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Kenya races to strengthen formal trade ties with Somalia

Friday, October 05, 2012

Kenya is stepping up plans to open a new trade corridor to post-war Somalia, braving the dark clouds hanging over the stability of the neighbouring state from remnants of Al-Shabaab militia.

Buoyed by the prospects of a gradual return to normalcy after the recent capture of Kismayu, Kenyan investors are readying themselves for opportunities that abound in the reconstruction of Somalia.

Two decades of war have severely hit key segments of Somalia’s economy, lowering the country’s ability to produce goods and services for domestic consumption.

Kenyan investors see recent successes of the military operation as significant events that will radically change the investment climate, enabling them to go into mass production for export to post-war Somalia.

 “A liberated Somalia means the end to counterfeits and goods smuggled via the Hulugo border point and reduced inflow of small arms from Kismayu that have been linked to carjackings and general insecurity faced by the local business community,” said Polycarp Igathe, chairman of the Kenya Private Sector Alliance.

Kenyan investors believe that the end of active combat in Somalia could usher in a friendly regime that would promote cross-border trade.

Such a regime will most likely seal the remaining smuggling routes, eradicate piracy and facilitate free exchange of goods, services and investment capital.


ALSO READ: War on Al-Shabaab cuts flow of illicit cash into economy

In the long term, stability also raises the possibility of Somalia joining the East African Community.

“Kenya will have a lead role in setting up its (Somalia’s) economic pillars,” said Mohammed Hersi, the managing director of Sarova Whitesands Beach Resort & Spa, Mombasa.

Frequent attacks on Kenyans and tourist facilities pulled Kenya’s defence forces to join Amisom in the search for stability in the Horn of Africa nation.

Apart from opening up opportunities for Kenyans to build hotels, Mr Hersi said a stable Somalia signals an end to frequent travel advisories that have negatively affected Kenya’s Sh100 billion-a-year tourism industry.

“We are hoping to see the return of cruise ships to the East African coast as crew will no longer be held back by the threat of insecurity along the 800km border with Somalia,” said Mr Hersi

Unlike cruise liners which opted for safe waters, cargo ships plying the East African coast have seen local importers pay an extra Sh35.2 billion ($414 million) annually in ransoms and higher insurance premiums.

“We haven’t seen major attacks lately. They (pirates) appear distablised and we believe the capture of Kismayu may be the final blow because this is where they used to launched attacks on ships,” said Gilbert Lang’at, CEO of Kenya Shippers Council.

Besides, elimination of the piracy premium from insurance charge is expected to reduce the cost of industrial inputs, lowering retail prices of locally-manufactured goods and raising competitiveness of Kenya’s exports.

READ: Kenyans will not benefit from cut in ocean freight cost

“We’ll be able to tell the effectiveness of the joint military campaigns at the end of this month because attacks on Indian Ocean have been traditionally low between July and October when strong winds prevent the pirates from using small ships,” said Mr Lang’at.

A similar sense of triumph prevailed among local exporters who have had to pay extra freight charges in the form of longer routes and insurance premiums.

For instance, local fresh produce exports face additional Sh187,500 on every container of avocado, mangoes, pineapples or vegetables shipped to Europe  with increased cases of piracy around the Gulf of Aden, says the Fresh Produce Exporters Association.

Within the EAC, a stable Somalia is likely to be received positively, given its huge trade and investment potential.

The war-torn country maintained its economic sheen throughout the troubled years even as bad governance and war wasted way levers of its economy.

Data from the Kenya National Bureau of Statistics indicates that exports to Somalia doubled in the past five years from Sh8.3 billion in 2007 to Sh16.6 billion last year.

While this export level is sustained mainly by exports of khat (miraa), a stable Somalia is expected to offer additional export opportunities for services and manufactured goods, significantly raising the total value of exports.


Kenya’s imports from the war-torn nation also leapt more than 11 times from Sh12.1 million 143.9 million during the same period.

This level of performance – though frequently undermined by intermittent border closures, still outshone trade relations with Rwanda and Burundi, the two members of East African Community with which Kenya trades on preferential terms.

Government officials said the liberation of Somalia will most likely pave way for good infrastructure links, boosting commercial relations between the two countries. Roads Ministry officials said the upgrading of the Garissa–Dadaab–Liboi road is now a priority.

The road has been in the pipeline for many years but officials say financiers have kept away, discouraged by lawlessness on the other side of the border.

“The road has become busy lately due to heavy traffic to refugee camps,” said Meshack Kidenda, the Kenya National Highways Authority’s Director-General.

“Our consultants are already working on it and continued calm in Somalia should enable us to upgrade it and ease transport along the corridor,” he said.

For specific sectors, an example of a positive impact ahead was experienced in dairy sector early this year - hardly two months after KDF crossed the border to uproot the Al Shabaab.

At a briefing to journalists, Kenya Dairy Board managing director Machira Gichohi said demand for fresh milk had suddenly leapt in northern Kenya, indicating that most of the routes through which the commodity was being smuggled into the region had been sealed off.

READ: Milk deficit shifts producers’ focus away from export

Mr Gichohi said the phenomenal rise in demand for milk implied that some of the milk could also be finding its way into Somalia.


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