This archive report was first published on 23 July 2019.
Kenya's current account deficit has been narrowing, but the country still has a long way to go to achieve a trade surplus. According to a survey of countries that have industrialized and lifted their people out of poverty, governments that prioritize the mix of products to be produced for export markets have been successful. China, for example, aims to eliminate poverty by next year and has a high degree of state ownership in its major manufacturing firms.
Kenya can learn from China's approach and invest in firms producing apparel and other products covered by Agoa, which was signed with the US in 2000. However, indications are that Kenya exports only a tiny fraction of goods allowed into the US market under Agoa, and most of the firms exporting these products import raw materials rather than using local ones.
Investing in the sub-sector with the aim of selling off ownership to locals through listing could be a better approach for Kenya. The Treasury could also borrow cash required to set up industries through the issuance of special industrialization bonds. Industrialized nations have identified sectors and industries attractive to foreign investors, avoiding the laissez-faire investment approach that leads to the loss of foreign exchange and increases poverty.
Arguments that foreign-invested firms pay taxes and promote sports are untenable when weighed against the harm caused. Kenya's leaders should take advantage of the narrowing current account deficit to step up measures that eliminate it altogether.
