By Salome Ndunda – Senior Investment Analyst, Traction Capital
Tanzania cited the economic and constitutional uncertainties arising from British voters’ decision to leave the EU as the main reason for opting out of the EU-EAC Economic Partnership Agreement. The trade deal offers the EU unlimited market access to the EAC Community Countries for the next two and half decades.
The five East African Community countries decided to negotiate the deal as a bloc in the spirit of the common Market protocol which came into force in 2010. The scheduled January 2017 EAC heads of state summit in Nairobi will be the forum where Tanzania will make its final decision on the EU trade agreement.
Currently, Kenya and Rwanda have signed and Uganda has strong indication to sign in January 2017. While the Tanzanian parliament voted against the trade pact and Burundi’s civil unrest threaten to also interfere with the renewal of the pact.
In the short run, Kenya will be the biggest loser if Tanzania makes good its threat not to sign the partnership. Unlike its partners in the EAC, Kenya is considered a lower-middle-income country. Without the agreement, Kenyan exports would therefore be subject to at least 25% taxation across the EU market. This will mostly impact the agricultural sector that makes up approximately 90% of the country’s exports to the EU.
However, given that the trade deal is not signed, Kenya will have the option of applying for the Generalised System of Preferences Plus, (GSP Plus). This would allow Kenya to continue exporting at current terms even if Tanzania and Burundi do not sign the lucrative trade deal with the EU.