Archives for posts with tag: China

Just like I did last year, this morning I played around with data on imports and exports from the Kenya Bureau of Statistics. Understanding the trends of international trade in Kenya is extremely important – as I have said a hundred times in this blog, the imbalance between imports and exports is one of the major weaknesses of the Kenyan economy and one of the root causes for macroeconomic volatility. So, what is Kenya exporting to the outside world? What are the major export destinations?  How about imports?  Are they still growing faster than the exports?

Let me say in advance that here I am showing some basic figures. If you want to know more about imports and exports for specific commodities (tea, fruits, flowers, etc) in specific months you can find very detailed data here. So, let’s  take a look at imports first  (Click on the images to enlarge).

Kenya - Major origin of imports in 2011-2012

Kenya - Imports by broad economic category

The two graphs show two very interesting trends. First, India has officially outgrown China and the UAE as the major importer to Kenya. The value of imports from the UAE has decreased because the Kenyan Shilling has gained strength and therefore its oil bill has gone down significantly. When it comes to China and India, I would like to see an analysis of the political economy behind these trends.   Which African countries are “going Indian” and why? And is this trend relevant only for trade or also in terms of foreign direct investments? A recent article on The Star explained the trend in these terms:

Analysts say India has managed to clinch the lion’s share of Kenya’s import volumes because of, among others, the prevailing cordial foreign policy between the two countries since Kenya gained independence, relatively cheaper goods, quality, and proximity of its ports to Kenya.

The main imports from India include textiles, petroleum products obtained from bituminous minerals (other than crude), medical equipment and drugs, pharmaceuticals, flat-rolled iron and non-alloy steel products, electrical goods, food-processing machinery, special purpose motor vehicles and trucks among others.

“There are quite a number of factors why Kenya is importing more from India. For instance, you will realise that many products on sale in Kenyan retail stores – such as textiles (garments) – come from India. They are cheaper and as we know, Kenyan consumers are sensitive to price, making these a top choice,” said Tiberius Barasa, the executive director of the Centre for Policy Research, a governance and public policy analysis think-tank.

If you know of any paper on this issue please leave it in the comment section.

The second trend is that imports in the broad economic categories have gone up substantially between 2011 and 2012, but we cannot say the same about exports, which remained stagnant over the two-years period. What I find more worrying is that exports to the East African region have decreased (look at Uganda and Tanzania) or increased slightly (Rwanda).

The East African has an interesting analysis on the stagnation of Kenyan exports over the last decade. At the regional level, Kenya is growing as a major importer, but definitely not as an exporter:

Kenya’s standing as East Africa’s trade giant is under threat from neighbouring nations with fresh data showing the growth rate of its exports to the region has been declining over the past eight years.

…The study shows that Kenya’s contribution to total intra-EAC exports declined from 78.3 per cent in 2005 to 57.2 per cent in 2010, although its contribution to total intra-EAC trade increased from 7.5 per cent in 2005 to 16.7 per cent in 2010 on the back of increased imports.

Comparatively, Tanzania and Uganda’s contributions to total intra-EAC trade increased sharply from 6.6 and 4.2 per cent in 2005 to 20.67 and 19.2 per cent respectively in 2010, taking up the share that Kenya lost. On imports, however, Tanzania and Uganda have lost ground.

Tanzania’s contribution to intra-EAC imports declined from 22.4 per cent in 2005 to 18.9 in 2010 while Uganda’s dipped from 70.1 per cent in 2005 to 36.9 per cent in 2010.

Kenya - Exports by broad economic category in 2012

Kenya - major export destinations in 2011-2012


Interesting new paper by Bruce Blonigen from the University of Oregon:

Industrial policies (IPs) include such varying practices as production subsidies, export subsidies, and import protection, and are commonly used by countries to promote targeted sectors. However, such policies can have significant impacts on sectors other than those targeted by the IPs, particularly when the target sector produces goods that are key inputs to downstream sectors. Surprisingly, there has been little systematic analysis of how IPs in targeted sectors affect other sectors of the economy. Using a new hand-collected database of steel-sector IP use in major steel-producing countries from 1975 through 2000, this paper examines whether steel-sector IPs have a significant impact on the export competitiveness of the country’s other manufacturing sectors, particularly those that are significant downstream users of steel. I find that a one-standard-deviation increase in IP presence leads to a 3.6% decline in export competitiveness for an average downstream manufacturing sector. But this effect can be as high as 50% decline for sectors that use steel as an input most intensively. These general negative effects of IPs are primarily due to export subsidies and non-tariff barriers, particularly in less-developed countries.

The Kenyan government provides some support to the few steel industries in the country; as far as I know, it is mostly in the form of cheaper (or free) electricity and water. But that of course does little against growing international competition, especially from India and China. So the sector has stagnated: most firms have not expanded in any significant way, some have ceased their operations. (More info on this document, PDF).

The steel sector was (and still is) considered crucial for industrialization in China, so the government has protected it with heavy tariffs and subsidies. If I was the next President of Kenya, I would work day and night to find a market-friendly way to support innovation in this sector. I would definitely not let it collapse.

HT Circle Bastiat

Lorenzo Rotunno, a PhD student at the Graduate Institute of Geneva, together with Vézina and Wang, wrote an interesting paper (pdf) questioning the effectiveness of the African Growth and Opportunity Act (AGOA). Their argument is that far from being a trade policy success, AGOA turned Africa into a trade corridor for Chinese firms circumventing US import quotas.

The core point here is about how stringent the Rules of Origin (ROO) should be – ROO basically determine how much value addition has to take place in the country in order to fall under the AGOA trade agreement. Rotunno et al argue that Chinese firms had a ‘symbolic’ presence in Africa – very little value addition was taking place in the region. US officials strongly denied these claims, saying that a minimum of 35% value addition has to take place in the region:

If China had invested in a factory in Mauritius or Lesotho and the company is producing apparel with Chinese investment and inputs but meeting all the rules of origin requirements and shipping to the US, that would not be transhipment. Transhipment would be where the apparel was being produced in China and sent to Lesotho where they illegally sew in a label that says ‘Made in Lesotho’ and then shipped it to the US.

The ROO are a major headache for trade agreements in SS Africa. The problem is that stringent ROO requirements squeeze out local exporters, who are usually unable to source their inputs domestically. On the other hand, if ROO are abolished, then there are problems like the ones discussed in Rotunno et al’s article. Africa-EU trade agreements are facing very similar issues.

Interesting new article by MIT professor Yasheng Wang in the Journal of Economic Perspectives (ungated pdf here)

There are two prevailing explanations of what caused China’s rate of economic growth to take off. The first view gives the pride of place to globalization. According to this view, Chinese growth started when Deng Xiaoping liberalized trade and foreign investments by setting up special economic zones in the in the coastal provinces. In this view, China’s export-oriented manufacturing, largely foreign-funded, employed millions of rural migrants, boosted their income, and reduced poverty far and wide. The second perspective emphasizes the importance of internal reforms—especially in rural, interior regions—of the agricultural pricing system, land contracting, and the entry of rural businesses known as township and village enterprises.

Huang argues that township and village enterprises were the key to China’s take-off

 … the economic contributions of foreign investments do not remotely match those of China’s rural industry. At their peak, firms funded by foreign capital employed 18 million people (in 2010). By contrast, at their trough in 1978, township and village enterprises employed 28 million people. Between 1978 and 1988 China’s poverty headcount declined by 154 million, by far the most impressive  record during China’s three decades of reforms.

And he dismantles some “myths” about China’s village enterprises

 Many China scholars believe that township and village enterprises have a distinct ownership structure—that they are owned and operated by local governments rather than by private entrepreneurs. That these firms could be so dynamic and efficient, yet government-owned, is often treated as a paradox in the economics literature.

But my own historical narrative—formulated on the basis of voluminous government and bank documents and data from the 1980s—directly contradicts this heterodox interpretation of Chinese reforms. I will show that township and village enterprises from the inception have been private and that China undertook significant and meaningful financial liberalization at the very start of reforms.

Source (PDF)