played a dominating role in the implementation of SAPS in Kenya. Throughout the reform period, there was a division of labor between the two institutions (O’Brien and Ryan, 1999). Conditionalities relating to the overall balance of payments gap and its financing, and the exchange rate, were incorporated in the IMF program, while quantitative restrictions on import tariffs, and the foreign exchange licensing were taken by the World Bank. This, as noted by O’Brien and Ryan (1999), did not lead to coordinated policy advice to the government. It in many ways stretched the capacity of the government in responding to demands by the two institutions. Through out the entire SAP period the timing and sequencing of reforms in Kenya varied considerably. Overall, the ‘pace of implementation of reforms was very uneven, both with respect to different policy reform areas and to time periods, with sub-periods of steady, and sometimes rapid, progress followed by stagnation and occasional reversals’ (O’Brien and Ryan, 1999). This earned Kenya the unpleasant title of a reluctant reformer.

9

The implementation SAPs in Kenya was characterized by very limited or no consultation among the different stakeholders. The reforms took place at a time of deep suspicion and limited democratic governance. The government thus did not consult the private sector, civil society or the general populace on the implementation of SAPs. There was also much pressure and interference from donors. Furthermore, the government did not plan for the eventual likely effects of SAPs like putting in place safety nets. This then explains why there was resistance from trade unions and others, although this was suppressed by the autocratic regime. 3.4 Liberalization under the WTO arrangement1 Kenya was among the founding members of the World Trade Organization (WTO) in 1995 when the Marrakech Agreement of 15th April 1994 was signed in Morocco. The notification process was completed by 31st December 1994 when accession to WTO was completed. As a member, Kenya is signatory to all WTO agreements among them, the General Agreement on Trade and Tariffs (GATT), the Agreement on Agriculture (AOA), the General Agreement on Trade in Services (GATS), and the Agreement on Textiles and Clothing (ATC), and the Agreement on Trade-Related Intellectual Property Rights (TRIPS). As already indicated, Kenya began to re-orient its strategies away from the import substitution strategy to export promotion. These efforts got a major boost when the government started implementing the IMF/World Bank SAPs. Most of the liberalization in the country was thus undertaken as part of the SAPs. The reforms however coincided with Kenya’s membership to the WTO in 1995. It is thus extremely difficult to isolate the effects of SAPs from those of the WTO because both have focused on trade liberalization. The country’s current trade regime is more of a reflection of SAPs than the WTO agreements. Increasingly, however, the impact of WTO on Kenya’s trade regime is becoming evident as it moves towards integrating WTO laws into the economy. It can hence be concluded that the process of implementation of the WTO commitments especially relating to tariffs, import licensing and other trade interventions was made much easier because of the government commitment, albeit reluctantly, to liberalization under SAPs.

Considering agriculture, Kenya became a signatory of the Uruguay Round of Agreement in Agriculture (URAA) while it was in the process of implemented SAPs. By 1995 when Kenya became a signatory of the URAA, Kenya had already initiated market reforms for most of the agricultural products. Reforms in agriculture however dragged and were only implementing after 1995 as earlier indicated. The country had by then also removed domestic support on agriculture and abolished the minimal export subsidies. This implies therefore that the reduction of tariffs as was required by the Agreement in Agriculture (AoA), was already underway and therefore compliance was made easy. To meet the requirement of the AoA on market access, the government made changes to the tariff regime initially putting the tariff ceiling binding on all agricultural commodities at 100%. The country also did away with the use of non-tariff barriers as required by the AoA. Under domestic support, the country presented a detailed schedule on domestic support measures under the ‘Green Box’. By then however, the country had already reduced its support on agriculture spending particularly on extension, research and the delivery of such services to farmers as animal health, mechanization and subsidized credit.

1 This section heavily draws from the work by Odhiambo (2005) Key National and Regional Trade and Investment Policies in Kenya in the Context of the Post-Doha Multilateral System and Odhiambo et al (2005a) How Economies participate in the WTO; The case of Kenya.

10

The removal of tariffs in the process of liberalization is often associated with one effect: the inflow of cheaper products which have to compete with domestic goods. This is likely to increase as result of further liberalization under the Doha framework. This is particularly serious in Kenya where the cost of production tends to be high. In fact for countries like Kenya, there is a major concern of becoming a dumping ground for over-produced, subsidized agriculture from the developing countries. The participation of the developing countries in the WTO has meant that they can no longer use trade policies to safeguard their markets. Trade remedies permitted under the WTO agreement include anti-dumping measures, countervailing duties and safeguard measures. These measures have, however, been used more on the developing countries, who generally have lacked the capacity to impose and defend such measures of developed countries.

Kenya has also been implementing the Sanitary and Phytosanitary (SPS) and the Technical Barriers of trade (TBT) agreement of the WTO. The implementation of the SPS and the TBT agreements in Kenya has been associated with some institutional and policy changes. In Kenya, most of the rules and regulations governing SPS and TBT measures were already in place. The challenge was thus more of harmonizing existing laws and regulations with SPS and TBT requirements rather than formulating new ones. This was done mainly through revisions of existing Acts. The Standards Act (Cap 496) has undergone various revisions to accommodate some of the emerging issues. The revision was meant to include import inspections, training of assessors, auditors, quality system assessment; accreditation being carried out through a legal notice; and the establishment of Quality System Accreditation Committee (QSACS).

Implementation also took the form of establishing new structures. On becoming a member of the WTO, Kenya’s initial response was to identify competent institutions and to equip them for the implementation of the agreements it had endorsed. For the TBT agreement, the government identified Kenya Bureau of Standards (KEBS) as the competent authority and moved fast to make it the National Enquiry Point (NEP). For SPS, the Kenya Plant Health Inspectorate Service (KEPHIS) was designated as the competent authority. Apart from creating new structures and arrangements to implement the WTO agreements in Kenya, the existing institutions also assumed new roles and functions. In a few cases the roles have been scaled up to meet the strict WTO requirement.

The implementation of the WTO agreements in most developed countries has gone beyond trade related policy. Implementation of the WTO agreements has meant changes in domestic policies such as fiscal policies. For most developing countries, Kenya included, the liberal systems emerging from the WTO agreements have meant reduced tariff revenues. In Kenya, tariff revenue accounts for about 20-25% of the total revenue of the government. If tariffs are to be reduced further or eliminated in Kenya, it will mean that the government will not only be loosing but must also find alternative sources. The dependence on trade tax revenue constitutes a major hurdle for tariff liberalization in Kenya and other countries with implications on trade and fiscal policies. This may in the case of Kenya call for a change in the fiscal policies with a view to expanding the existing tax base or increasing the efficiency of revenue collection.

3.4.1 Trade Policy Formulation and Implementation Process Kenya’s participation in the WTO has also affected the way trade and investment policies are formulated and implemented. The Ministry of Trade and Industry (MTI) holds the official mandate for trade policy issues, although it has over the years shared certain trade related responsibilities with other ministries. Before Kenya became a member of the WTO, MTI coordinated all trade matters. MTI was and is still organized around four main departments/divisions. These are planning, external trade, internal trade and industries. The

11

Department of External Trade that handles COMESA matters currently also handles WTO issues. The Ministry of Planning and National Development has been responsible for ACP-EU matters while the Ministry of Regional Cooperation is in charge of EAC matters. It is worth noting here that the Ministry of Planning and National development is the lead institution for national policy formulation. MTI is mainly concerned with implementation.

Until very recently, the formulation and implementation of trade policies in Kenya was the preserve of government. Non-state actors such as the civil society, the private sector and donors were largely left out of the process. This seclusion arose out of a number of factors including a long period of single party rule, general mistrust, a culture of passiveness, disorganization of civil society institutions and the private sector. The creation of a more competitive political environment following the re-introduction of multi-party politics in the country gradually changed the scene as the private sector, civil society organisations and lobby groups have found more political space to agitate for issues of their interest.

In Kenya, Like in many other countries, trade issues are often diverse and involve a large number of stakeholders with diverse interests. For effective policy formulation, it is pertinent that all the stakeholders are effectively involved in the decision-making process. This is because trade matters, particularly WTO related ones, are not only complex but also overlapping and have far-reaching consequences. While there have been bold attempts in Kenya to engage all the stakeholders in the decision making process, the pursuit of high-level strategic objectives in trade is undermined by the lack of effective mechanism for coordination and consultation. This may have undermined the policy stance of the country. It may also have resulted in poor participation by some stakeholders. 3.4.2 Institutional Framework for WTO Participation Immediately after becoming a member of the WTO, Kenya established the Permanent Inter-Ministerial Committee (PIMC) to advise the government on all matters pertaining to the WTO. Being inter-ministerial, the committee tended to leave out key stakeholders particularly those from the private sector. In recognition of the important role of the other actors, the government in 1997 restructured PIMC to include the private sector and civil society. The organization was subsequently renamed the National Committee on the WTO (NCWTO). NCWTO is thus the body through which the government consults with the private sector and the civil society and is the coordinating body in Kenya’s participation in the WTO.

As constituted, the NCWTO is an informal organization and is not established in law. Although there have been some efforts to legalize the organization, it remains an informal advisory body as its registration has never materialized (Odhiambo et al, 2004). The Department of External Trade in MTI provides the secretariat for the NCWTO while the Permanent Secretary in the same ministry is the Chairman of the Committee. The fact that the NCWTO is not a formal organization has to a large extent compromised both its operational and financial autonomy. The Committee has no budget of its own and has relied mainly on donors and well-wishers such as NGOs, while the Treasury has no obligation to allocate fund to the Committee. The Committee relied on funding from the Joint Integrated Technical Assistance Program (JITAP), which played a key role in its establishment. At the expiry of the first phase of the JITAP funding (JITAP 1 1998-2002), the activities of the NCWTO were adversely affected.

12

3.5 Liberalization under the regional trade initiatives Apart from unilateral liberalization and through the WTO, trade liberalization in the country has also been through a number of regional trade initiatives. Kenya participates in regional integration initiatives within Africa and outside as a viable mechanism of expanding her economic space for trade, investment and development. Kenya is a member of various regional trade organizations including the COMESA and the EAC. The country also participates in the Caribbean and Pacific States and the European Union (ACP-EU) and Cotonou Partnership Agreement. Kenya also benefits from the American Growth and Opportunity Act (AGOA) initiative and is eligible for preferences under the Generalized System of Preferences (GSP). 3.5.1 Liberalization within COMESA

The COMESA trade liberalization programme started in July 1984 under the FTA framework. Under this programme, trade liberalization only applied to a group of selected commodities that was contained in a common list, which member states had expressed import/export interest for eligibility for preferential treatment. The common list was not static and the treaty provided for its review, amendment and enlargement after every two years. The PTA Council of Ministers established the common list in December 1983. According to article 6 of the Protocol on the reduction and elimination of trade barriers on selected commodities to be traded within the PTA, member countries are required to give effect to the reduction and elimination of tariff and non-tariff trade barriers in respect of commodities in the common list not later than 180 days after establishment of the protocol.

The magnitude of the initial tariff reductions depended on the commodity groups in which various products were classified. After applying the initial reduction rates, a programme of progressive tariff reductions was also adopted for the different commodity groups. Member states, according to article 12 of the PTA treaty, committed themselves to eliminate all tariffs between them within 10 years after the signing of preferential trade area (PTA) treaty on 30 September 1982.

The programme for the progressive reduction of tariffs that was adopted consisted of a 10% reduction every two years starting in October 1996 until 1998 and a reduction of 20% in 1998 and the final reduction of 30% in 2000. Only nine countries that were able to meet the tariff reduction commitments managed to implement the COMESA FTA programme. The trade liberalization programme envisaged the formation of a COMESA Customs Union by December 2004. This deadline was, however, not realized and a new date has been set for 2008. The delay was occasioned by the fear among countries that the free trade area and the Common External Tariff (CET) would result in high revenue losses, which would complicate macroeconomic management. Further, countries have been unable to converge on the appropriate CET structure due to their different levels of industrial development. The recent setting up of a Common External Tariff (CET) in the EAC (January 2005) in which Kenya and Uganda are members has further compounded the problem.

3.5.2 Liberalization within the EAC

Like other sub-Saharan African countries, EAC member countries have carried out substantial reforms since the 1980s, initially as part of the structural adjustment programmes spearheaded by

13

the international financial institutions (World Bank, IMF). These reforms have not been uniform across the EAC member states, and have therefore had varied impacts on the trade regimes in the countries. Overall, however, the reforms have led to substantial reductions in the level of tariffs in the three countries. The countries have liberalized their import regimes by lowering tariffs, reducing tariff dispersion and reducing/eliminating quantitative restrictions. Import licenses have been removed while little or no export restrictions exist in the three countries. The three EAC countries also no longer levy export taxes and duty exemptions, and have relaxed foreign investment restrictions.

Table 2: Evolution of tariff in EAC countries

Country Tariff rates 1997 1999 2001 2002 No of tariff bands 7 5 4 4 Top rate 50 25 25 25 Simple average tariff 23.5 16.4 12.8 12.1

Tanzania

Weighted average tariff 18.4 20.9 12.8 12.1 No of tariff bands 5 5 5 5 Top rate 40 35 35 35 Simple average tariff 20.8 15.2 16.6 16.2

Kenya

Weighted average tariff 16.1 11.1 13.6 10.9 No of tariff bands 5 3 3 3 Top rate 30 15 15 15 Simple average tariff 13.2 9.2 9.1 6.1

Uganda

Weighted average tariff 10.7 .. 7.4 7.7

Source: World Bank (2003)

Table 2 details the successive tariff liberalization in the three EAC countries since the mid-1990s. It is evident that the three EAC countries have liberalized substantially as can be seen by the reduction on the top rate, the number of tariff bands and the tariff levels. It is, however, evident that liberalization was faster in Uganda and Tanzania than in Kenya.

The main trade policy agenda under the EAC has been to form a single investment and trade area in order to increase the volume of trade among the EAC member states and with the rest of the world. Under the agreement, the countries agreed to remove the internal tariff between them and adopt a common external tariff2. The CET structure adopted a minimum rate of 0% for raw materials and capital goods, a middle rate of 10% for intermediate goods, and a maximum rate of 25% for final goods. This is to be reviewed after 5 years from the date of coming into force of the Customs Union. The three EAC member states have also agreed to remove all suspended duties (duties that can be imposed by a minister without recourse to parliament) on any good genuinely produced in EAC except for sanitary and phytosanitary requirements.

3.6 Macro-economic effects of trade reforms in Kenya The trade and investment policies pursued in the country since independence have had some effects on the Kenyan economy. Kenya’s current trade regime is fairly liberal due to the liberalization process initiated in the 1990s. Since the onset of liberalization, the average import tariffs have declined to just over 20% in 2001-2002 while the top rate reduced from 170% to about 35% in 2002. In the Finance Bill of 2000, the top MFN (Most Favored Nation) rate was categorized into ten levels with the highest being 45%. With the formation of the EAC customs 2 EAC common external tariff came into force in January 2005.

��������� This does not seem complete. Also World Bank 2003 is not referenced

14

union in January 2005, the MFN rate in the country conform to the three tariff bands of the Common External Tariff (CET) - 0% for raw materials and capital goods, 10% for intermediate goods, and 25% for final goods. Tariffs are now the government’s primary instrument for trade policy. The government, however, still maintains a small list of import licensing controls based on health, environmental and security concerns. It is also a requirement that all imports with an f.o.b. value of more than US $ 5,000 are also subjected to a pre-shipment inspection for quality, quantity and price. A clean report of findings (CRF) issued by a government appointed inspection agency is also required. A fee of Kshs 5,000 or 2.75% of the CIF value of all imports is charged as import declaration fees. Generally, trade policy has been liberalized in the country as is evidenced by the real trade and openness ratios summarized in Figure 1 below. It is significant to note that the country, which was fairly closed in the 1960s and 1970s started opening up in the mid 1980s. Figure 1: Real trade regimes in Kenya

Source: Economic Surveys, Kenya Bureau of Statistics, various issues

The reduction of tariffs and other trade reforms has affected the performance of the country’s imports and exports. Figure 2 below shows trends in the country’s import and export for the period 1964-2000. During the period imports have exceeded exports in most of the post-independence period, with the difference widening substantially following liberalization. The widening gap is underpinned by the massive import expansion and a moderate growth in the country’s exports.

The marginal expansion in the country’s exports has largely been attributed to the growth of the horticultural industry. In 2001, horticultural exports reached Kshs. 23.6 billion (about US $ 300 million). Of this total, fresh cut flowers account for about 54%, vegetables 35% while the rest were fruits. The value of horticultural exports have since risen to about Kshs 28.6 billion in 2003 making the sector the second most important foreign exchange earner after tea. The sub-sector is also important for the country’s food security and supply of raw materials to the agro-processing industry. The relative success of the horticultural sector in Kenya has been attributed to a host of factors including a favourable climate, ability to attract foreign technology and expertise, and to integrate them well with local skills. Other reasons for the relative success include the fact that

-24

-22

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

20253035404550556065707580859095100

Tho

us

an

ds

Tho

us

an

ds

real

tra

de b

alan

ce K

sh b

illio

ns (

1982

val

ues)

real

ope

nnes

s K

sh b

illio

n (1

982

val

ues)

19641965

19661967

19681969

19701971

19721973

19741975

19761977

19781979

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

2000

real trade balance real openness

Figure 3 REAL TRADE REGIMES1982 v alues

real trade balance=real exports of goods and services - real imports of goods and servicesreal openness= real exports of goods and services + real imports of goods and services

15

the industry is entirely dominated by the private sector, with the government playing only a facilitating role.

Although the horticultural sector has expanded considerable in the last decade, it faces a number of challenges. Beside competition from other African exporters in the EU market, the country faces challenges in meeting stringent sanitary and phytosanitary requirements. SPS related measures that have been put in place by the EU through numerous directives and regulations are wide ranging, complex at times, expensive to attain and have negatively impacted on Kenya’s exports to the EU. For instance, Kenya suffered from fish export bans to the EU because of non-compliance with EU SPS requirements. Some of the measures, which are consumer driven, such as EUROGAP, are already having a negative impact, particularly on Kenya’s small-scale producers who are being edged out of production and have a doubtful future as growers and active participants in the country’s horticultural sector in particular and the economy in general. Figure 2: Kenya Imports and Exports, 1964-2000

0

500000000

1000000000

1500000000

2000000000

2500000000

3000000000

3500000000

1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001

Total merchandise imports (cif, Const. US$)

Total merch. exports. (fob,Const. 1987 US$)

Source: World Bank: African Development Indicators, 2004 What has been the effect of trade reforms on overall economic performance in Kenya? While there is no conclusive evidence on the effects of trade reforms on growth in Kenya, reforms have largely been associated with declining economic performance. Over the reform period, the GDP growth rates fell tremendously reaching its lowest of –0.2% in the year 2000. There was a slight improvement of GDP growth rate as is evident by GDP growth, which increased from 2.8% in 2003 to 4.3% in 2004. There was also an increased growth in exports from 8.2% in 2003 to 17.3% in 2004; however imports also recorded a substantial growth by 29.2% and thereby offsetting the gains that resulted from export growth (economic survey, 2005). Of major concern is the fact that despite the “perceived” growth in GDP most of these gains have not been able to benefit the poor as levels of poverty both in rural areas and urban areas have increased tremendously. This will become clearer in the next section. IV Implications of Trade Reforms on Poverty in Kenya 4.1 The poverty situation in Kenya The poor are defined as those members of society who are unable to afford minimum human basic needs, comprised of food and non-food items. From a wider perspective poverty encompasses inadequacy of income and deprivation of basic needs and rights, and lack of access to productive assets as well as access to social infrastructure and markets. Available statistics in

16

Kenya shows that the level of poverty has been on the increase. It is currently estimated that 56% of Kenyan population live below the poverty line, up from 48% in 1992 and 52% in 1997. The increase in poverty has resulted in decreased food security, inadequate access to basic social amenities such as health and education, unemployment, escalating insecurity, lawlessness and general economic decay (GoK, 2001c). 4.1.1 Characterization of the poor According to the Poverty Reduction Strategy Paper (PRSP) for Kenya, the poor tend to be clustered into certain social categories such as: the landless; people with disabilities; female headed households; households headed with people without formal education; pastoralists in drought prone districts; unskilled and semi-skilled casual laborers; AIDS orphans; street children and beggars; unpaid family workers; large households; single mothers and fathers; subsistence farmers; urban slum dwellers; and unemployed youth (Kenya, 2001c). An examination of these social profiles indicates that gender, education and occupation are important proximate determinants of poverty. Gender-related poverty varies by marital status, but women in general are more likely to be poor than men. This is largely due to their lack of rights and control over productive resources and their lack of legal protection. Low levels of asset ownership, poor access to credit and limiting social norms means that women are highly concentrated in agriculture. The majority of subsistence farmers are women (69%), and this is the livelihood group whose members are most likely to be poor in Kenya (Omiti et al, 2002) Poverty in Kenya has been associated with a number of factors. These, according to the PRSP, include: lack of or slow economic growth; income inequality and unequal access to productive resources such as land; natural shocks such as drought, floods and fire; inadequate spread and access to basic social services especially education and health; poor implementation of development programmes; lack of effective social policies and mechanics; and diseases such as TB and HIV/AIDS (Kenya, 2001). 4.1.2 Causes of Poverty The participatory poverty assessment studies have also identified a number of causes of poverty in Kenya. These include environmental, historical, political economic, demographic and well as personal causes. Environmental factors include floods, inadequate rainfall, wildlife menace, livestock diseases, water hyacinth in freshwater lakes and soil erosion. Economic causes are a lack of employment opportunities, increasing commodity prices, lack of land and land subdivision, poor extension services, low productivity and low industrial development in the country. Personal and household factors include lack of education, sickness, physical disability, old age, being orphaned and high dependency ratios. Political and historical factors include strong urban bias in the design of development programmes, poor government planning and intervention, reduced government services, corruption, ethnic clashes, insecurity, geographic isolation of some social groups, insecurity in urban and rural areas and the eviction of squatters form the forest areas (Manda et al, 2001:31, World Bank, 1996). The inter-generational transmission of chronic poverty was also identified as important by the poor. ‘Poverty is inherited. If you are born to a poor father, he cannot educate you and cannot give you any land or very little land of poor quality. Every generation gets poorer’ (World Bank, 1996). The identification of income inequality as a key cause of poverty in Kenya is interesting, as increased trade flows are likely to increase income inequality, if not countered by other policy measures. Kenya is already among the most unequal societies in the world. It is currently estimated that the top 20% of the Kenyan population controls about 59% of the national income

17

while the bottom 20% control 2.5% of the income (UNDP, 2002). Kenya’s Gini coefficient is higher than most of the countries in the region. 4.1.3 Poverty trends and profiles Poverty in Kenya is largely rural, with rural households being twice as likely as the urban population to be poor or very poor. But urban poverty is increasing alarmingly in terms of both incidence and severity. Aggregate figures broken down only into rural and urban categories conceal the sharp regional disparities in poverty incidence that exist in Kenya. These are closely associated with rainfall and agro-ecological potential, and poverty is higher in arid and semi-arid parts the country. Table 3: Poverty trends in Kenya.

Percentage of poor Percentage of extreme poor Rural Areas 1992 1994 1997 1992 1994 1997

Central 35.89 31.93 31.39 67.83 32.95 29.73

Coast 43.50 55.63 62.10 63.00 50.95 59.46

Eastern 42.16 57.75 58.56 62.31 59.50 56.82

Nyanza 47.41 42.21 63.05 70.72 41.31 58.16

Rift Valley 51.51 42.87 50.10 81.02 45.75 48.02

Western 54.81 53.83 58.75 78.41 52.25 58.58

North Eastern - 58.00 - - 56.55 -

Total Rural 47.89 46.75 52.93 71.78 47.19 50.65

Urban Areas

Nairobi 26.45 25.90 50.24 41.92 27.26 38.38

Mombasa 39.17 33.14 38.32 44.84 33.12 38.57

Kisumu - 47.75 63.73 - 44.09 53.39

Nakuru - 30.01 40.58 - 37.18 26.81

Other towns - 28.73 43.53 - 27.07 37.91

Total Urban 29.29 28.95 49.20 42.58 29.23 38.29 Total Kenya 44.78 40.25 52.32

Source: Ministry of Finance and Planning, 2000a). (Welfare Monitoring Surveys - 1992, 1994 and 1997. The provinces with the highest incidence of poverty in 1997 were Nyanza (63%) and Coast (62%). Central Province had the lowest incidence at 31% (Ministry of Finance and Planning, 2000a). Coast has seen the most significant rise in poverty (44% in 1992, 56% in 1994 and 62% in 1997). 4.2 Sectoral Impacts of trade liberalization in Kenya: Winners and losers 4.2.1 Agriculture As already indicated, the majority of poor Kenyans depend on agriculture for their basic incomes, their food and general livelihoods. However in the recent past the sector has performed poorly with implications on poverty. Tea, horticultural crops and coffee are major sources of foreign exchange, employment and income growth to many large and small-scale farmers in Kenya. These three commodities jointly contribute about 34% of the agricultural GDP, employ over 40% 0f the agriculture labour force and jointly contribute to over 60% of foreign exchange earnings in

18

the country, they are thus the most significant in terms of poverty reduction in the rural agricultural setting (Waiyaki & Miencha, 2005, forthcoming). However changes in world market prices of primary commodities such as tea and coffee etc, have been on a downward spiral and have led to poor farm prices which leaves most farmers not getting their value for money. Other major constraints facing agricultural exports include: increasingly stringent sanitary and phyto-sanitary standards and tariff escalation (which discourages value addition of export products) in developed countries. At the local level constraining factors are: poor road infrastructure; high cost of farm inputs; high incidence of pests and diseases; lack of good quality planting materials; inaccessibility to affordable credit; and high power and water tariffs, among others. The impact of trade reforms on employment and poverty in Kenya is context specific and needs to be subjected to detailed analysis both at the macro and sectoral levels. In this section we present case studies, namely sugar, cotton, horticulture and fisheries sectors. These have been selected because in Kenya they are dominated by small-scale producers, and are significant in the livelihoods of large numbers of poor and very poor households. The sectors predominate in regions with high concentrations of poverty (Welfare Monitoring Survey of 1997). Also by presenting case studies of these sectors we anticipate that we will be able to draw out a number of trade-poverty linkages, cover a range of important policy issues and illustrate the impact of a number of the constraints facing both import and export enterprises. The sugar sub-sector The sugar sector has been selected for detailed focus because of its importance to poor smallholder producers and because of the trade-related problems facing the sector. Global sugar markets are oversupplied. Of the 132 million tones produced annually, approximately 34 million tones are traded internationally, 20 million tones are surplus to demand, and have driven prices down by 55% since 1995 (SUCAM website3). In addition, around 70% of sugar traded in world markets is traded through preferential or quota related regimes, which distorts world sugar prices (SUCAM, 2002). The Kenyan sugar sector is currently protected by tariffs which are set at the maximum permitted by the WTO. In 2002 the average cost of producing a tone of white sugar around the world was US$400. The average market price of sugar was US$345, showing that many producers face deficits, although a mill in southern Sudan was able to drive production costs down to US$230, making it one of the five most competitive producers in the world (Ochola, 2002). However, Kenyan production prices are three times the average world price (Kariuki, 2003) and without the tariffs the inefficient and uncompetitive Kenyan sugar sector would collapse. If this were allowed to happen without transitional support to producers and other workers, poverty incidence and severity would climb in some of Kenya’s poorest areas. Sugar cane is produced in Western and Coastal regions of Kenya, with small amounts produced in the East. Planning and factory location decisions made during the colonial period have determined the current distribution of cane production in Kenya, and it does not necessarily correspond with the most appropriate areas in terms of agro-ecology or access to domestic and international markets. Sugar cane is normally an estate crop but in Kenya cultivation in Western

3 http://www.kenyalink.org/sucam/ downloaded on 20.01.04

19

Province, Nyanza Province and provinces in the Coastal region is by small-scale farmers4. The Western region (Western and Nyanza Provinces) contributes over 90% of Kenya’s total production, and it is only in Nyando Zone where large-scale cane farming is practiced. The sugar sub-sector provides direct and regular employment for approximately 35,000 workers and thousands more are employed as casual workers on farms. If we include small scale producers and the up and downstream enterprises linked to the sector, 500,000 livelihoods are significantly supported (SUCAM, 2003b), and if the families of these workers are considered, around 2.6 million people (7-8 % of the population) rely on the sugar sector (SUCAM website). Sugar production in Kenya was stable between 1963 and 1986, but has declined since then as domestic market share has shrunk the post-liberalization period in the face of cheap international imports. Kenya’s small-scale producers growing cane in sub-optimum agronomic conditions are unable to compete with bulk producers from Sudan and Brazil. It is coincidental that poverty has increased dramatically in the sugar growing areas in Kenya. Poverty in Nyanza Province has sharply increased and stood at 63% in 1997. Poverty in the Western Province, another key sugar growing area was also on an upward trend, and was the second poorest Province by 1997 (59%)

The sugar industry in Kenya currently faces a number constraints and challenges: These include:

• Low production and productivity • Mill-level inefficiencies and management failures • High Indebtedness’ of the sugar factories • Poor marketing • Poor technology at the factory levels • Weak research –extension –farmer linkage • Regional and international trade issues in COMESA, ACP-EU and the EU.

The last factor is particularly relevant in the current context and is worth discussing further. Kenya is a signatory to the COMESA Free Trade Agreement and is bound by the provisions of the FTA protocol that allows duty and quota free access of sugar from the COMESA countries. As was already indicated, Kenya is a high-cost producer country in the region and cannot effectively compete with countries such as Malawi and the Sudan. Consequently, Kenya applied for exemption under the safeguard close which was granted to allow the country turn around the industry. This is set to expire in 2008. This raises the questions of whether the country will have turned around the sector by 2008 and the implications of failure to do so. The sugar trade between ACP countries and the EU is regulated by the ACP/EU Sugar Protocol and the Agreement on Special Preferential Sugar (SPS). Under the Sugar Protocol, EU member states guarantee to buy an agreed amount of sugar from ACP countries at agreed prices that are negotiated annually. Kenya has not been granted market access since 1986 when she failed to meet her quota provisions and has been allocated very small quantities under the SPS.

4 88% of Kenya’s sugar is cultivated by smallholder out growers, 12% on nucleus estates (Kegode, 2002). The small-scale growers operate under particular economic, technical, and financial constraints, which are reflected in the divergence in yield, costs of production, and technical efficiency seen when comparing small-scale production with estate production.

20

The horticultural sector The horticultural sector is important because of the dominance of private actors and particularly smallholder farmers. The sector in Kenya has been growing rapidly and employs nearly 3 million people, 1.2 million directly (Ikiara et al, 2003). Involvement in horticulture has also been shown to have a significant impact not only on rural poverty through employment in the growing of crops, but also on urban employment through processing and packing (McCulloch and Ota, 2002).

The sector is currently Kenya’s third most important sector of the economy in terms of foreign exchange earnings after tea and tourism, and contributes 30-35% of GDP (Kenya, 2002a). The majority of Kenya’s horticultural exports are sold in the EU, which is the largest importer of fresh horticultural products (from non-EU countries) in the world (FKAB, 2001). This dependence has exposed exporters to risks, which include increasingly demanding importers and the ending of Lomé Agreement tariff waivers. However, Kenyan producers can supply year round and they have been able to move up the value chain, making them very competitive (Ikiara et al, 2003). Box 1: Horticultural Value chain: Linkages to Poverty5 5 Adapted and modified from IFAD Report, May 2004

Importers

Large Exporter Small Medium sized exporter with own facilities

Broker

Smallholder farmer

Large Commercial Farmer

21

Around 80% of all growers are smallholders who produce 70% of the sector’s output and 60% of exports (Omosa, 2002; Kenya, 1997:63), and are also heavily involved in pre-export processing and packing. The remaining 20% of growers are medium to large-scale producers and are mainly concentrated in the floriculture sub-sector, which is highly capital intensive. The role of smallholders is beginning to change as the progressive introduction by the EU of conditions and regulations to non-EU suppliers (e.g. traceability, MRLs - Maximum Residue Levels, quarantine, packaging recycling requirements, human welfare and safety etc.) This has made the previous easy access to the market more difficult and resulted in new costs being imposed on suppliers (FKAB, 2001). These standards are a challenge, particularly for small producers and forced exporters to develop close relationships with producers to enforce good growing practices. The need for exporters to police these standards, combined with the costs of pre-packaging facilities means that out growers who wish to continue producing for export will probably have to form cooperatives based on clusters of 30-50 smallholder farms (FKAB, 2001) in order to offset costs. The danger of individual producers and exporters failing to meet importer standards has led the government to develop a Harmonized Industry Codes of Practice (CBS, 2003:131), as individual failures could lead to blanket export bans for all Kenyan horticultural products. The involvement of a large numbers of smallholder farmers and unskilled and semi-skilled workers in production, packing and processing of horticultural products has been shown to have a significant impact on household incomes and poverty (McCulloch & Ota, 2002). Smallholders benefit through higher income and improved access to credit and extension services. In addition to reducing poverty amongst smallholders, significant amount of employment is generated on both farms owned by the major exporters and on those producing under contract. Many of the workers are landless women with few other income earning opportunities (McCulloch & Ota, 2002). Jobs in processing and packing tend to be concentrated in Nairobi. The majority of employees are women employed seasonally. They have casual employment status and often have to work long hours for poor pay. There is evidence of gender and other forms discrimination (McCulloch and Ota, 2002), but the salaries are usually above minimum wages and provide an alternative to unemployment (Ikiara et al, 2003). If consolidation of the sector proceeds, driven by importer demands, the impact that horticulture currently has on income stabilization and poverty reduction may be compromised. Although the horticultural sector in Kenya has been considered as a success story, its still faces numerous challenges. Apart from the market access problems in the main markets, it faces poor domestic infrastructure, high airfreight costs and costly packaging material. These, if not sorted out are likely to make the country less competitive. Furthermore, it is perceived that the major beneficiaries in this sector are the large firms, they are few in number and foreign owned; they have links with markets abroad, furthermore they can afford to comply with EU requirements due to their strong capital base. Thus, they have an advantage over small scale farmers whom they sub-contract to supply them with goods and to whom they pay only a small margin, thus making them the major beneficiaries of this sub-sector. The cotton sub-sector The cotton sub-sector worldwide has shown significant linkages between trade and poverty as it has been both the beneficiary as well as the victim of liberalization as well as globalization. Cotton in Kenya tends to be a smallholder crop and is estimated to involve over 140,000 farmers growing cotton under rain-fed conditions on holdings of less that one-hectare each scattered through a number of provinces. (e.g. Nyanza, Western, Coast, Eastern and Rift Valley Provinces). This is a decline from a high of 200,000 during the sector’s peak in the 1980s, and in terms of the

22

numbers of people directly employed in cotton production the figures are quite low. However, if we include the people involved in ginneries, spinning units, textile mills and clothing manufacture the potential employment figures go up. During the 1980s labor-intensive technology enabled the textile and clothing industries to absorb such large volumes of labor that it was the second largest employer in Kenya after the civil service (McCormick, 2001). It now has nowhere near this level of importance, but the cotton-textile industry is still a significant employer. Liberalization in the cotton industry in Kenya began in 1991, but it was not until 1993 that it gained full momentum, removing the range of import substitution and price control policies of the government. With liberalization the industry was opened to private sector investment, including investment by the cooperative movement. The role of the Cotton Board was substantially reduced and all its ginneries sold to private sector. Many private agents entered the industry especially in primary purchase, the sale of pesticides and other farm inputs, transportation, ginning and clothing manufacture (Ikiara et al 2002). But by this time the industry was in tatters; cotton production had almost ground to a halt6; many ginneries had either collapsed or had excess capacity and many textile firms had closed or virtually closed, with production falling to 1976 levels, causing substantial unemployment (Kegonde, 2003, McCormick, 2001). Following liberalization the Cotton Board of Kenya became inactive leaving a regulatory and monitoring vacuum. This has led to seed contamination, inadequate control of lint quality and the collapse of input credit mechanisms (Kegode, 2003:4). Privatization of the ginneries in the early 1990s has left cotton farmers angry. The ginneries owed farmers’ cooperatives for seed cotton deliveries, and because of these debts the farmers felt themselves to be ‘shareholders’ in the ginneries. However, they have neither received shares nor been repaid (Kegode, 2003:4) As cotton production declined during the late 1980s and early 1990s ginneries found it difficult to access sufficient seed cotton. Running below capacity was inefficient so buyers were willing to travel long distances to purchase cotton. In some parts of the country ginners provide interlocked services, offering seasonal credit which they recoup through fixed farm-gate prices. However, contract law is not strong, and competitors were buying the cotton, leaving ginneries facing a loss. The government reacted by passing the Kenya Cotton Act (2001) which requires farmers to sell their cotton to the local cooperative for milling. This gives the cooperative monopoly power (Maxwell Stamp, 2003:18) which has enabled the partial revival of the sector, but the average (gross) price received by cotton farmers for seed cotton has fallen from Ksh.2,096 per 100kg bale in 1998 to Ksh.1,729 in 2002 (GoK, Economic Survey 2003:136). Farmers are now making an average loss of Ksh.3 per kg of seed cotton produced and are squeezed by high production costs and low and declining global prices for lint. (Prices fell in real terms by more than 60% between 1950 and 2000). Farmers have little incentive to produce cotton, and certainly none to increase production. Low levels of investment in technology and training in ginneries, spinning units, textile mills and clothing factories means that Kenyan products are more expensive and often of poorer quality than competitors. In a liberalized economy it is difficult for Kenyan products to compete either on price or quality. Cotton producers and ginneries have also been challenged by increasing use of synthetic fibers. They face constraints that increase production costs. These include lack of adequate incentive, high cost of utilities, high input costs, competition and corruption. This has hampered optimal operation of the sector.

6 By 1994-95, lint production had dropped to about 20,000 bales and has been fluctuating around this amount ever since (Ikiara, et al, 2002).

23

The cotton-textile sector in Kenya has also come to focus because of the African Growth Opportunities Act (AGOA), which provide preferential market access to Kenyan products in the US. Most of the companies in Kenya’s EPZs benefit from exporting to the US under AGOA. The majority of these have been using cheap imported cotton from Asia. This was set to change from 2004 when manufacturers were required to source all their fabric from other AGOA registered countries. Although Kenya has negotiated for a longer period, it does not appear to be preparing itself adequately for this change and may lose out in terms of preferential market access. The cotton Value-chain: Link with Poverty Cotton is produced largely under rain fed conditions by individual growers on landholdings averaging about one hectare. Cotton is mainly grown in parts of Coast, Eastern, Nyanza, Rift Valley and Western Provinces, which are the worst hit in terms of poverty. Since the crop does well in low rainfall areas, it has the potential to reduce poverty in Kenya’s semi-arid lands. There are about 140-150,000 smallholders in Kenya. It is a useful raw material for agro-processing into edible oil, cotton gauze, animal feeds, soaps and other cottage industrial products. Cotton growing is capital intensive given the need for quality seed, pest control inputs and handling facilities, and labor intensive, which can be source of employment in our otherwise labor surplus economy. There are also some 21 active cooperative Unions to which farmers belong and which help them in selling their produce to the Ginneries. The Ginneries are about 20 privately owned with a capacity of about 140,000 bales and capacity to employ some 1,000 people. There are also about 50 registered textile mills with a capacity to process 120,000 bales of cotton lint annually, however ha actual volume processed is about 55,000 bales which means that most mills are operating below capacity and about 40,000 bales are imported. Kenya is also home to some 120 medium-sized garment manufacturers, part of which operates in the export processing Zones and have provided employment directly to some 37,000 people ( see Box 2 below). The sub sector is also adversely affected by cheap imports of second hand clothes a sector which employs over 500,000 Kenyans, thus the dilemma to ban cheap imports or not because they are also a source of livelihood to a good number of people and have an impact on poverty. Besides most Kenyans living on less than a dollar a day have benefited from these cheap second hand clothes.

24

Box 2: Cotton/Textile Value Chain Analysis7

7 Adapted and modified from IFAD report May 2004

Whole Salers and Retailers

Garment Manufacturers

Textile Mills

Domestic Market Import of textiles; New and Second hand clothes

International Market

Cotton Ginnery

Cooperative Society

Smallholder Cotton Grower

Import of 40,000 bales of Lint

Import of Materials

Tailors and MSEs

25

The fish Sub-sector It is estimated that more than 500,000 Kenyans are employed directly or indirectly in the fisheries sector and that more than 800,000 others depend on the fisheries for their livelihoods (Kenya, 2002b: 4). This is low in comparison with the sugar and horticulture sectors, but the sector is nevertheless important and has played a key role in absorbing people who have lost their formal sector jobs in recent years (Kenya, 2001). In addition to those employed directly in fishing, export market generates employment opportunities in processing and packaging, boat building, and net making (UNIDO, 2002). Salt-water fish provide only a small proportion of all the fish landed in Kenya and are either consumed domestically or exported. The government currently controls marine fish (though not fresh water fish) prices. These controls would have to be removed under the WTO. Kenyan fisheries are heavily dependent on Lake Victoria (93% of total production, which is shared with Uganda and Tanzania. Lake Victoria spans Nyanza and Coast Provinces two of the poorest parts of the country, and the fisheries have the potential to contribute to poverty reduction in these areas. Fish landed in Kenya enters one of three main channels: the industrial fish processors, artisanal fish processors and the packing of fresh unprocessed fish. Over 30% of total production goes to the export based fish processing industries, which exports fresh, frozen and processed fishery products earning over Ksh.4 billion per annum in foreign exchange and contributing between 2 and 4.4% to GDP. Exports are private sector (Asian) driven, and dependent largely on private sector investments in infrastructure for landing sites, however, inadequate investments are one of the key causes of the recent EU import bans, suggesting that there is either a need for more public sector investment in this area or for more legislation and regulation. The main export markets for Kenyan fish are the EU, USA, Israel, Japan, Australia and Malaysia. About 70% of the Kenya’s fish exports go to the EU, with Spain as the lead (EU-based) importer (Kenya, 2002b)8. Kenyan exporters have therefore been vulnerable to the various import bans that the EU has imposed during the late 1990s. These have led to the share of fish exports going to the EU during the late 1990s varying between 0% and 58%9. Table 4 below shows why the bans were called and briefly describes their impact.

The EU’s Veterinary Committee now requires all fishery products from Lake Victoria to be checked to ensure that they are healthy and that they do not contain pesticides residues. It has recommended that fish export certificates in Kenya be aligned to those being used in Uganda and Tanzania. To try to meet the EU sanitary and phytosanitary regulations for fish products, legislation was developed under the Fisheries (Fish Quality Assurance) regulations of 2000 (Ikiara, et al, 2003). But Kenya has a number of problems, which make it doubtful that exported fish will consistently meet the EU standards. These include: poor hygiene at landing sites, poor identification and traceability, inadequate medical checks on fisherfolk and fish processors, a lack of inspection skills, lack of laboratory testing to support inspections, unsatisfactory Hazard Analysis and Critical Control Point implementation, lack of legislation to empower an agency responsible for sanitary control, absence of residue monitoring systems, and lack of definition of water standards (Ikiara et al, 2003). Also the large number of small-scale fisheries separated by large distances and experiencing poor communications make inspection difficult. In addition, 8 The Nile perch is the dominant fish species in the lake and accounts for just over 90% of export (both volume and value). Other important species include: Kenya’s fish types (species) are mainly, nile perch, tilapia, naked catfishes, North Africa catfish, rainbow trout, tuna, marine shells, cray fish, prawns, lobsters, shark, and silver cyprinid. 9 1996 – 58%, 1997 – 56%, 1998 – 36%, 1999 – 34%, 2000 – 0%, 2001 – 21%

26

many of the fishery areas have poor general health conditions and sanitation, safety of water supply and personal hygiene are inadequate (Ikiara et al, 2003).

Table 4: EU fish import bans Date Countries Reason Impact Nov 1997 Spain and Italy identifying salmonella in

imported Kenyan fish fish exports dropped between 1997 and 1998 by 33% and the foreign earnings by 13%.

June 1998 EU-wide (on chilled fresh fish10 from East Africa and Mozambique)

cholera epidemic11 fish exports fell by 66% between 1997 and 1998

March 1999 – Nov 2000

EU-wide (fish from Uganda, Tanzania and Kenya)

Use of chemicals for harvesting fish in Lake Victoria.

• 68% decline in Nile perch exports between 1998 and 1999

• a number of fish processing firms closed down, affecting artisanal fisher folk who supplied them

Sources: Ikiara et al, (2003) and UNIDO, (2002). Fish exporters complain that the standards set by the EU are unrealistically high and have involved ‘moving the goal posts’, leading to many smaller fish exporters going out of business. Another complaint is that subsidies offered to cod and halibut fish farms in the EU undermine the market for imported Nile perch.

Interestingly the import bans had an unexpected impact on male and female earnings on and around the fish landing sites. The sale of fish for export is controlled by male fish traders who act as intermediaries between the fish processing factories and the fisherfolk. As the proportion of the fish catch going for export increases the proportion available for artisanal fish processing decreases. As the artisans tend to be women, this leads to very direct gender impacts. Income earned by men and women is not necessarily pooled within the household, so there are very different impacts on poverty levels and food insecurity within the household if artisanal production expands or gets squeezed by expansion of the export sector. So, while total income earned by exports are larger than that from fish processed for the domestic market the impact of increased export levels can actually be detrimental to women and children and to household food security. 4.2.2 The non-agricultural sectors The manufacturing sector is one of the most important sectors of the economy as it contributes to about 13 to 14% of the GDP. It also accounts for about 18% of employment. The manufacturing sector in Kenya has also performed dismally in the recent past, the manufacturing sector has been growing for the past few years. Last year the sector grew by 2.4% as compared to 1.4% recorded in 2003. The relatively better performance may have been as a result of increased trade with their East African Community counterparts and also trade within COMESA. There was also a marked increase in sales from EPZ, which rose from 4.7% to 7.3% of total sales in the manufacturing sector between 2003 and 2004 (economic survey, 2005).

10 Fresh fish sells at a premium to frozen fish. 11 The legitimacy of this ban is questioned by some (e.g. Ikiara et al, 2003) who state that cholera cannot be transmitted to humans through hygienically processed fish.

27

Employment in the manufacturing has also risen from 239.8 thousand persons to 242 thousand persons in 2003 to 2004. The EPZ currently accounts for 15.9% of total employees in the manufacturing sector. Most of the low cadre jobs in the manufacturing sector account for over 50% and employ a good percentage of the unskilled population therefore providing income for people who would otherwise be jobless and therefore absolute poor. In terms of sub-sectors, the key ones have been clothing, paper and paper products, petroleum and other chemicals. Like in agriculture, liberalization has affected different sub-sectors differently. We review below some of the most affected sectors. The textile and garment sub-sector Kenya’s textile industry is quite diverse with firms of varying sizes and using different technologies. Firms producing textiles are large, while garment producers range from large factories to micro-enterprises. At independence the sector performed exceptionally well but declined remarkably in the 1980s and 1990s. Kenya’s textile and apparel sector deteriorated during the early to mid-1990s following import liberalization, which exposed the sector to both foreign competition and an influx of imported used clothes (Mitumba). The poor performance of the sub-sector was also attributed to the collapse of the local cotton-processing industry, the real domestic economic activity, which reduced demand for apparel, and the quota restriction in the US. Competition from foreign suppliers reportedly adversely affected the cotton-processing industry, which consisted mostly of old and inefficient ginning facilities. Uncertain supplies of raw cotton because of domestic weather conditions also affected the industry. High cost and unreliable supply of energy in the country may also have affected the overall performance of the sector. Even though the overall effects of the downturn of the industry as a result of liberalization have not been systematically quantified, it is estimated that the effects have included the following (McCormick and Kinyanjui, 2005):

• Closure of a large number of factories and mills. This has led to massive loss of employment estimated at over 70,000 jobs.

• Loss of government revenue due to closures. • Loss of investor confidence • In some towns like Eldoret, Thika and Kisumu where there was a concentration of textile

activities, there has been shrinkage of the local economy. The implementation of AGOA spurred the revitalisation of Kenya’s textile and apparel sector, creating alternative employment opportunities. The EPZs in Kenya have attracted investment in apparel production for exports to the US. The effect of AGOA arrangement on Kenya’s economy has been positive. In 2003, Kenya’s exports to the US market stood at Sh14.7 billion (US$184 million) in 2003. EPZ firms in Kenya have also created a sizeable number of jobs. In 2003, EPZ firms employed some 39,000 people, about 18% of the total manufacturing employment. A majority of the people employed in the EPZ have been women. Table 5 summarizes some other selected performance indicators of the EPZs.

28

Table 5: Selected EPZ Performance Indicators 2000-2004 2000 2001 2002 2003** 2004* Gazetted zones 19 23 31 37 41 Enterprises operating 24 39 54 66 74 Employment-Locals 6,487 13,444 26,447 38,199 37,723 (Numbers) Expatriates 133 314 701 912 837 Total workers 6,620 13,758 27,148 39,111 38,560 Export Sales (Kshs Million) 3,635 5,962 9,741 13,812 23,047 Domestic Sales (Kshs Million) 755 538 932 619 651 Total Sales (Kshs Million) 4,390 6,500 11,040** 14,817 24,211 Foreign Imports (Kshs Million) 2,349 299 7,043 9,920 13,029 Local Purchases of Goods & Services (Kshs Million)

279** 718** 1,127 1,176 1,893

Investment (Kshs Million) 6,107 8,950 12,728 16,716 17,012 Source: Economic Survey, 2005 * Provisional ** Revised Series Despite the positive role EPZs have played to revitalize the textile-garment sector in Kenya, there have been some concerns particularly to do with the welfare of the workers. It has been alleged that the workers in the EPZs are mostly hired on short term contracts, are required to put in very long hours and paid very low wages. The poor terms and conditions for employment, it would appear exacerbate poverty rather reducing it. The same story applies to the floriculture industry in Kenya. The leather and footwear sub-sector It is generally accepted that the leather and footwear sub-sector is not only ideal for SME operations and employment generation but also for poverty reduction. A recent study by Omiti (2004) estimates that the sector currently employs about 60,000 workers down from 140,000 in the 1980s. This dramatic fall in performance has been occasioned by the closure of tanneries and the dramatic fall in exports. This in turn has been blamed on the influx on second –hand leather products such as footwear. Analysis of the value by Omiti (2004) brings out a number of institutional and firm level constraints that bedevil the sub-sector in Kenya. These include poor capacity utilisation, poor technology for storage, preservation and tanning, weak chain governance and a weak regulatory and policy environment. 4.2.3 The Services12 Sector Since independence to date, the services sector has experienced a significant growth and contributes tremendously to the GDP, thus making it the most important sector in terms of revenue earnings to the government. Table 6 below shows the historical evolution of this contribution. Since 1960 the service sector’s contribution to the country’s gross domestic product and wage employment has been much higher than that of either agriculture or manufacturing. The sector’s contribution to GDP in 1960, for instance, was 44% relative to agriculture’s 38% and industry’s 18%. The sector’s contribution, moreover, has steadily grown over time. Thus, for instance, its share in GDP had risen to 52% by 1990 and to 59% by 2003 (Table 6).

12 The services sector includes: trade, restaurants and hotels, transport, storage and communications, finance, insurance, real estate and business services and government services.

29

Table 6: Broad Structure of the Kenyan Economy (% of GDP at Factor Cost) Sector 1960 1965 1970 1977 1980 1988 1990 2000 2002 2003 Agriculture 38 35 33 35 32.8 31 29 20 24.0 23.9

Industry (Manufacturing)

18 (9)

18 (11)

20 (12)

20 (12)

21 (12)

20 (12)

19 (12)

18 (13.1)

18.0 (13.0)

18.0 (13.0)

Services 44 47 47 45 46 49 52 62 58.0 59.0 Source: Republic of Kenya, Economic Survey (various issues)

The services sector had become a major source of employment in the country by 1980 the sector accounted for 55% of total wage employment; which increased to 61% in 1991, currently the sector accounts for about 635 of total wage employment (economic surveys, various).With regard to exports, the sector accounted, on average, for over 50% of foreign exchange inflows and about 33% of the outflows per year in the country’s current account for most of the period between 1970s and 1990s. Despite this huge contribution, the country’s policies have focused more on agriculture and industry (Ikiara et al, in Soludo et al, 2004). Trade liberalization did well for the services sector as with a more open economy, and deregulation of foreign exchange controls services sector was able to attract more FDI than any other sectors including Banking and Insurance.

The tourism sub-sector Tourism was once Kenya’s number one foreign exchange earner in 1987; during the 1990’s tourism became the major foreign exchange earner, it was however overtaken by tea in 1997 and horticultural exports in 2000. The sector has many linkages today in the economy and is a crucial pillar, it is linked to the country’s hotel industry, enterprises which offer transportation, accommodation, shopping, entertainment, recreation and other personal services13 have become part and parcel of the industry; this has major implications on employment both directly and indirectly. According to Economic Surveys, the sector accounted for 9.6% of GDP, 19% of export earnings and about 500,000 jobs in 1996. Kenya has shown that it has a comparative advantage in the tourist sector and has built through the private sector a lot of tourist facilities. Following liberalization of the foreign exchange controls in 1990s, the sector picked up quite well and has been a major source of employment and government revenue. Thus in the year ending 2004, tourist earnings increased by 51.9 percent (GoK, Economic survey, 2005). This was also accompanied with increased employment in the tourist sector, which has helped boost the economy as well as provide much needed income. Information and communications Sub-sector The information and communication sub-sector in Kenya has undergone major transformations since independence. The growth of this sector in Kenya has been significantly influenced by global trends. The sector’s growth can be evaluated in terms of number of fixed and mobile telephone lines; the teledensity; the number of computers and services; Internet Service Providers (ISPs), the number of Internet users; broadcasting stations; and market share of each one of them. The evolution of the sector can be traced back to the period between 1963 to 1992 in which the government had the monopoly to provide services. The liberalization of the communications sector that was only in a few countries in the 1980s turned into a worldwide trend in the 1990s.

13 (including prostitution)

30

The Monopoly Era (1963-1992) The period was characterized by state monopoly on the provision of infrastructure and services which was the sole responsibility of Kenya Post and Telecommunications Corporations (KPTC). The sector was strongly regulated by Government, use of advanced technology and communication was limited and there were poor conditions of networks and exchanges. The parastatal only provided telephone, telex, telegraph, postal, telegram and mail delivery services which were mainly labor intensive. (Kasuku & Mutua, 2002) Liberalization & Privatization period (1993-to date) During this period, the government came under intense pressure from the Bretton woods institutions to open up and liberalize. At the same time the corporation was plagued by shortage of funds, increased demand from growing population, depressed state of economy from 1993, micro-economic difficulties and inflation and devaluation. Thus in 1997, KPTC began reorganizing its structure and was split into 3 autonomous bodies, Telkom Kenya, Postal Services Corporation and Communications Commission of Kenya. Thus improved growth in the sector was recorded and this was partly due to the sub-sector’s structural reform program and improved investment climate, this is further illustrated by the statistics in the table 7 below in which their was a tremendous increase in the amount and value of posts and telecommunication services and also the amount of mobile phone increase. Today, there are over 4 million mobile phone users, which have made communication much easier and cheaper. Table 7: Postal and Telecommunications Servies in Kenya (1985-2004)

Source: Economic Surveys, Various Other major developments have been in the ICT sector in which Internet access and Internet services have improved especially with introduction of proper infrastructure to support the systems such as Very Small Aperture Terminal (VSAT) under a brand name of KENSTREAM which was sold to cyber cafes. Today many cyber cafes have been licensed which has ultimately led to more job creation and better (cheaper) communication services. According to analysis by Mutua and Kasuku, (2002), by the year 2001 the communications commission of Kenya (CCK) had licenced over 66 Internet service providers with over 520,000 users, majority of whom were based in Nairobi. Today there are over 2 million daily users in Kenya and Internet coverage has

Unit 85 90 95 2000 2002 2004 Post offices 829 1055 1061 890 869 865 Private letter boxes ‘000’ 189 243 302 387 721 697 Registered & insured items postured in millions’

3.1 3.7 2.4 2.2 3.3 3.5

Total comes prudence handled ‘millions’

1234 316 456 102 344 237

Parcels handled ‘000’ 334 378 257 148 187 - Telephone exchange ‘000’ come from

118 183 250 313 772 531

Public call boxes ‘000’ 2189 5135 5922 8938 11000 19000 Mobile phones ‘000’ - - 2.58 85 2,583 4,295 Manual telephone ‘millions’ call made

13.7 10.9 5.7 3.7 5,412 27

Money orders ‘millions’ 1.6 2.1 1.5 1.8 1,487 1,675 Postal orders ‘000’ 118 73 48 32 29 7

31

reached most major towns an d even rural areas. These new developments have haled reduce business costs, have made communication easier and cheaper and thus have led to employment and major spur economic growth.

4.3 Impact of Liberalization on employment, Incomes and Consumer prices In the earlier days of liberalization as most firms shifted away from labor intensive to capital intensive production, many workers were laid off; the productivity in the Agricultural sector also diminished leading to a reduction in the level of household incomes. Consequently, there were high levels of unemployment also coupled with high levels of population growth. Today the level of unemployment in Kenya stands at approximately 30%. This was more severe in the 1990s (due to reforms) and hence most Kenyans resorted to Micro and Small Entrepreneurship (MSE) for survival (also known as the informal sector). The informal sector has grown in the recent past and are now said to contribute about 18.4 percent of the country’s GDP (economic survey, various). According to the baseline survey of 1999, 64.1 percent of MSEs are in the trade sector, most of who trade in fast moving consumer goods domestically. The rest are involved in small industries (13%) and services (15%); a very small percentage are also involved in Agriculture. Following the SAPs and the Public Sector reforms in 1990s most of civil servants were laid off as a result of the wage bill, which became unmanageable (accounting for 10% of GDP and about 70% of the recurrent budget by the late 1980s). After much pressure from IFIs and donors, the government relented and a retrenchment program on voluntary basis was introduced, others were enticed by the “golden hand-shake”. This saw many civil servants being laid off making the poverty situation worse. The improved performance of the economy and restructuring of certain sectors of the economy has also brought about creation of new employment opportunities. For instance, the introduction of the EPZs In the period between 2001/2002, the Kenya government opened 19 EPZs in different parts of the country which absorbed a number of skilled and unskilled employees and today accounts for 15.9 percent of total employees in the manufacturing sector (economic survey, 2005). The revival of the horticultural sector in the late 1990s also led to an additional employment of over 40,000-50,000 employees (Opondo, 2003). The level of incomes in most sectors has also shown improvement especially with the setting up of the minimum wage in the year 2004, which was increased by 11.0 percent. According to economic survey of 2005,Changes in average wage earnings also went up by 90.8 percent from they year 2000 to the year 2004. Despite the increase in average incomes, the level of poverty continues to worsen as more and more people are now living below the poverty line, this is partly due to increase in consumer prices of basic goods and increase inflation rates. As a result of this, relative prices of food and basic items have increased over a period of time and therefore a huge percentage of the population find it difficult even to maintain food security let alone afford basic amenities like health and decent housing.

32

V Trade Policy Agenda and Pro-Poor Trade Policies in Kenya As already indicated Kenya’s trade regime almost completely been liberalized for most goods sectors following the implementation of economic and trade reforms since 1981 and participation in multilateral and bilateral arrangements. This meant that Kenya’s trade strategy will be largely driven by multilateral and bilateral agreements. As a result the trade policy agenda in Kenya is not well defined. It is therefore not surprising that the country has not articulated its trade policy. The lack of a clear policy on trade is reflected on recent policy documents, the Poverty Reduction Strategy Paper (PRSP) and the Economic Recovery Strategy (ERS) for Wealth creation and Employment A review of Kenya’s PRSP indicates that the document has a small section that discusses trade. The focus of the section is on both international and local trade, with the latter getting more prominence. At the international level, the document merely alludes to the effects of implementation of the liberal world trading order and their effects on the poor. There is however no discussion or analysis of these effects. The document also touches on regional trade, specifically the EAC and COMESA. The discussion on regional trade is also at best only cursory.

The ERS is the other important policy document in Kenya. This document that was developed by the new government that came into power in 2003, subsumed the PRSP. Surprisingly again, the document does not address itself to the whole issue of trade and poverty. The only mention of trade in relation to livelihoods is in expanding exports in the regional and international markets. The other mention is with regard to the implications of privatising state owned enterprises in order to increase competitiveness for Kenyan export products. Thus generally, Kenya’s policy documents have not explicitly addressed the issue of trade and its implications on poverty.

Although the trade content in Kenya’s PRSP and ERS are minimal, the two documents in many ways provide a good framework for fighting poverty in Kenya. This was the verdict of the IMF and the World Bank among other reviewers. The challenge it seems lies with implementation. A recent DFID assessment points to a number of weaknesses that have prevented the country from implementing its development embodied in the policy documents including trade objectives therein. The report identifies the lack of capacity in ministries to effectively rationalize PRSP priorities with the medium-term expenditure frameworks (MTEF) constraints. Also lacking is a framework for ranking and prioritising trade issues. Missing also is a system of monitoring expenditure and impacts especially on poverty. Another concern has been the lack of a mechanism/forum for national consultation on trade matters other than for WTO related ones. In the last two decades or so, several countries have been very successful increasing incomes and reducing poverty. Most notable of these countries have been the Asian Tigers of Singapore, Hong Kong. Taiwan and lately China. Chile and Mauritius have also made remarkable increases in income. What is common about these countries is that they dramatically increased their exports, raised incomes and reduced poverty and are now active participants in the global trading environment. While a number of these countries undertook economy wide liberalization (e.g. Hong Kong and Singapore), others resorted to protection with offsetting policies for exporters (e.g. Korea, Taiwan and China). Others like Mauritius opted for protection with EPZs. What are the lessons for Kenya based on some of these success stories? It is important to note that Kenya finds itself in different circumstances as was the case with Tigers as it is unlikely to resort to protection given it regional and multilateral commitments. The following steps would seem to be important for Kenya in ensuring pro-poor trade policies and growth:

33

(i) Pursuance of high, but pro-poor economic growth: To effectively reduce poverty in Kenya, high and sustained growth of at least 7% GDP growth rate is necessary. The ERS and the PRSP documents place a lot of emphasis on this. What is critical is however is that such growth must be able to benefit the poor. In this regard, a ‘take –off’ in the agricultural sector is key. Recent history suggests that before a country can move from low intensity, semi-subsistence agriculture to generating surplus, there is need for targeted interventions by the state.

(ii) Need for strong complementary policies: Trade policies reform must be implemented in the context of a variety of complementary policies. Trade liberalization involves reducing discrimination against foreign suppliers of goods and services. This is achieved not simply be eliminating quotas and reducing average tariffs and dispersions across tariffs, but also by strengthening trade-related institutions. In Kenya, the following complementary policies would be required:

i. Macro-economic and exchange rate policies ii. Fiscal revenue policies

iii. Infrastructural policies iv. Policies for the labour and other factor markets

(iii) Need for safety nets: One of the most important complementary policies for the poor is an efficient social safety net. This should always in place where reforms are taking place, whether trade or not. Especially in the short-run, there is bound to some effects on some groups of poor who may be incapable of sustaining even short periods with adverse adjustment costs.

(iv) Timing and pacing of liberalization: Whether trade is beneficial to the poor remains controversial, and is if at all, circumstantial. Those who are receptive to the argument that trade liberalization has potential benefits for the poor generally argue for a phased and asymmetric reduction in trade barriers, with developing countries allowed to liberalize more slowly and to protect for longer periods, vulnerable sectors of importance to the poor.

(v) Identification of winners and losers: As is evident in the case of Kenya, policy changes generate both winners and losers. Different aspects of trade liberalization are likely to have different effects on different groups. This needs to be identified fairly accurately in advance. This is particularly the case with trade negotiations, to the extent that they have incorporated poverty reduction as a policy objective- through a patchwork of special and differential treatments and preferential access (Box 1).

34

BOX 3: WTO and Poverty Alleviation The WTO Agreements involve legal commitments by Governments regarding the rules and policies they follow in conduct of International Trade in goods and services. As such, the Agreements contain no explicit references or direct links to policies affecting poverty. Their impact derives from trade policies that governments have committed to pursue based on their WTO commitments. More than 100 of the 140 members are developing countries (although WTO does not define what constitutes a developing nation this is largely to self-selection). Almost all the 30+ countries seeking to accede are also developing countries or economies in transition. Within the WTO agreements, developing countries are supposed to receive special and more favorable treatment (usually referred to as “Special and Differential” Treatment) aimed at addressing their particular circumstances in international Trade. The poorest of the developing countries- the 49 of the UN list of Least developed Countries (LDCs) are provided with further additional more favorable treatment. the Special and differential treatment involve five sets of measures: (a) developing countries are given more flexibility in terms of their own trade policies – e.g they do not have to bind all their tariffs; (b) their exports can be charged lower preferential tariff rates in developed or other developing country markets; (c) they are given longer “transition” periods to implement provisions contained in some WTO Agreements; (d) developed countries are supposed to provide them with technical assistance to help them implement the commitments they have assumed; and (e) developed countries are to implement their WTO commitments in a manner “favorable” to developing country interests. WTO provisions in general and those which apply to developing countries, in particular tend to be quite permissive in terms of trade policies an individual country can pursue- and hence do not tend to constrain these policies in ways that would harm the poor. On the contrary, they are on the whole supportive of trade and foreign direct investment policies that would tend to promote poverty alleviation. Moreover, the availability in the WTO of an effective dispute settlement mechanism and the guarantee of MFN treatment for all its members can be of special importance to developing countries in their dealings with more powerful developed country trading partners. Thus it is important for all developing countries to be members of the WTO. At the same time the permissiveness of the WTO special and differential treatment has been a problem for LDCs. This has enabled developing countries to maintain higher levels of domestic protection, which has harmed their own economies. And export subsidies- often used to offset the distinctiveness of protection, are a drain to the budget and hence are not affordable, and cannot be relied upon to provide sustainable labor-intensive export growth that helps alleviate poverty. Source: http://www.wto.org. Hoekman and Kostecki (2001) provide a general introduction, McCulloch, Winters and Cirera (2001) Focus on the poverty related dimensions of many WTO Agreements.

35

VI. Concluding Remarks This study set out to review Kenya’s experiences with the implementation of trade reforms in Kenya and their implications on poverty reduction. The focus was on understanding the processes and the outcomes of trade policy reforms. The following conclusions emerge from the study.

• Trade policies have evolved from a more controlled and restrictive regime in the 1980s and early 1990s to a more liberalized regime since 1995. The result is that the country is more open today than it was a decade ago.

• Kenya’s trade liberalization efforts were largely driven by external pressure from donors. The oil crisis in 1977, collapse of the EAC and economic mismanagement also acted as catalysts towards the liberalization processes. Furthermore, the liberalization process and consequent trade policy processes were plagued by policy reversals, rent seeking opportunities and political patronage and therefore failed to address issues of gains from trade liberalization efforts.

• International trade policy in Kenya in the post structural adjustment is largely driven by multilateral and bilateral agreements such as obligations under WTO, the ACP-EU economic partnership agreements, EAC and COMESA tariff reductions and bilateral trade agreements.

• Trade reforms agenda failed to spell out a clear long-term path towards economic growth. Most policies were not sustainable and this was mostly due to a weak institutional framework and lack of consultations with private sector and civil societies, policy formulation was not an all-inclusive process and hence was bound to be weak.

• Despite liberalization and increased openness trade has not managed to translate into growth that would meaningfully help in alleviating poverty. Kenya’s trading regime has been in the past plagued by a myriad of problems and constraints which have in turn derailed the export development progress. Some of these constraints are due to:

• Poor road and rail infrastructure • Lack of telecommunication and ICTs • Costly/low access to credit for producers and manufacturers • Poor governance and lack of enabling environment • Low labor productivity • Low value addition which translates into poor prices at world markets

It is therefore important to address these issues as a country so as to facilitate export growth and development, to lower cost of production of vital industries and to increase value addition for our export products with the hope of increasing trade and subsequent economic growth.

• Existing studies reveal that poverty in Kenya has been on the rise. Current estimates show that that about 56% of the population are currently living below the poverty line. The poor in Kenya tend to be clustered into certain social categories such as: the landless; people with disabilities; female headed households; households headed with people without formal education; pastoralists in drought prone districts; unskilled and semi-skilled casual laborers; AIDS orphans; street children and beggars; unpaid family workers; large households; single mothers and fathers; subsistence farmers; urban slum dwellers; and unemployed youth (Kenya, 2001c).

• Kenya lacks empirical studies on the impact of economic and trade reforms of economic performance and poverty. Evidence at the sectoral levels suggests that the reforms process in Kenya created winners and losers. However there is still a need to do analytical studies to assess the impact of liberalization on sustainable development and poverty reduction

36

• The lack of analytical capacity is also evident in government policy-making ministries and departments. Although some of the ministries have economists, policies are implemented without analysis on the opportunities, constraints and the various poverty groups that are likely to benefit or to be disadvantaged as a result of such a policy.

37

References

• Baghwati J. and Srinivasan T. N., (undated) Trade and poverty in Poor Countries. • Battacharya, R. (1997), Pace, Sequencing and credibility of structural reforms. World

Development, vol. 25 No. 7: 1045-61 • Bigsten Arne & Durevall Dick (2004), Trade Reform and wage inequality in Kenya-

1964-2000 • Bird K., Kamau P. & Odhiambo W., 2004. Trade Policy reforms and Poverty in

Kenya, Overseas Development Institute • Bruno, M., M. Ravallion and L. Squire (1996), ‘Equity and Growth in Developing

Countries: Old and New Perspectives on the Policy Issues’, World Bank PolicyResearch Working Paper No. 1563.

• CBS (2001) ‘Statistical Abstract.’ Nairobi: Central Bureau of Statistics, Ministry of Finance and Planning. Government of Kenya.

• Collier and Kidane-Miriam (1995) Recent Macroeconomic Policy and Performance in Ethiopia: An evaluation of Programmed aid CSAE Oxford.

• Demery, L. and L. Squire (1996), ‘Macroeconomic Adjustment and Poverty in Africa’, The World Bank Economic Review 11, pp. 39–59.

• Dollar, D. (1992), ‘Outward-oriented Developing Economies Really do Grow More Rapidly: Evidence from 95 LDCs, 1976–1985’, Economic Development and Cultural Change, pp. 523–44.

• Dollar, D. and A. Kraay (2001), ‘Growth Is Good for the Poor’, World Bank Policy Research Working Paper No. 2587.

• Edwards, S. (1998), ‘Openness, Productivity and Growth: What Do We Really Know?’ Economic Journal 108, (abstract only)

• GoK Sessional Paper No. 1 of 1986 on Economic Management for Renewed Growth. Printed by Government Printer, Nairobi

• GoK National Development Plan, 1986 Printed by Government Printer, Nairobi • GoK (1994): Sessional Paper No. 1 of 1994 on Recovery and Sustainable Development

to the Year 2010. Printed by Government Printer, Nairobi • GoK (1992, 1994, and 1997) Welfare Monitoring Surveys Printed by Government

Printer, Nairobi • GoK (2003), Economic Recovery strategy for Wealth and employment Creation

(ESWREC) 2003-2007. Printed by Government Printer, Nairobi • GoK Economic Surveys –various issues (2000-2005) • GOK (2004): Investment Programme; for the Economic Recovery Strategy for

Wealth and Employment Creation; Revised Edition. Website: www.planning.go.ke • Greenaway, D., W. Morgan and P. Wright (1998), ‘Trade Reform, Adjustment and

Growth: What Does the Evidence Tell Us?’, Economic Journal 108, (abstract only) • Greenaway D. and Morrissey O. (1993) Structural Adjustment and liberalization in

Developing countries: what lessons have we learned? KYKLOS, Vol 46 2: 241-261 • Harrison, A. (1996), ‘Openness and Growth: A Time-series, Cross-country Analysis

for Developing Countries’, Journal of Development Economics (abstract only) • Harrison, A. and G.H. Hanson (1999a), ‘Who Gains from Trade Reform? Some

Remaining Puzzles’, Journal of Development Economics (abstract only) • International Fund for Agricultural Development (2004), A review of Agricultural

Marketing in Kenya. May, 2004

38

• IPAR Policy Debate (1995), From Sessional paper No. 10 to Structural Adjustment: Towards Indigenizing the Policy Debate – Edited by Njuguna N’gethe and Wassuna otieno.

• Ikiara G., Olewe-Nyunya J. & Odhiambo Walter 2004, Formulation and implementation of strategic industries in Kenya. In Soludo C., Osita Ogbu and Chang Ha-Joon, 2004. The politics of Trade and Industrial Policy In Africa: Forced Consensus. IDCR Publications

• Ikiara, G.K., Ikiara, M.M. and Odhiambo, W. (2003) ‘Impact of the European Union (EU) on Poor and Marginalised People: The Case of Kenya’s Horticulture and Fisheries Sector.’ Mimeo, Paper Prepared for ActionAid Kenya.

• Ikiara, M. M.; Ndirangu, L. K. (2002) Developing a Revival Strategy for the Kenyan Cotton-Textile Industry: A Value Approach, KIPPRA, Nairobi

• FKAB (2001) ‘Sector Study of the Horticultural Sector in Kenya.’ A study made on behalf of USAID, Kenya. FKAB Feldt Consulting

• Ismael Ahmed (undated), Impact of Structural Adjustment on Sustainable Rural Livelihoods: A review of the literature. IDS Working paper no. 62

• Kariuki P., (2003), The sugar sub-sector: Challenges and opportunities. Nairobi SUCAM. Downloaded from http://www.kenyalink.org/sucam on 20.10.04

• Kasuku S. O & Mutua J. M. (2002). Private Sector Porvision of Information and Communication technology and services in Urban Kenya. A background paper presented for the KIPPRA Micro-Infrastructure Growth (MIG) Project.

• Kegode, P., (2003) Report on Cotton-Textile supply chain in Kenya RATES Nairobi • Manda D. K., Kimenyi M. S., and Mwabu, G (2001) A Review of Poverty and Anti-

poverty Initiatives in Kenya. KIPPRA Working Paper No. 3 Nairobi KIPPRA • Maxwell Stamp (2003) ‘Republic of Kenya Trade and Poverty Programme (KTPP):

Institutional Review.’ Prepared for Ministry of Trade, Nairobi. Funded by DFID, UK. June 2003

• McCormick, D. (2001) ‘Value chains and the business system: applying a simplified model to Kenya's garment industry.’ IDS Bulletin, Jul 2001, Vol.32, No.3, pp.105-115.

• McCulloch, N.; L. Winters; and, X. Cirera. (2001). Trade Liberalization and Poverty: A Handbook. London: CPER

• McCulloch N. and Ota M.(2002) Export Horticulture and Poverty in Kenya. IDS Working paper no 174. Brighton Institute of Development Studies

• Ministry of Finance and Planning (2000). Popular version of the second report on poverty in Kenya. Human Resources and Social Services Department and Central Bureau of Statistics. December 2000.

• Ministry of Finance and Planning (2000a) Poverty in Kenya Vol. 1. Incidence and Depth of Poverty. Human Resources and Social Services Department and Central Bureau of Statistics. June 2000.

• Ministry of Finance and Planning (2000b) Second Report on Poverty in Kenya: Vol 2. Poverty and Social Indicators. Human Resources and Social Services Department and Central Bureau of Statistics. November 2000.

• Ng’eno N.K., Nyangito H. O., Ikiara M., Ronge E. and Nyamunga J. (2003), Regional Intergration Study of East Africa: The Case of Kenya. KIPPRA Working Paper No. 9

• O’Brien F. S. and T.C.I. Ryan (1999). Aid and Reform in Africa: Kenya’s Case study • Ochola S., (2002) ‘ The cost of Sugar Production and comparative analysis in Kenya’

Paper prepared for the Sugar Campaign for Change Importers forum April 3-4, Holiday Inn Nairobi

39

• Odhiambo W., (2005) Key National and Regional Trade and Industrial Policies in Kenya in the context of the post Doha Multilateral system. UNCTAD, Geneva

• Odhiambo W., (2005) How Economies participate in the WTO: The case of Kenya. WTO Geneva –forthcoming

• Omiti (2005), Production and Marketing problems in the Hides and Skins and Health sector in Kenya. IPAR Discussion Paper.

• Omiti J., OwinoW., Otieno W. O P., (2002), Poverty Reduction Efforts in Kenya: Institutions, Capacity and Policy. IPAR Discussion Paper No. 033/2002

• Opondo Mary, 2003, Trade Policy in the Cut Flower Industry in Kenya University of Nairobi Publication.

• Ravillion, M. and datt G., (2001), Why has economic growth been more pro-poor in some states in India than others available at www.worldbank.org/research/growht/pdfiles/Ravillion%20joint.pdf

• Rodríguez, F. and D. Rodrik (1999), ‘Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-national Evidence’, Centre for Economic Policy Discussion Paper No. 2143, London.

• Roemer, M. and M.K. Gugerty (1997), ‘Does Economic Growth Reduce Poverty? Technical Paper’, CAER Discussion Paper No.5. Harvard Institute for International Development, Cambridge, Mass.

• Ronge E. & Nyangito H., (2000). A Review of Kenya’s Industrialization Policy. KIPPRA Discussion Paper No. 2

• Ronge E., (2005), Trade and Industry in Kenya: Prospects and Challenges ahead. KIPPRA mimeograph

• Sachs, J.D. and A.M. Warner (1995), ‘Economic Reform and the Process of Global Integration.’ Brookings Papers on Economic Activity 1, pp.1–95.

• Smith L. and Spooner N., (1990), The Sequencing of Structural Adjustment Policy Instruments on the Agricultural Sector. CDS Occassional Paper No.6

• Soludo C., Osita Ogbu & Chang Ha-Joon (2004), The politics of Trade and Industrial Policy in Africa: Forced Consensus? IDRC Publication.

• SUCAM (2002) ‘Our Focus – Phase 2. Popular Version’ Nairobi, SUCAM: The Sugar Campaign for Change.

• SUCAM (2003) ‘Is this a farmer-friendly Government?’ Nairobi, SUCAM. • SUCAM (2003b) ‘Single Desk Marketing of Sugar in Kenya, Options and

Challenges.’ A Discussion paper by Ashish Shah, Kisumu: SUCAM • SUCAM (no date2) ‘Sugar Sub-Sector: A good case for multi-functionality.’ Nairobi:

SUCAM. SUCAM website, http://kenyalink.org/sucam/documents/mulitfunct1.html downloaded 20.01.04

• Waiyaki N. and Miencha F. 2005. Agricultural Special products and Special Safeguard Mechanisms for Kenya – forthcoming KIPPRA publication.

• UNCTAD. 2004. The Least Developed Countries Report – Linking International Trade with Poverty Reduction. New York: United Nations.

• UNDP (2002). Human Development Report: 2000: Addressing Social and Economic Disparities in Kenya. UNDP Kenya

• World Bank (1992), ‘Trade Policy Reforms under Adjustment Programs’, Operations Evaluation Department. World Bank, Washington DC. Available at World Bank Website

• World Bank (1996). Kenya Participatory Poverty Assessment. Environment Department, Dissemination Notes No. 46 August 1996.

40