How private sector is missing out on Kenya's preferential trade deals

Kenya is struggling to fully harness the huge benefits of the preferential trade agreements it has signed with various markets, largely because its export portfolio is narrow and dominated by low-value products.

According to the Kenya Association of Manufacturers  (KAM), many of the country’s exports lack competitiveness on the global stage, in part due to high domestic manufacturing costs that drive up final prices of these products.

The Kenya Export Competitiveness Study by KAM, in partnership with Germany’s development agency GIZ, notes that while evidence suggests that regional agreements such as the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa) have boosted Kenya’s export of manufactured goods, this has happened for a narrow set of relatively simple products and re-exports.

The study notes that for North-South preferences, where the African Growth Opportunity Act (Agoa) and the European Union-Kenya Economic Partnership Agreement fall, success has also been concentrated on apparel (to the US through Agoa) and horticulture to the EU.

“At the same time, trade with China, the United Arab Emirates (UAE) and other emerging partners remains heavily asymmetric, with Kenya importing machinery and manufacturers while exporting relatively small volumes of raw or semi-processed goods,” the study says.

KAM says in the study that Kenya has accumulated one of the most extensive portfolios of preferential trade agreements across EAC, Comesa, the African Continental Free Trade Area (AfCFTA), the EU, China and the UAE.

These agreements offer duty-free or preferential access to some of the fastest-growing markets for manufactured and agro-processed goods, which gives Kenya a strong platform to be an export-oriented economy.

“Crucially, Kenya underutilises many of its trade preferences because national level constraints spanning high energy and logistics costs, import dependent production structures, low economic complexity and credibility gaps in fiscal and regulatory policy limit firms’ ability to meet rules of origin, standards and scale requirements,” the study says.

KAM says studies of Comesa preference use and AfCFTA show that rules of origin and related administrative procedures are often too stringent for firms operating with imported inputs and fragmented supply chains. This leads to low utilisation rates.

“Kenya’s challenge is therefore less about signing new agreements and more about aligning trade commitments with a competitiveness and productive capacities and industrial performance upgrade, so that market access and domestic capacity move in tandem,” the lobby body says.

An analysis of the trade agreements by KAM shows the duty-free, quota-free access of Kenyan goods to the EU market, largely made up of horticultural exports, has grown to almost Sh200 billion.

It describes this deal as strong but with narrow utilisation since its focus is on flowers, vegetables and fruits. Most of the exports are fresh or lightly processed.

“High compliance costs for standards and labour rules are borne by a limited group of large firms, limiting SME participation and upgrading,” the study says.

The Agoa deal that is now defunct due to the US President Donald Trump’s America First policies, is concentrated on basic garments – 90 per cent – with limited diversification into higher value apparel or other products, leaving the model vulnerable to renewal risks and buyer shifts.

While AfCFTA is still novel, the study notes limited use by Kenya.

“Shallow input industries and import-sensitive production make it hard to meet typical 40 per cent local content rules, constraining effective duty-free access beyond East and Central Africa,” it says.

For Comesa, KAM says there is modest and concentrated use by Kenya in a few markets and products.

“Many eligible lines underused due to rules of origin, logistics and competitiveness constraints, so Kenya’s share of intra-Comesa trade has stagnated,” it says.

Under EAC, KAM says there are clear gains but concentrated in a narrow band of simple products and re-exports.

It further warns of competition from Tanzania and Uganda, which are building scale and improving their logistics.

For the Kenya-UAE deal, KAM says trade remains strongly asymmetric.

“Kenya imports fuels, machinery and consumer goods while exporting relatively small volumes of tea, horticulture and other commodities,” it says.

“Diversified, value-added exports are still at an early stage and depend on fixing domestic cost and scale constraints.”

These domestic cost issues include high energy and logistics costs coupled with underperforming infrastructure.

“High energy and logistics costs mean that many Kenyan products land in regional and global markets at prices above those of competitors, even where tariffs are zero,” the study says.

The study adds Kenya’s import-dependent economy, even for industrial inputs, limited diversification and low economic complexity.

“Many preferential trade agreements remain underutilised not because the agreements are poorly designed on paper but because domestic conditions do not support firm-level competitiveness at scale,” the study says.

As a remedy, KAM says, such future deals should be deliberate to reinforce productive capacities and industrial performance.

This can be done by sequencing tariff liberalisation in ways to support backward integration in sectors such as textiles, agro-processing, plastics and pharmaceuticals or by linking market access.

“This implies closer coordination between trade negotiators, industrial and infrastructure planners and private sector stakeholders, so that Kenya offers and demands reflect a realistic path to building a competitive value chain,” the study says.

Either way, these trade deals seem to be paying off, at least according to data by the Kenya National Bureau of Statistics (KNBS).

The 2025 Economic Survey report by KNBS shows that in 2024, the trade imbalance reduced from a deficit of Sh1.604 trillion in 2023 to Sh1.594 trillion.

“The narrowing of the deficit was caused by a higher growth in the value of total exports at 10.4 per cent, compared to a 3.6 per cent growth in imports.

In addition, these growths led to an improved export-import cover ratio from 38.6 per cent in 2023 to 41.1 per cent in the year under review,” the KNBS report says.