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TRADE: Kenya Faces Job Losses, Collapsing Sectors in Wake of Doha

Isolda Agazzi

GENEVA, Nov 18 2009 (IPS) - The consequences of the Doha Round of trade talks for larger developing countries in sub-Saharan Africa could include job losses and deindustrialisation if a new study forecasting how Kenya is set to be affected is anything to go by.

The Carnegie Endowment for International Peace, the United Nations Economic Commission for Africa (UNECA), the United Nations Development Programme and the Kenyan Institute for Research and Policy Analysis were involved in the study.

It attempts to model the expected effects of the provisions contained in the World Trade Organisation’s(WTO) Doha Round Jul 2008 negotiating texts in agriculture and industrial goods. These texts have since been slightly revised and currently negotiators are working with the Dec 2008 text.

Due to the scarcity of data, the model does not take into consideration trade facilitation and services, “which is a pity, since services are the fastest growing industry and we are one of the four African countries that have already made offers in services liberalisation”, said Kenya’s trade negotiator, Daniel O. Owoko.

Prior to the current global economic crisis, the country’s economy was one of the fastest growing in Africa.

“Doha’s liberalisation of merchandise trade will significantly affect the Kenyan economy,” stated Eduardo Zepeda, one of the authors.

“Agriculture and processed food will gain. Manufacturing and mining will lose. Gains will come primarily from the drop in export subsidies to agriculture in Europe and the U.S. and, less so, from reductions in domestic support to agriculture in developed countries and to tariffs cuts around the world.”

The study assumes that developed countries will effectively eliminate export subsidies in agriculture by 2013 and reduce trade-distorting domestic supports.

The export and import of agricultural goods would increase between 2010 and 2012 with the progressive market opening and reduction of internal subsidies in the North. But the most important benefits would come from the elimination of export subsidies by 2013.

“Even products that don’t get export subsidies, like horticulture, will profit a lot,” Nicolas Imboden, director of the Ideas Centre in Geneva, a non-governmental organisation (NGO) that advises developing countries on how best to integrate into world trade, commented.

In addition to flowers, Kenya is expected to increase its exports of tea, coffee and oil seeds but it will lose in the tobacco and grains markets.

“How long can a country keep specialising in these sectors?” Zepeda questioned. “It needs manufacturing and services too.” But the study shows that Kenya will lose in manufacturing – textiles and footwear, machinery and equipment – even though it does not commit itself to any tariff reductions in these areas.

The reduction in world prices in non-food commodities will affect Africa. Cheaper imports increase welfare, Zepeda argued. The study supports the position that the reduction in prices will increase consumption which, together with an increase in gross domestic product, will “reduce poverty”.

But surging imports also take away jobs. Kenya has over-specialised in some manufacturing goods. For Imboden, it is clear that “liberalisation gears you towards your comparative advantage. So, it is not surprising that Kenya profits in agriculture and unskilled labour. It is a specialisation in low return sectors.

“There is going to be de-industrialisation in textile and footwear because these sectors are not competitive. But we should not interpret the result of the study as a general de-industrialisation, since the model does not show where the country will have a comparative advantage in the future.”

The study underscores that the country’s long-term development cannot depend on agriculture and food processing activities alone and Kenya must aim to build comparative advantages in activities with higher value-added characteristics if it wishes to support higher standards of living.

Concerning the labour market, further specialisation in agriculture and processed foods means a more intensive use of unskilled and semi-skilled labour. “This is good news, because Kenya has an abundant workforce,” Zepeda noticed. “But it is going to happen with some adjustment. There are industries where output will fall and workers will be fired.”

The adjustment costs will be significant. The processing of agricultural goods will be more affected than agriculture itself. “If you create a job, it is a gain. If you destroy a job, it is a loss. If you create one and lose one, you are even. But since you will have to retrain the person who is fired and the one who is hired, the cost will be double,” Zepeda admitted.

The study underscores the need to complement Doha’s trade liberalisation with adequately funded and well-targeted policies to compensate for the cost of adjustment.

The study leaves out services and trade facilitation, the benefits of which might be of greater import to such countries than market access.

Imboden argued that it would be important for Kenya to have an industrial policy.

Regarding the study’s finding that Kenya has an increased dependency on the markets of the North and a decreased dependency on the ones in its region, Imboden said, “this is surprising. Should Kenya have an industrial policy at the national level or at the regional level?

“How can you make sure that you have re-industrialisation in the right sector if you were investing in the wrong sector (textiles and footwear)?”

He opined that “Doha liberalisation is not a major factor in Kenya’s development but not an insignificant one either. Trade is not that important. What matters more is development, investment and the industrial policy.

“Some tend to say that Doha is not very important. This would be wrong,” he added. “We may have oversold this round but what is important is the security it provides: protectionism cannot be increased. What matters is less the Doha Round, as such, than the WTO, particularly for developing countries.”