Wednesday, 24 May 2017

EPAs: Why Kenya's trade with EU will not suffer

Kenyatta: Kenya signed and Ratified EPAs
 Contrary to popular opinion, Kenya's trade with EU is unlikely to suffer any loss should Tanzania and her minions refuse to sign Economic Partnership Agreement. In fact Kenya and Rwanda could gain from this reluctance.
The European Union has stonewalled a fishing expedition by EAC to delay the signing of the Economic Partnership Agreement.  The Union has rejected any discussion on “sanctions in Burundi until the political situation improves.” This is a sign that the EU is losing patience with the laggards.

The reluctance by three EAC member states, led by Tanzania, to pen the Free Trade Area deal with the European Union has turned into a fishing expedition.

A fishing expedition is a situation where one  begins to look for wild reasons to justify a wrong decision. 
Kagame: Rwanda signed and ratified EPAs
 Initially, Tanzania, which has refused to sign the deal twice-in 2014 and 2016- argued that the deal with stymie her industrial growth. Then termed it “colonial” before “ducking off the radar to hoist “sanctions against Burundi.”

 In the last Heads of States Summit held in Dar-Es-salaam last Sunday, Tanzania’s worry about the threat to industrialization simply disappeared and was replace by “sanctions against Burundi.”

This amounts to introduction of red herrings to delay commitment to EPAs. 

The reasons are not hard to find; Uganda, Tanzania and Burundi are classified as Least Developed Countries, LDCs. These countries were handed a lifeline to trade with European Union under an arrangement called Everything But Arms, EBAs which enables them to export to European Union duty-free and quota-free. 

Only Kenya is classified as a developed country which does not qualify for EBAs. Kenya is therefore the greatest beneficiary of EPAs, which  grants her the same benefits as EBAs.

Second, a look at the trade data is also telling. Kenya dominates exports to the European Union. For example in 2016, the whole region, that is EAC, earned 2,443 billion Euros worth of exports. Of these Kenya pocketed 1,280 billion Euros. That is 52.4 per cent of the total exports. Tanzania was a distant second, earning Euros 632 Million accounting for 26 per cent of the total while Uganda earned Euros 443 million accounting for 18 per cent of the total earnings. Rwanda earned the rest, that is, Euros 88 million.

 Analysts fear that the growing European Union impatience with EAC could soon result in the withdrawal of EBAs, which is simply an arrangement born out of EU generosity. If tossed out of the window, both Uganda and Tanzania will be locked out of the EU market with dire consequences to employment at home.

 Tanzanian exports to EU are dominated by the beverages and Tobacco category which accounts for 31.8 per cent earning a cool Euros 201 million in 2016, food and live animals was second accounting for 31.1 per cent earning Euros 197 million.

These basic agricultural commodities are the largest employers in all developing countries. Any disruption of their trade has dire consequences to poverty alleviation and employment.

Unlike Kenya and Rwanda which have already signed and ratified the deal,Tanzania and” her friends” do not have a fall back option should Europe play hard ball. Kenya and Rwanda can now opt to use “variable geometry” which  grants them the right to go ahead and single-handedly pursue trade deals meant for the bloc.

 Since the European Union has rejected the introduction of the Burundi sanctions into EPAs agenda, the two signatories are likely to  pursue their agenda, That means that , contrary to what many say, Kenya and Rwanda 's trade with the EU is unlikely to suffer should the push come to shove.

The trade data exposes Tanzania’s fear of a threat to her industrialization agenda as hollow. Her imports from EU are dominated by machinery and chemical imports which account for 67 per cent of the total imports. While her exports of manufactured goods, largely mineral exports, accounted for 18 per cent of the total.

Such facts must have emerged during the “encouragement sessions” that we reported about last week. This is why Tanzania ducked out of radar, hoisting Burundi sanctions instead.

Thursday, 18 May 2017

EPAs: Why we expect Tanzania to change heart

Presidents Kenyatta of Kenya and JMagufuli of Tanzania:
Working at Cross Purposes on EPAs

ACCORDING  to press reports, the European Union has announced that it is “encouraging” Tanzania to sign the much maligned Economic Partnership Agreements, EPAs.

Tanzania is being “encouraged” because she has been a reluctant bride in the proposed marriage even terming it “colonial.”

Experts in Diplomatese, the language used by diplomats, say that the word “encouraging” hides the real show. The meetings to encourage one to take certain desired action are bare knuckled events where all deck s are laid on the table. And they leave no doubt at all about the potential dangers of not taking the action. Even the public pronouncement by the EU diplomats, say diplomatic experts, is an ominous warning that Tanzania is expected to behave.

That is why the experts expect a Tanzanian about- turn on EPAs. The country is reluctant to sign the dotted lines saying that EPAs are a threat to her industrialization goals. But since she has been “encouraged,” experts expect a change of heart in the near future.

 Tanzania is in a weak position, the major reason for her reluctance to sign the deal is to protect her tax revenue base. For this reason she prefers to be an LDC riding on the generosity of the EU. She exports to the EU market under a preferential arrangement called Everything But Arms, EBAs. However, this is an arrangement tossed to the Least Developed Countries by the EU owing to her generosity.It can be withdrawn without much ado.

 Secondly, Tanzania no longer qualifies for such handouts. The country is no longer an LDC given that its economy posted robust growth for a decade raising its per capita income from a measly $350 in the early 2000s to $950 in 2015.  In fact she may have hit the lower echelons of a middle income country by now.

 Kenya was considered a developed country when its GDP per capita was $600. This means that Tanzania should long have been weaned out of EBAs. It seems like the bureaucrats in Europe have just “discovered” this fact and could soon become tightfisted.

That would leave Tanzania with no preferential arrangement to export to EU. Her exports would thus be locked out of the bloc. Can she afford such a risk?

To be fair  we should ask:  what is wrong with EPAs in Tanzania's eyes?

 An extensive review of Papers, presentations and commentaries revealed that the intense bashing EPAs has suffered in the hands of Tanzanian critics, is not wholly justified.

Contrary to critics view, the arrangement is not an imposition of the European will on poor and hapless African, Caribbean and Pacific group countries.

EPAs are negotiated agreements that are binding on both parties. It is an all-inclusive process where all stakeholders in a country or region are extensively consulted. Consequently, the agreements are the result of a transparent and inclusive process whose aim is to enhance economic development and poverty reduction in ACP countries.

Economic Partnership Agreements are an attempt to create a free trade Area (FTA) between the European Union and the ACP Countries. They grant exports from ACP countries duty-free and quota free-access to the European Union market in a secure, long-term and predictable manner.

 EAC member states initialed the framework for EPAs negotiations in November 2007. That initialization allowed the EAC members to continue exporting to the EU on preferential terms as they negotiated the EPAs.

 An evaluation of the impact of the initialed framework by the Uganda’s Ministry of Tourism Trade and Industry shows that; Uganda’s tariff free exports into EU have increased. It gleefully reported that Uganda can now export meat and other livestock products tariff free. These products previously attracted taxes ranging from 9.6 Euro per 100kg to 176.8 Euro. “Now,” says the report, such products do “not attract any taxes when exported to the EU.”

The key feature of EPAs is reciprocity. This is to say that, EU exports into ACP group should also be granted duty free access into ACP group markets, including into EAC states. This is why Critics fear that EPAs are being used to open the ACP group markets to European products.

Far from it, EPAs are based on the principle of asymmetry which calls for a phased out removal of all trade barriers established between the EU and the ACP countries since 1975. The phase-down period is 25 years from the date the EPAs are signed.

Before the entry of EPAs, trade relationship between EU and ACP group were governed by the Cotonou agreement. This trade regime, which expired on December 31, 2007, allowed ACP group exports into the EU market duty free. Its expiry without an alternative arrangement would have closed the EU market for ACP- and especially EAC -exports.

And Uganda would not have diversified her exports to the EU to include” meat and other livestock products.”

 Cotonou was discriminatory in that, while EU exports were charged duty in the ACP group markets, the latter exported tariff free.  This arrangement contravened the WTO rules. Therefore it was illegal in the eyes of WTO members who vigorously protested against such discrimination.

EPAs were thus initiated in order to comply with the WTO rules which bar non-reciprocal and discriminating preferential trade Agreements. They were also designed to keep the EU markets open for ACP countries on preferential terms.

The market would have been lost if EU fully complied with WTO rules of taxing all imports into its market. This would have been a major blow to the economies of ACP countries, including East Africa.

The EU market absorbs more than 20 percent of East Africa’s exports, making it the largest trading partner. This is the size of market the expiry of Cotonou agreement would have blocked. And the effects in terms of foreign exchange generation and employment in the East Africa would have been devastating.

In addition to allowing duty-free and Quota free exports to EU, the agreements also encourages the creation of regional free trade areas within the ACP. Such regional blocs, RTAs, among them EA Common Market,  to liberalize trade among them thus creating a large market for their weak industries.

Regional trading blocs also synchronise their economic policies and structures so that investment in the blocs becomes predictable. In effect EPAs will also increase trade and economic co-operation within ACP group.

The 120 million people -five Country, East African Community, EAC, is one such Regional trading bloc. It has witnessed increased trade between the countries. Some reports indicate that such trade has yet to reach full potential meaning that the regional has room to expand its trade with itself and reap the full benefits.

In the frame work, East Africa has offered to liberalize 82% of imports from the EU over a twenty five (25) year period. Initially, it was to grant duty free access to 64% of exports in 2010; 16% between 2015– 2023; and 2% between 2020 –2033 if the agreement was signed before 2010.   

This has been the bone of contention with critics accusing the EU of plotting to kill the ACP economies by flooding them with EU’s products.

 However, the Ugandan evaluation  among other sources indicates that a large proportion of 64 per cent that is offered initially is already liberalized by EAC’s common External tariff, CET. These imports fall into the category of raw materials and Capital goods, which are zero rated in the East Africa Community.

The paper indicates that the local business community is the beneficiary for it imports either raw materials or Capital goods as inputs for their production process. That they are tax-free means that the business community’s financial burden has been reduced.

In addition, nearly one fifth of EAC products will never be liberalised forever. This is because they are critical to basic survival in the region. Some of the products on the Sensitive Products list include: live animals; meat and edible meat offal; fish and other marine products; dairy produce; natural honey; cut flowers and ornamental foliage; edible fruit and nuts; peel of citrus fruits or melons; coffee, tea and cereals among others.

 To ensure that ACP countries do not negotiate away family jewels, EPAs have a rendezvous clause which allows countries to refuse to negotiate certain aspects of EPAs until they understood them.

Wednesday, 10 May 2017

The Eurobond saga: The scandal within the "scam"

Mpeketoni attack: Designed
 to sabotage the Eurobond
THE EUROBOND saga in Kenya was a well choreographed  vendetta campaign launched and  bankrolled by corrupt businessmen who lost big money contracts during the current regime, we can report. In their vendetta, they found a willing partner in the broke ODM Party and a few intellectuals, who also lost lucrative business contracts in the current regime.

All became hired mercenaries for the crooks who lost their bids for mega projects such as the green field project that was to build a second terminal at JKIA, the SGR and even the Lapsset project among other milking cows.
 The saga suggested that an estimated US$1 billion (kshs 87 billion) of the US$2 billion (Kshs 175 billion) Eurobond raised in June 2014 was stolen.  Kenya issued a US$2 billion Eurobond in June 2014, on the Irish Stock Market.

The Aftermath: A Police station burnt down
The bond, which was oversubscribed by 400% hit the market on the same day that Al- Shabaab struck at Mpeketoni in Lamu killing more than 100 people.  The news was splashed globally.

 Some analysts considered the brazen attack in Lamu an attempt to sabotage the Eurobond issue by projecting the country as an insecure investment destination.

Nonetheless, it did not dampen the investors’ appetite for the Kenyan debt paper. Investors applied for US$8.8 billion worth of the Kenyan debt paper. Kenya accepted only US$2 billion.

Analysts attribute this good response despite the bad news to confidence in Kenya’s economic fundamentals.

  A paper trail of the alleged saga did not reveal any wrong doing. It demonstrates proper transfers of the money from the lead bank to the central Bank of Kenya. According to the Prospectus for the Bond, the bond’s Managers were JP Morgan Chase Bank, Barclays Bank, standard Chartered Bank and Qatar National Bank.

 JP Morgan was the lead manager meaning all the moneys collected from the sale of the Kenyan Eurobond ended at an account in JP Morgan Chase Bank which handled all the US$2 billion pending instructions from its customer- the government of Kenya through the national Treasury.

The government authorized transfers of the Money from the receiving Bank (JP Morgan Chase) to the Central Bank of Kenya using forms Called PA forms.  The first transaction in this account was the payment of US$ US$604,560,737.50 to pay for a syndicated loan borrowed by the previous regime to buy the controversial BVR voter registration Kits.

  That left a balance of US$ 1.39 billion in the JP Morgan Chase bank. On July 3rd 2014 an order for transfer of US$ 395,439,262.50 was issued and the Money was transferred to Central bank of Kenya, which duly credited KES 34.6 billion to the government’s Kenya shilling account No 1000003987 at the Central Bank at the exchange rate of KEs 87.62 to the US dollar coming to KES 34,648,388,180.25 (Thirty four point six billion shillings).

 In effect, the Central bank of Kenya, the sole custodian of all foreign exchange reserves in Kenya, bought all the dollars transferred to the government of Kenya by JP Morgan. That left a balance of nearly US$ one billion -to be precise US$999,018,457.60- in JP Morgan’s Kenya sovereign Bond account. That is, Nine Hundred and Ninety nine million US dollars.

 This amount was transferred to the Central Bank account in the Federal Reserve Bank of New York. The Fed is the Central Bank of the United States of America, and does not open accounts for individuals. According to the paper trail, this amount was transferred to the fed on September 10, 2014, the whole lot of nearly one billion dollars.

 Before the money was transferred, the Treasury authorised the Central Bank to transfer the Money in a letter dated September 3rd, 2014. The Central Bank advised the Treasury to instead close the account since the transfer was the outstanding balance in account Number 603149985 at JP Morgan Chase. The authority to close the account was issued by the Accountant General at the Treasury the same day Vide letter REF: AG: Conf.17/01/1vol.1/8 dated the same day.

 The letter says in part “authority of the Treasury is hereby granted to enable the Central bank to transfer the balance into account no 100212764 in the CBK and to close the Sovereign Bond account.” Hence the money was transferred to the CBK’s account at the Federal Reserve and the equivalent in Kenya shillings was credited into the government account at CBK on September 9th, 2014. The intro In the Swift message reads’ “Financial institution transfer for own account.”

 A statement from the Central Bank shows that this amount was credited into Government of Kenya’s account on September 8th, 2014 at the ruling rate of KES 88.55 to the green buck. This came to a total of Eighty eight billion four hundred million shillings (Kshs 88,400,000,000). The statement also shows how the money was transferred locally until the account balance read zero.

From the foregoing four things are clear: Only the Central Bank is authorized to open and operate foreign accounts in behalf of the Government of Kenya. It is also the CBK that closes the accounts. This is what it did with the account number 603149985 at the JP Morgan Chases Bank.
Second, the Central bank is the Custodian of all foreign exchange in the country and third, the government of Kenya does not hold its money in foreign currency but in Shillings.
 Fourth, it is clear that the account at the Federal Reserve was not opened for the Eurobond, rather it was the Eurobond proceeds that found their way into a legal account of the Central Bank of Kenya at the Fed.
Fifth, there was no further external communication over the sovereign Bond since it was already in the country and being used.

The money trail shows no signs of a crime committed by anyone nor any missing dollar of the sovereign bond. That was the finding of all investigating agencies and the DPP who closed the file “for lack of evidence.”

 So  how was the Eurobond saga born? Analysts feel that, the failure of the  Mpeketoni attack to dampen demand for the debt paper gave birth to the second plot.  The analysts see a connection however weak. They point out that the failed Okoa Kenya campaign was launched at just about the same time.

The campaign was led by ODM, which also  "exposed" the Eurobond scandal"  claiming upto US$1 billion was stolen. But how did ODM get its figures?  As stated earlier, the party got this information from the businessmen. A search in the internet brought some very interesting findings. Among these is: ODM has surrounded itself with a Cabal of businessmen and intellectuals who lost mega deals during the current regime.

They are now bankrolling ODM in a bid to hoist it to power in 2017. Among the number is Jimmy Wanjigi and the late Jacob Juma.  Jimmy Wanjigi’s Followers on his tweet page read like who-is-who in CORD including Raila Odinga, Senator Muthama, Kalonzo Musyoka, Kethi Kilonzo, and Jacob Juma.

  Wanjigi, the King pin deal maker is said to be unhappy with the Kenya regime which has denied him lucrative deals even though he supported – and Financed romours have it- jubilee during the last election.  He fell out with the regime almost soon after their election. Consequently he is bitter man working to change the Jubilee administration.

According to their loose Cannon, the late Jacob Juma, CORD will take over Presidency this year. Juma in a tweet in March last year tells us why Wanjigi, who is bankrolling CORD, is furious with the Uhuru administration. He lost the lucrative US$650 million (Ksh 65 billion) Greenfield terminal at JKIA whose construction was cancelled last year. Juma in his tweet told Jimmy to “forget the warehouses at JKIA. When CORD takes power, we shall built a US$2 billion (kshs200 billion) new and Modern Airport.”

Juma himself lost a mining license that the Court found he had acquired illegally. The Mining license to an outfit called Cortec from Canada, was for mining rare earth which according to the parent company of the local outfit was worth Kshs 297 billion. He thus became a bitter critic of the government, always featuring prominently in “scandals” touching of the Deputy President, William Ruto.

 Juma was also a key player in the Eurobond saga, even “giving evidence” before the Investigating agencies. His testimony was part of the other testimonies that the DPP rejected as inconsequential in terms of evidence.
 Sources, credit Juma with being “brave but indiscrete.”  They say that he did not see the legal consequences of the scandal. That is why he dared where other, who knew their evidence was inconsequential, avoided. They Kept away from the investigating agencies for fear of the legal consequences.

 Among those who avoided the investigating agencies were Raila Odinga the ODM leader. He refused to face off with these agencies on flimsy grounds. He at one time almost mobilized his fanatical adorers to cause unrest when it appeared like he shall be arrested by the EACC. He also avoided meeting the CID and the PAC.

He knew that such a move could have landed him in Jail if it was found that he willfully lied to government officials.

 He left that to his Lieutenants including Sarah Elderkin who is said to have been former Raila aide, and David Ndii who became embittered when he lost his contract as a consultant for Amnesty International.

 Raila revived the alleged “scandal” in a recent interview with a local TV channel after he was anointed the NASA Presidential flag bearer, saying that the Controller and Auditor General could not find the Money in Federal Reserve when he visited the US. Incidentally, the CAG is yet to produce a report on his mission at the Fed last year.

Monday, 8 May 2017

June 2017: The month of game changers in Kenya

The High Speed locomotive to be running on SGR

THE MONTH OF June 2017 is significant in Kenya’s history. Three game changing projects, two in infrastructure and one in oil- will come live. These are the commissioning of the Standard Gauge Railway and also the largest wind Power project in Africa.  By Mid- June, our first barrel of oil will sail to the market-either in China or India.

The three are game changers because they could turn out to be jolt economic growth needs to cross-the 8.00% mark. They will add a strand on Kenya’s financial muscle by either saving consumers some money or earning an extra dime.  The two infrastructure projects will result in lower cost of doing business in the country leading to low consumer goods prices in the near future.

 Lake Turkana Wind Power which will generate 310 MW into the national grid is raring to go eleven years after it was conceived. As at the end of February, she had erected 347 out of 365 turbines in readiness for start of business in June this year. This is to say that come June 2017, Kenya’s electricity generating capacity will go up 18 per cent to more than 2022 MW.

Lake Turkana wind power is the largest wind power project in Africa. The US$763 million project is the largest private sector investment in the country’s history.  It has signed a 20-year Power Purchase agreement (PPA) at a fixed price of $0.07 per KWh with Kenya Power and Lighting Company (KPLC). KPLC is the sole distributor of electric power in Kenya.  Kenyans can therefore brace themselves for cheap power in future.
A Crude drilling site in Lokichar
Wind power, coupled with geothermal and  hydro-electric power that already accounts for more than 70 per cent of Kenya’s electricity supply, will  make Kenya nearly 100 per cent dependent on environmentally-friendly green  energy sources and eliminate power fluctuations. 
Currently, Kenya uses the expensive Thermal power to smooth out fluctuations. Thermal power will gradually be retired from the national grid thus eliminating diesel prices fluctuations from our bills.

Also raring to go is the high speed Standard Gauge Railway in June. It is expected to also load some more savings for the Manufacturing sector in particular. The 600 Km Mombasa -Nairobi section of the Northern Corridor cost $4.1 billion to build and equip, including Locomotives, passenger coaches and wagons.

 The project will be commissioned 18 months ahead of schedule despite challenges which involved, protests by land owners, litigations and the usual political noise. The project is also facing viability issues as other partners,-Uganda and Rwanda- keep changing their positon on the partnership.
 That it will begin operations 18 months ahead of schedule, means that Kenyans will enjoy a bonus in terms of contribution to our national wealth creation of 18 months. It could also a good learning ground to help the undecided partners to make up their minds.

 The high speed railway line will cut travel time and freight costs significantly. Passenger travel time between Nairobi and Mombasa will be cut to a maximum of five hours from the current 10- hours by rail and from Seven hours by road. Freight travel will also be significantly cut to just 12 hours from loading to delivery down from more 24 hours currently. It will save Kenya an estimated US$2 billion a year, in freight costs.

The train will ship 40 per cent of cargo off-loaded at the Mombasa Port. This will reduce congestion at the Port, congestion of the Mombasa-Nairobi Highway and thus improve travel time by road on the same highway.  The passenger train will carry up to 960 passengers per trip. That is 20 -fifty passenger buses also off the road.

Some reports indicate that the cost of transporting a ton of freight per kilometer will decline by 40 per cent to $0.08 per from the current $0.20.   However, according to Kenya Railways Corporation, the optimal tariff including passenger fares will be determined in the six month period between- June and December. Even then, reports indicate, manufacturers have factored in the Railway as part of their logistics next year.  Low Freight charges by rail are expected to force down the cost per ton by road.
 Also during June, Kenya will export her first ever barrel of crude oil to the international market in what is called Experimental Oil Production, during which she plans to be exporting 2,000 barrels of crude a day. All contracts for the exercise are already in place and raring to go.
Kenya’s oil from Lockichar basin in Samburu County, is said to be among the top grade crudes in the world that earn a premium price in the world market. That will add a strand on Kenya’s financial sinews.
That crude exports-even though on an experimental basis- will add a strand on Kenya’s sinews is supported by other actions that are not reported in this piece. Simply put, the partners in the project, are gearing to launch all studies and designs including the Front End Engineering designs FEED in July. 
Also the Invest decisions will also be made during the second half- of this year.  Construction of the 861n KM pipeline from Lokichar to Lamu Port will commence soon after the FEED and be completed by 2021 when Kenya expects to go full throttle  exporting 100,000bpd.