Cytonn: How UK’s exit from European Union will affect Kenya

The European Union is a classical example of an integration that had noble intentions at the beginning but in the long term, member nations are unwilling to sacrifice their sovereignty for the success of the bloc. Neither party is willing to make concrete sacrifices for the success of the entire bloc.

Regionally, Tanzania is opposed to full East Africa Community (EAC) integration to protect its fledgling agricultural and manufacturing industries from Kenyan competition should full integration be realized.

On the ground, Tanzanians are worried that full EAC integration will lead to a loss of “Tanzanian” jobs to skilled, more educated Kenyans, the same mood that was in the UK, with Eastern European immigrants are taking jobs and claiming benefits belonging to UK citizens.

When looking at how Brexit will affect Kenya, there are a number of areas to consider, the most important being trade and renegotiation of contracts for trade. These are the four key areas:

1. Kenya exports tea, coffee, and flowers to UK, equal to 27% of fresh produce in UK, 56% of black tea in UK. Any renegotiations of the deals because of Brexit will lead to export delays, and loss of revenue. This is made even worse as it may lead to the current account deficit widening, as well as less inflows of foreign exchange
2. Kenya is likely to face capital flight as investors seek safe havens like US treasuries and gold which may exert pressure on the Kenya Shilling in the short term
3. Kenya in 2015 exported 1.3bn euros worth of products to the EU. A downward revision of growth prospects for the EU economies will result into lower external demand for Kenyan products, which may negatively affect the current account position
4. There is another potential impact in terms of tourism. UK is the largest exporter of tourists to Kenya, benefitting our local economy in terms of foreign exchange earnings, visa revenues, domestic spending, and the direct and indirect jobs created through the upkeep of the hospitality sector. UK’s vote to leave the EU has caused a significant depreciation in the Sterling Pound, which will make it more expensive for UK tourists to travel to Kenya, having a negative impact on our tourist arrivals and GDP growth, at a time when the tourism sector is struggling to recover.

The table below shows the trade between Kenya and UK, EU and Europe: