REPORT ON THE REASONS FOR THE DECLINE OF KENYA'S EXPORTS TO THE EAC COUNTRIES

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THE REASONS FOR THE DECLINE IN THE VALUE OF KENYA’S EXPORTS
TO THE EAST AFRICAN COMMUNITY MEMBER COUNTRIES BETWEEN
THE PERIODS 2009 TO 2013
REPORT BY
POLICY AND RESEARCH UNIT
MINISTRY OF THE EAST AFRICAN COMMUNITY COMMERCE AND
TOURISM
A RESEARCH PROJECT SUBMITTED TO THE PERMANENT SECRETARY
MINISTRY OF THE EAST AFRICAN COMMUNITY COMMERCE AND
TOURISM
CAROLINE KOSIOM
JOANNE KOBUTHI
BEMIH KANYONGE
NOVEMBER, 2014

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LIST OF TABLES.......................................................................................................... 4
LIST OF FIGURES ........................................................................................................ 5
LIST OF ABBREVIATIONS......................................................................................... 6
DEFINITION OF KEY TERMS .................................................................................... 8
ABSTRACT.................................................................................................................... 9
CHAPTER ONE ......................................................................................................... 10
INTRODUCTION....................................................................................................... 10
1.1 Background of the study......................................................................................... 10
1.2 Statement of the Problem........................................................................................ 11
1.3 The research objective ............................................................................................ 13
1.4 The research Questions........................................................................................... 13
1.5 Importance of the Study.......................................................................................... 13
CHAPTER TWO ........................................................................................................ 15
EMPIRICAL REVIEW.............................................................................................. 15
2.1 Introduction............................................................................................................. 15
2.2 Theoretical Perspectives ......................................................................................... 15
CHAPTER THREE.................................................................................................... 17
RESEARCH METHODOLOGY .............................................................................. 17
3.1 Introduction............................................................................................................. 17
3.2 Research design ...................................................................................................... 17
3.2.1 The Conceptual and the Analytical Model .......................................................... 17
3.3 Target Population.................................................................................................... 18
3.4 Sample design ......................................................................................................... 18
3.5 Data collection method ........................................................................................... 18
3.6 Data Analysis and Presentation .............................................................................. 19
CHAPTER FOUR ....................................................................................................... 20

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DATA ANALYSIS, PRESENTATION AND INTERPRETATION........................ 20
4.1 Introduction.............................................................................................................. 20
4.2 Respondents’ demographic characteristics ............................................................... 20
4.2.1 Response Rate....................................................................................................... 20
4.2.2 Industrial Section of the Firm................................................................................ 21
4.3 Reasons for the decline of Kenya’s Export to the EAC countries.......................... 22
4.3.2 Regression analysis of findings ........................................................................... 28
4.4 Discussion of the findings....................................................................................... 31
CHAPTER FIVE......................................................................................................... 33
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS...... 33
5.1 Introduction............................................................................................................ 33
5.2 Summary of the Findings......................................................................................... 33
5.3 Conclusions............................................................................................................. 41
5.4 Recommendations for policy.................................................................................. 42
5.5 limitations of the study............................................................................................ 48
5.6 Areas for Future Research ...................................................................................... 48
APPENDIX I: INTRODUCTION LETTER............................................................ 49
APPENDIX II:QUESTIONNAI RE ......................................................................... 50

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LIST OF TABLES
Table 4.1: Response Rate ………………………………………………………… Error!
Bookmark not defined.
Table 4.2: Reason for the decline of Kenya’s Exports to the EAC countries…. Error!
Table 4.3: Recommended Solutions to Challenges Affecting Exporters ………Error!
Table 4.4: Model Summary…………………………………………………….. Error!
Table 4.5: Coefficients Results………………………………………………….Error!

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LIST OF FIGURES
Figure 1.1: Kenya’s Exports and imports to the EAC member countries for the
Period 2009-2013……………….……………………………………..Error!
Figure 1.2: Kenya’s Exports to the EAC member countries for the period
2009-2013……………………………………………………....…..Error!
Figure 4.1: Industrial Section of the Declining Exporters ……………………...Error!

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LIST OF ABBREVIATIONS
BBN-Burundi Bureau of Standards and Quality Control
CET-Common External Tariff
COMESA-Common Market for Eastern and Southern Africa
CM-Common Market
CU-Customs Union
EAC-East African Community
EPC-Export Promotion Council
EPPO-Export Promotion Programmers Office
EPZ-Export Processing Zone
ERC-Energy Regulatory Commission
GDP-Gross Domestic Product
IDF-Import Declaration Fee
IGAD-Intergovernmental Authority on Development

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KAM-Kenya Association of Manufacturers
KEBS-Kenya Bureau of Standards
KENTRADE-Kenya Trade Network Agency
KNBS-Kenya National Bureau of Statistics
KPC-Kenya Pipeline Company
KRA-Kenya Revenue Authority
MEAC-Ministry of East African Community
NTBs-Non-Tariff Barriers
RDF-Railway Development Fee
RBS- Rwanda Bureau of Statistics
RRA-Rwanda Revenue Authority
SADC- Southern African Development Community
SWT-Single Window Territory
TBS-Tanzania Bureau of Standards
TFDA-Tanzania Food & Drug Association
TMEA-Trademark East Africa
UNBS-Uganda National Bureau of Statistics
URA-Uganda Revenue Authority
VAT-Value Added Tax

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DEFINITION OF KEY TERMS
Single Window Territory-The Single Window is a trade facilitation tool that seeks to
promote both national and intra regional trade by removing the trade barrier of the goods
moving across borders, reduces the cost of doing business and thus enhancing
competitiveness.
Duty Remission Scheme-Trade scheme that enables duty free import of inputs required
for export production. Companies in the duty remission scheme were required to sell 20%
of their produce locally and 80% to the East African countries.
Customs Union- A type of trade bloc which is composed of a free trade area with a
common external tariff. The participant countries set up common external trade policy,
but in some cases they use different import quotas.
Common Market-Group formed by countries within a geographical area to promote
duty free trade and free movement of labor and capital among its members. Common
markets impose common external tariff (CET) on imports from non-member countries.

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ABSTRACT
According to Kenya’s Vision 2030 Economic Pillar; trade is identified as a key driver of
Kenya’s economic growth. The development blueprint emphasizes on Kenya’s
commitment to be the lead manufacturing point for the regional market and the provider
of choice for basic manufactured goods in Eastern and Central Africa; However the
long term sustainability of Kenya’s competitiveness in the region in terms of being a
regional leader in exports is currently in question after Kenya registered a significant
decline in Exports to the EAC countries for the past three years .This study sought to
establish the reasons for the decline of Kenya’s exports to the EAC countries and
recommended policy intervention. The research was a survey study in with a target
population of 663 manufactures whose exports have had an average annual decline of
28,019,810.76.A sample size of 105 respondents was used to conduct the survey.
Structured questionnaires were administered to export managers and/or a chief executive
officer of the sample companies using direct interviews .the study had a response rate of
76%. The research findings indicate that the reason for the decline is because of a
combination of six key factors.1.unfair competitions from accounting for 25% of the
decline, 2.challenges associated with the implementation of single window system
accounting for 13% of the decline, 4.The adoption of the east African duty remission and
non adherence to the customs union protocol accounting for 10% of the decline. 4.
Unfaviurable tax regimes in Kenya accounting for 10% of the decline 5.high cost of
energy accounting for 9% of the decline and 6.limited pipeline capacity for oil
distribution accounting for 8% of the decline .

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CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Kenya is a member of several trading blocs such as COMESA, IGAD and the EAC.
These blocs are key components of Kenya’s trade volumes (Economy Watch, 2010).Of
notable importance is Kenya’s role in the re-establishment of the East African community
and the adoption of the customs union and the common market protocol; a move which
has consistently been informed by Kenya’s desire to pursue export-led growth. Following
such commitments to enhance exports growth; the Kenya government through the
Ministry of East Africa Commerce &Tourism established a number of institutions to
promote Kenya’s exports that include the Export Processing Zones (EPZs), the Green
Channel, Export Guarantee and Credit Scheme, Kenya Export Trade Authority (KETA),
the Export Promotion Council and the Export Promotion Programmers Office (EPPO).
According to Kenya’s Vision 2030 Economic Pillar; trade is identified as a key driver of
Kenya’s economic growth. The development blueprint emphasizes on Kenya’s
commitment to be the lead manufacturing point for the regional market and the provider
of choice for basic manufactured goods in Eastern and Central Africa; by enhancing
improved efficiency and competitiveness at firm level. However the long term
sustainability of Kenya’s competitiveness in the region in terms of being a regional leader
in exports is currently in question after Kenya registered a significant decline in Exports
to the EAC countries and particularly to Uganda for the past three years. See below figure
showing value of Kenya’s Exports and Imports to and from the EAC countries for the
period of 2009-2013.

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Figure 1.1Kenya’s Exports and imports to the EAC member countries for the
periods 2009-2013
Data source: KNBS Economic Survey 2014
The Figure 1.1 above shows cumulative values of Kenya’s exports to the EAC countries
and the subsequent the said countries. The histogram chart shows how Kenya’s exports
experienced a growth stage, maturity and then a decline stage. Consequently the EAC
countries have registered a steady increment over the years. The steady inverse
relationship has become a worrying trend as it provides a clear indication of underlying
problems facing the Kenyan economy and exporters as a whole and hence the knowledge
gap that this study seeks to fill.
1.2 Statement of the Problem.
A number of research institutions and international development organizations have
published reports that indicate Kenya’s exports to the EAC countries have declined for
the past there years. According to the (KNBS Economic survey, 2014 ) exports to the
EAC partner states decreased by 7.4% for the period (2012-2013) .Consequently
According to the( KIPPRA economic survey ,2013) Kenya’s exports to the EAC member
countries declined from Kshs.137.2 billion to Kshs.134.9 billion in the year (2011-
2012).The report further stated that following the implementation of the EAC Customs
Union in 2005, it was expected that Kenya would dominate regional trade by diversifying
its exports to the EAC market, given its comparative advantage especially in the

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manufacturing sector but this was however not the case .Below is a graphical
representation of the problem statement on Kenya’s declining exports to the region.
Figure 1.2 Kenya’s Exports to the EAC member countries for the periods 2009-2013
Data source: KNBS Economic Survey 2014
Figure 1.2 illustrates Kenyan exports to the EAC countries from the period 2009-2013.
The trend is an indication that Kenya’s exports have been declining particularly to
Uganda and Tanzania. The situation is made worse by the fact that exports to Burundi
have not experienced any growth in the past four years and that exports to Rwanda have
also started to indicate a declining trend .The decline and stagnation shows inverse
expectation of Kenyan exports despite the depreciation of the Kenyan shilling.
According to the projections of the (World Bank Kenya State of the Economy Report,
2011) ,strong economic growth of EAC countries combined with the depreciated Kenya
shilling should translate into higher regional exports of manufactured goods that will allow
Kenya to expand its exports within the region. The (KNBS Economic Survey,2014) report
shows economic results contrary to the World Bank 2011 projections; an indication that
despite the economic growth in EAC countries Kenya still registered significant decline and
stagnation in its export value hence the research question that this study seeks to fulfill.
Additionally, in recent years, growth in imports has outstripped exports, thus leading to
deterioration in external trade balance and current account. Given Kenya’s size,
geographical location and diversity of its commodity trade flows, it is the EAC’s leading

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trading hub. Kenya’s largest and most important trade partner is Uganda. The(East
African Community report , 2012) attributed to the country’s lengthy licensing and
customs procedures, red-tape, corruption and sluggish commercial dispute settlement
process to reduction in Kenya’s competitiveness in the region . Consequently the
(KIPPRA economic survey, 2013) noted that growth in Kenya’s manufacturing sectors
had stagnated at around 10% since independence resulting in slow export growth despite
Kenya being the leader in the region. The shortcoming of these reports is that no
independent research specifically intended to find out the reasons for the decline of
Kenya’s exports in the region despite the growing importance of the problem to the Kenya
government and hence the knowledge gap that this study will be seeking to fill.
1.3 The research objective
The objectives of this study are:
i) To identify the reasons for the decline of Kenya’s Exports to the EAC
countries
ii) To identity solutions to Kenya’s declining exports to the EAC countries
for purposes of policy intervention.
1.4 The research Questions
The research objectives lead to following research questions:-
i) What are the reasons for the decline of Kenya’s Exports to the EAC
countries?
ii) What are the solutions to Kenya’s declining exports to the EAC countries?
1.5 Importance of the Study
The rationale behind this study is to enhance an understanding of the problems faced by
Kenyan exporters in the region. This study also attempts to identify the recommendations
and the suggestions of the said manufacturers/exporters for purposes of informing policy
and towards enhancing long term sustainability and competitiveness of Kenya’s
manufacturing industry. According to Kenya’s Vision 2030 Economic Pillar and the

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Medium Term plans; trade is identified as a key driver of Kenya’s economic growth. The
Vision emphasizes Kenya’s intentions to be the lead manufacturing point for the regional
market and the provider of choice for basic manufactured goods in Eastern and Central
Africa.
This research will therefore ensure that the threats to the achievement of Kenya’s vision
2030 economic pillar such as the decline in exports are addressed in a timely manner to
enhance sustainable economic development and improvement of living standards of
Kenyans. The research will also provide a platform to monitor and evaluate the extent of
the adoption of the customs union and the common market protocol by EAC member
countries and how possible disparities on the extent of adoption is likely to affect
businesses operating within the region. The research will therefore be particularly useful
to regional integration institutions and their development partners in Kenya such as the
MEAC and TMEA.
The findings of this study will therefore provide important guidelines on policy
interventions and negotiations by member countries in order to achieve the five pillars of
regional integration in the long-run and to ensure that the full benefits of integration are
realized by member countries. Direct interviews with some of the leading exporters and
manufacturers in Kenya will provide firsthand information on the experience in regional
trade since the adoption of the common market protocol. The research will also portray
the Kenya government and MEAC in particular in good light within the business
community in Kenya as being sensitive to the plight of businesses.
The research will provide practical assurance to the business community in Kenya of the
government’s commitment to ensuring business success by continually monitoring the
operating business environment both locally and internationally and ensuring its
conduciveness for doing business. Future researchers will use this study as a basis for
their literature review in establishing knowledge gaps for future researches on regional
integration. Through this study, policy makers in Kenya will be able to make informed
decisions on approaches to matters of regional interrogation and how such policy
decisions will affect Kenya’s economy in general.

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CHAPTER TWO
EMPIRICAL REVIEW
2.1 Introduction
This chapter is concerned with the review of literature related to the study. It covers the
theoretical framework on the international trade forces of demand and supply and the
empirical review. The literature is a review of the regional integration trade agreements
relevant to this study as well as the findings of other studies on international trade
challenges.
2.2 Theoretical Perspectives
There are several theories that attempt to explain consumer choices and preferences and
supplier preferences that influence the forces of demand and supply in both local and
international trade. A review of such theories will guide the researchers understanding of
international trade challenges as it guides the conceptual framework and structuring of
research instruments. The theoretical foundation of this study is the theory of demand and
supply.
2.2.1. Theory of Demand and Supply
According to the theory of and supply; the Demand for a commodity depends upon a
number of factors .The demand function can be symbolically expressed as:
Q= f (PN PR I T E O)
Where:
QdN = Quantity demanded for the commodity
PN = Price of the commodity
PR = Price of related commodity
I = Income of consumers
T = Taste & preferences of the consumers
E = Expectations about the future prices
O = Other factors

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With a decrease in the price of a commodity, the demand for the commodity increases
and with a rise in the price of a commodity the demand decreases. Complimentary goods
are goods used together for example, the demand for petrol increases when prices of
automobiles fall. Substitute goods are those goods which can be used in place of one
another. For example: tea and coffee, scooter and motorcycle, etc. The existence of
alternative goods (substitutes) to satisfy a given demand divides the total demand among
the many different goods. The larger the number of substitutes, the smaller the demand
for any of them. Demand for commodity is directly related to the price of its substitute. A
fall in price of a commodity results in lowered demand for its substitute, and an increase
in the price of a commodity results in increase in the demand of its substitute.
The demand for goods also depends upon the income of consumers. With an increase in
income, the consumer's purchasing power increases, demand for a commodity depends
upon the taste and preferences of a consumer. A change in taste and preferences affects
the level of demand for various goods. Consumer's preferences may change because of
changes in fashion, habits, and so on. Future prices of goods also affect their demand
particularly for consumer durable goods. Since purchase of durables can be postponed
more easily than those of non-durables. If for some reason consumers expect prices of
certain goods to rise in near future, they tend to demand more for it, in the present even at
increasing prices. On the other hand, if they expect prices to fall in the near future, they
will demand less of it in the present.
A rise in population leads to an increase in the number of consumers. As a result, demand
increases. The greater the number of consumers, the greater the market demand for a
commodity. Therefore, demand for a commodity is directly related to the size of the
population. Equitable distribution of income leads to increase in demand and unequal
distribution of income leads to decrease in demand. Higher taxes imposed on a
commodity will lower the demand for that commodity, and vice versa. Technical
progress (inventions and innovations) leads to production of new attractive quality
products at fair prices. Preferences of customers can be affected by advertisement and
publicity, leading to greater demand for a product

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CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This section outlines the methodology to be used to carry out the research. The study
determine the reasons for the decline of the value of Kenya’s exports to the EAC
countries and recommended solutions by applying directly, a policy based measure of
international trade challenges. The methodology will be explained under the major
headings of research design, study area, population definition, survey approach, data
types and data collection, data collection instrument, data analysis and presentation
framework for data of the entire research.
3.2 Research design
Research design refers to the method used to carry out a research. It outlines the
methodology used for data collection (Robson, 1993).The study utilized descriptive
approach in which both primary and secondary data were used to fully meet the
requirements of the problem statement. The research was a survey study of 105 exporters
in Kenya whose exports had decline since 2009-2013 for purposes of establishing the
reasons for the decline of Kenya’s exports to the EAC countries. The list of the
respondents was generated by analyzing annual export values of all exporting companies
for the period 2009-2013 for purposes of establishing the declining trends and hence
identifying the declining exporters. Structured questionnaires were used as primary data
collection instruments and administered to the export managers of the companies were
identified as declining using the below stated analytical model
3.2.1 The Conceptual and the Analytical Model
The study used the conceptual model where individual company export decline was
established by subtracting current year value of exports from the value of previous year
exports for the period (2009-2013) for individual commodities as stated below:

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Decline formula:
Annual Individual company export decline =current year export value-previous year
export value
Average annual individual company export decline =sum of annual export decline
Number of years of study
3.3 Target Population
Target population in statistics is the specific population about which information is
desired. According to (Ngechu ,2004) a population is a well-defined or set of people,
services, elements, and events, group of things or households that are being investigated.
The population of study includes all Kenyan exporters to the EAC Countries whose
exports registered an average decline from the period (2009-2013).According to KRA
export data there are 2,391Kenyan exporters to the EAC markets. However
approximately 663 exporters registered an average annual decline of Shs. 28,019,810.76
between periods (2009-2013); hence the population of study is 663 Kenyan exporters
whose exports registered average annual decline in their total exports between periods
2009and 2013.
3.4 Sample design
The sampling plan describes the sampling unit, sampling frame, sampling procedures and
the sample size for the study. Out of the targeted population of 663 exporters; the study
sample size of 16% of the targeted population was used resulting in a sample size of 105
respondents. The 105 sample of the respondents was selected using value ranking
technique where the top 105 declining exporters were selected as a sample of the study.
3.5 Data collection method
The second phase of the study involve use of primary data, collected using questionnaires
containing both structured and unstructured questions through direct interviews with the
chief executives officers and or export managers of the sampled companies. The

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questionnaires were divided into 3 sections. Section A featured the demographic
information of the respondents. Section B dealt with reasons for the decline of Company
exports to the EAC countries. Section C featured investor recommendations for policy
intervention. The basic data collection method employed was use of direct visits.
Responses are sought from company chief executive officers and/or export managers
who have been in the industry for at least five years.
3.6 Data Analysis and Presentation
The data was then collected, edited, coded, ranked, classified and tabulated following the
variables in the study. Data classification reduced data into homogeneous attributes that
enabled establishment of meaningful relationships between variables. Two statistical
methods; descriptive and inferential analysis were applied to measure and determine the
relationship that exists among the collected data. Linker scale, mean, standard deviation,
Regression analysis and correlation analysis tools were used to test the relationship
between the variables over time.
The general information statistics of the analysed data was presented by use of tables and
graphs .Variance analysis using standard deviation and spearman’s coefficient of
correlation were used to understand strength of the relationships between the variables of
study. The research findings were presented using frequency tables, percentages and bar
graphs as appropriate. Inferential statistics with a confidence interval of 95% interval was
used to test the margin of error and the applicability of the research findings.

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CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND INTERPRETATION
4.1 Introduction
This chapter involves data analysis, interpretations, discussions and presentation of the
research findings drawn from the research instrument. This chapter presents the
analysis and findings of the study as set out in the research methodology. The
research data was gathered exclusively through use of structured questionnaires as the
primary research instrument. The questionnaire was designed in line with the research
objectives of the study.
4.2 Respondents’ demographic characteristics
This section is an analysis of the demographic information of the individual respondent
organizations involved in the study. The general understanding of the respondent
characteristics provides a guideline towards interpreting the research findings and also
increases the reliability of the research findings.
4.2.1 Response Rate
The study targeted 105 respondent companies whose exports declined from the period
2009 to 2013. The researchers managed to collect data from 80 out of the 105 targeted
respondents. The export managers and or the chief executive officers of the 80
companies; fully answered the questions mentioned in the research instruments resulting
in a 76% response rate. This response rate is considered adequate since according to
(Mugenda and Mugenda, 1999) a response rate of 70% and over is excellent and
adequate for analysis and reporting.
Table 4.1 Response Rate
TAREGET POPULATION 105
REPONSES 80
RESPONSE RATE 76%

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4.2.2 Industrial Section of the Firm
The study sought to establish the industrial section of the individual companies for
purposes of identifying the extent of the decline in exports in different sectors and the
level of impact in those sectors. This is particularly important in indentifying industries
most affected by the decline and it also enables the researcher to draw conclusions based
on the demographic information of the respondents. The companies affected were mostly
in manufacturing and oil distribution. Manufacturing was further subdivided into several
sub sectors.
These industrial sectors were grouped into Cement and construction industry, Electrical
equipment manufacturers, Export recessing zone ,Animal feeds farm inputs and
chemicals industry, Food processing industry, general consumer products manufacturers ,
General suppliers, Glass manufacturing, Industrial chemicals, Telecommunications and
technology, Automobiles and accessories, Energy and petroleum ,paper and plastic
packaging, Pharmaceutical products ,Print industry, Steel fabrications and metal related
products ,Textile industry and Wood products industry. The findings are shown in Table
4.2 below
Figure 4.1 Industrial Sections of the Declining Exporters

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The findings in Table 4.2 indicate that the most affected industry are those in the food
processing industry ,steel fabrications and metal related products which accounts for
36% of the respondents each with a rate of 18%. Other sectors of manufacturing
affected by the decline in exports include the cement and construction industry at 6%,
electrical equipment manufacturers at 1%, manufacturing companies at the Export
processing zone at 1% ,animal feeds , farm inputs and chemicals industry at 3% ,
general consumer products at 6% ,general suppliers at 9% glass manufacturing at 4%,
industrial chemicals at 5%, telecommunications and technology at 3%, automobiles and
accessories at 5% , energy and petroleum at 10% ,paper and plastic packaging at 5%,
pharmaceutical products at 1%,print industry at1%, textile industry at 3% and wood
products industry1%.
The findings above indicate that the decline in Kenyan exports to the EAC countries has
been witnessed in various industries in Kenya’s economy especially in the manufacturing
sectors: food process and metal fabrication. Other sectors are also represented as shown
in table 4.2.This therefore indicates that the challenges facing these manufacturers are
spread out in various sectors manufacturing and that the only other sector not in
manufacturing is the oil and gas distribution. The demographic statistics also indicate that
the international trade challenges have significantly affected the manufacturing sector in
Kenya and are currently in need of immediate policy intervention.
4.3 Reasons for the decline of Kenya’s Export to the EAC countries
The main objective of the study was to determine the reasons for the decline of Kenya’s
exports to the EAC countries. Respondents who had consistently registered a decline in
their exports since 2009 to 2013 were asked through direct interviews and use of
structured questionnaires to indentify the reasons for the decline of their company exports
to the EAC countries. Using the initial pilot study the researchers were able to identify
the list of all possible challenges that guided in the structuring of the questionnaire. The
respondents consequently were asked to state the percentage contribution of each of the
mentioned challenges to their total exports decline. This was particularly important as it
adequately informed the regression model. The findings on the reasons for the decline are

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Underdeveloped and General industry decline in Kenya shown in table 4.3
REASON FOR THE DECLINE F % SD MEAN CNT
Unfavorable Tax Regimes and practices in
Kenya ;VAT ,IDF,RDL 35 17% 0.158 4.1 12%
Unfair competition due to illicit trade in trade
in imports 32 15% 0.180 5.0 28%
High cost of electricity and alternative energy
sources 28 13% 0.211 3.5 10%
Lengthy and inconsistent customs procedures
in TZ and UG 18 8% 0.300 3.9 11%
Confusion surrounding the implementation
of EAC DRM and EAC CU 16 8% 0.320 3.9 11%
Competition from established local industry 10 5% 0.383 2.0 6%
Discrimination ,harassment ,Corruption and
protectionist activities 10 5% 0.383 1.0 3%
The limited pipeline capacity due to limited
infrastructure 7 3% 0.416 3.5 9%
The effect of devolution and county levies 7 3% 0.416 0.4 1%
Competition from COMESSA imports 4 2% 0.451 0.5 1%
4 2% 0.451 0.4 1%
The south Sudan crisis affected Uganda’s
Distribution channels 3 1% 0.463 0.4 1%
Subsidiary establishment 2 1% 0.475 0.4 1%
Government bureaucracy and corruption in
Kenya 1 0% 0.488 1.0 2%
Exchange rate volatility 1 0% 0.488 0.2 0%
Increased local demand 1 0% 0.488 0.2 0%
Kenya’s products being considered
substandard 1 0% 0.488 0.1 0%
Perception that foreign brands are more
superior 1 0% 0.488 0.1 0%

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Table 4.2 Reason for the decline of Kenya’s Exports to the EAC countries
The findings in table 4.3 above indicates that the respondents strongly agreed to a very
great extent that unfair competition due to illicit trade in imports to EAC countries have
significantly contributed to the decline of Kenya’s exports to the EAC countries.15% of
the respondents mentioned unfair competition due to illicit trade in imports to the EAC
countries as contributing to the decline with a mean of 5 and a standard deviation of 0.18
.A mean of 5 according to the likert scale indicates that the challenge has affected
exporters to a very great extent and small standard deviation of 0.18 is an indication that
the challenge cuts across all the industries .
The respondents further categorized imports to the EAC Countries as either ‘‘intelligent
counterfeits”, substandard goods or goods whose cost insurance and Freight(CIF) is
undeclared so that the import duty paid is significantly small or are declared as
intermediate goods whose import duty charged is only 10% other than the ideal 25%.The
respondents stated that the above classification of Chinese goods is what makes it very
difficult to compete fairly in combination of other challenges discussed in subsequent
paragraphs that make Chinese goods even more attractive to low income earners in the
EAC countries.
Another significant challenge identified by the respondents is unfavorable tax regimes
and practices in Kenya associated with pending VAT refunds ,industrial development
fund levy( IDF) at 2.5% and the railway development fee at 1.5% as having contributed
significantly to a great extent to the decline of Kenya’s exports to the EAC countries
with 17% of the respondents indicating to having been affected by the unfavorable tax
regimes in Kenya that is associated with increased cost of maintaining financial liquidity
and additional costs of production.
Despite its frequency percentage being slightly higher than that of unfair competition due
to illicit trade in imports; its severity on the impact on exports decline is slightly smaller
compared to the two hence the average likert scale mean of 4.1 an indication that it has
affected exporters to a great extent and with the lowest standard deviation of 0.158 an
indication of a widely accepted view by the respondents.

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The respondents also identified the confusion surrounding the implementation of EAC
Duty Remission scheme and the Implementation of the Customs union protocol. This was
one of the factors causing the decline in Kenya’s exports to the EAC with 18% of the
respondents indicating having been affected to a great extent by the challenge with a
mean of 3.9 likert scale rating and a standard deviation of 0.32 an indication that the
challenge is of a widely accepted view by the respondents. The challenge accounts for an
average of over 8% in total export decline. The respondents mostly affected by this
challenge are those who were previously in the Kenya duty remission scheme.
Another challenge identified by the respondents is the existence of lengthy and
inconsistent customs procedures particularly in Tanzania. With 8% of the respondents
affected by the challenge to a great extent with a mean of 3.9 on the likert scale rating
and a standard deviation of 0.3 an indication that it is a significant challenge and that
view is widely accepted by the respondents. High cost of electricity and alternative
energy sources in Kenya was also identified as another challenge that has contributed to
the decline of Kenyan exports to the EAC countries to a great extent by 13% of the
respondents with a mean of 3.5 on the likert scale rating and a standard deviation of 0.211
an indication that it’s a widely accepted view.
The respondents in the oil and gas distribution who account for 3% of the respondents,
indicated that the reason for the decline in their exports was due the limited pipeline
capacity associated with limited infrastructure in the pipeline distribution network as a
result of using same infrastructure despite the consistent increase in local consumption of
petroleum products in Kenya for the past ten years. The challenge was identified as
having affected the sectors to a great extent and accounts for over 10% total decline in
exports. The challenge however has a slightly higher standard deviation of 0.416 due to
the fact that the challenge was unique to the oil distribution sector.
5% of the respondents identified competition from esta blished local industry in Uganda
as the reason for the decline in their exports with a mean of 2 on the likert scale rating,an
indication that it affected the respondents to a little extent with a standard deviation of
0.38, an indication that the challenge does not cut across all the sectors as compared to

26
the already discussed challenges. On average the respondents indicated that the challenge
accounts for 2% of total decline in exports. Competition from COMESA imports
particularly from Egypt was also identified as a reason for the decline of Kenya’s exports
to the EAC countries by 2% of the respondents with a mean of 0.5 and a standard
deviation 0.451, an indication that it affected the respondents to a little extent .This
challenge accounts for 2% decline in Kenya’s exports
Other challenges mention by 10% of the respondents that have affected them to a little
extent and which account for 7% decline in Kenya’s exports to the EAC countries include
government bureaucracy and corruption in Kenya, subsidiary establishment in EAC
countries by Kenyan firms ,underdevelopment and general industry decline in Kenya ,the
effect of devolution and the introduction of county levies ,the South Sudan crisis,
exchange rate volatility ,increased local demand, the perception of Kenya’s products as
being substandard and the perception that foreign brands are superior.
4.3.1 Recommended Responses /solutions to the Challenges
The second objective of the study was to identify recommended solutions to the
challenges identified as causing the decline of Kenya’s Exports to the EAC countries.
The purpose of this section was to guide and inform the researchers in their
recommendations for policy in chapter five. The respondents were asked to state the
recommended policy interventions to the challenges they mentioned as having
contributed to the decline of their exports to the EAC countries. Table 4.4 below is a
summary of all recommended policy interventions

27
Table 4.3 Recommended Solutions to Challenges Affecting Exporters
RESPONSE STRATEGIES MEAN SD
Monitoring of the implementation of the CU protocol 5.0 0.189
Affirmative action in protection of local industry 5.0 0.159
Review of the east African duty remission scheme act 4.8 0.322
Benchmarking cost of electricity with competing countries &energy
planning 4.7 0.302
Timely vat refunds and elimination of ,IDF,RDL 4.5 0.213
Establishment of clear communication channels between
government and private sector 4.3 0.418
Enhancement of the peace process and inclusion of south Sudan
into the EAC 3.8 0.385
Sensitization and capacity building in Tanzania on removal of trade
barriers 3.4 0.423
Adoption of monetary union 3.2 0.491
Adoption of import substitution policies 3.0 0.528
Harmonization of central and county government levies 2.8 0.555
Expansion of pipeline distribution network and storage capacity
enhancement 2.6 0.531
Joint EAC anti-corruption strategies and policies 2.2 0.543
The respondents strongly recommended to a very great extent monitoring of the
implementation of the Customs Union protocol, affirmative action in protection of local
industry from review of the East African duty remission scheme Act, benchmarking cost
of electricity with competing countries &energy planning, timely VAT refunds and
elimination of IDF, RDL.
The respondents stated that there was need for establishment of clear communication
channels between government and private sector so that complaints relating to regional
trade can be acted upon immediately. The respondents recommended to a very great
extent the need to enhance the peace process in South Sudan and inclusion of South

28
Sudan to the EAC. Other recommendations include sensitization and capacity building in
Tanzania on removal of trade barriers, adoption of monetary union protocol, adoption of
import substitution policies, harmonization of central and county government levies,
expansion of pipeline distribution network and storage capacity and joint EAC anti-
corruption strategies
4.3.2 Regression analysis of findings
A multivariate regression model was applied to identify the extent to which each of the
indemnified challenges has contributed to the decline of Kenya’s exports to the EAC
countries in order to establish the predictor values. The logistic regression used in this
model was:
Y = α + β1X1 + β1X2+ β1X3+ β1X4+ β1X5+ β1X6+ β1X7 β1X8 + β1X9+ β1X10+ β1X11+ β1X12+
β1X13+ β1X14 + β1X15+ β1X16 + β1X17+ β1X18+ β1X19+ β1X20 + β1X21 +ẹ
Where
Y=the total decline of Kenya’s exports to the EAC countries
α = Constant Term
β1= Beta coefficients
X1= unfair competition due to illicit trade in imports to the EAC Countries
X2= unfavorable Tax Regimes and practices in Kenya; VAT, IDF, RDL
X3= confusion surrounding the implementation of EAC, DRM EAC and CU
X4= lengthy and inconsistent customs procedures in TZ and UG
X5= high cost of electricity and alternative energy sources
X6= the limited pipeline capacity due to limited infrastructure
X7= competition from established local industry
X8= discrimination, harassment, Corruption and protectionist activates
X9= competition from COMESA imports
X10= Government bureaucracy and corruption in Kenya
X11= subsidiary establishment
X12= underdeveloped and General industry decline in Kenya
X13= the effect of devolution and county levies

29
X14 = underdeveloped and General industry decline in Kenya
X15= the south Sudan crisis
X16= Exchange rate volatility
X17= increased local demand
X18= Kenya’s products being considered substandard
X19= Perception that foreign brands are more superior
ẹ = Error
Table 4.4 Model Summary
Model R R Square
Adjusted R
Square
Standard Error of
the Estimate
1 0.98 0. 9604 0.96 0.4216
a) Predictors: (Constant): unfair competition due to illicit trade in imports to the EAC
Countries, challenges associated with the implementation of the single window
territory, unfavorable tax regimes and practices in Kenya, confusion surrounding the
implementation of EAC duty remission scheme and the EAC Customs Union, lengthy
and inconsistent customs procedures ,high cost of electricity and alternative energy
sources, limited pipeline capacity ,competition from established local industry,
discrimination ,harassment ,corruption and protectionist activities, competition from
COMESA imports, government bureaucracy and corruption in Kenya, subsidiary
establishment, underdeveloped and general industry decline in Kenya, the effect of
devolution and county levies, South Sudan crisis, Exchange rate volatility, increased
local demand, Kenya’s products being considered substandard and perception that
foreign brands are more superior
b) Dependent variable: Total decline in Kenya’s Exports to the EAC countries
The R Square is called the coefficient of determination and tells us how the challenges
facing exporters in Kenya relates to decline in Kenya’s Exports to the EAC countries.The
independent variables that were studied explain 94% of the factors leading to the decline
of Kenya’s exports to the EAC countries as represented by R Squared (Coefficient of
determination). This therefore means that other factors not studied in this research

30
contribute 4% to the total decline of Kenya’s exports to the EAC countries.
Table 4.6 Coefficients Results
Coefficientsa
Model
standardized
coefficient
B
Std.
Error
(Constant) 0 0
unfair competition due to illicit trade in imports to the EAC countries 0.28 0.18
unfavorable Tax Regimes and practices in Kenya 0.12 0.1582
confusion surrounding the implementation of EAC DRM and EAC CU 0.11 0.32
lengthy and inconsistent customs procedures in TZ and UG 0.11 0.3003
high cost of electricity and alternative energy sources 0.10 0.2113
The limited pipeline capacity due to limited infrastructure 0.09 0.4163
competition from established local industry 0.06 0.3828
discrimination ,harassment ,Corruption and protectionist activities 0.03 0.3828
Government bureaucracy and corruption in Kenya 0.03 0.4513
competition from COMESSA imports 0.01 0.4876
subsidiary establishment 0.01 0.4753
industry decline in Kenya 0.01 0.4513
The effect of devolution and county levies 0.01 0.4163
The south Sudan crisis 0.01 0.4632
Exchange rate volatility 0.00 0.4876
increased local demand 0.00 0.4876
Kenya’s products being considered substandard 0.00 0.4876
Perception that foreign brands are more superior 0.00 0.4876
The study used ANOVA to establish the significance of the regression model from which
an F-significance value of less than 0.05 was established. The model is statistically
significant in predicting how the identified challenges account for the decline of Kenya’s
exports to the EAC countries. This means that the regression model has a confidence
level of above 95% hence high reliability of the results.
The established regression equation was;

31
Y = 0 + 0.28X1 + 0.12X2+ 0.11X3+ 0.11X4+ 0.10X5+ 0.09X6+ 0.06 X7+0.03X8+0.03X9+
0.01X10+ 0.01X11+ 0.01X12+ 0.01X13+ 0.01X14 +ẹ
4.4 Discussion of the findings
The regression analysis above established that holding all factors constant, a unit increase
in unfair competition due to illicit trade in imports associated with imports to the EAC
countries lead to 0.28 decreases in Kenya exports to the EAC countries. A unit increase
in unfavorable tax regimes in Kenya has lead to a 0.12 decrease in Kenya’s exports to the
EAC countries. A unit increase in confusion surrounding the implementation of EAC
duty remission scheme and the EAC Customs Union has lead to a 0.11 decreases in
Kenya’s exports to the EAC countries. A unit increase in lengthy and inconsistent
customs procedures lead to 0.11 decreases in Kenya’s exports to the EAC countries.
A unit increase in the cost of electricity and alternative energy sources has led to a 0.09
decreases in Kenya’s exports to the EAC countries. A unit increase in the limited pipeline
capacity led to 0.09 decreases in Kenya’s exports to the EAC countries, a unit increase in
competition from established local industry has led to a 0.06 decrease in Kenya’s exports
to the EAC countries. A unit increase in discrimination, harassment, Corruption and
protectionist activities led to a 0.03 decrease in Kenya’s exports to the EAC countries. A
unit increase in competition from COMESA imports led to a 0.01decrease in Kenya’s
exports to the EAC countries; A unit increase in Government bureaucracy and corruption
in Kenya has led to a 0.03 decrease in Kenya’s exports to the EAC countries.
A unit increase in subsidiary establishment led to a 0.0101 decrease in Kenya’s exports to
the EAC countries .A unit increase in industry decline in Kenya has led to a 0.0101
decrease in Kenya’s exports to the EAC countries. A unit increase in county government
levies has led to a 0.0088 decrease in Kenya’s exports to the EAC countries .A unit
increase in the South Sudan crisis has led to 0.0088 decreases in Kenya’s exports to the
EAC countries. A unit increase in exchange rate volatility has led to 0.0038 decreases in
Kenya’s exports to the EAC. A unit increase in increased local demand has led to 0.0038
decreases in Kenya’s exports to the EAC .A unit increase in Kenya’s products being
considered substandard has led to a 0.0013 decrease in Kenya’s exports to the EAC. A

32
unit increase in perception that foreign brands are more superior led to a 0.0013 decrease
in Kenya’s exports to the EAC.

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CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter presents a summary, conclusions and recommendations of the study. Section
5.2 summarizes the key results found, while section 5.3 draws the conclusions. Section
5.4 notes the recommendations from the findings of the study. Section 5.5 outlines the
limitations of the study while section 5.6 gives suggestions for further research.
5.2 Summary of the Findings
The main objective of the study aimed at establishing the reasons for the decline of
Kenya’s exports to the EAC countries. The findings on the demographic information of
the respondent’s greatly enhanced the reliability of the research findings. The study found
out that majority of the respondents was in the manufacturing industry and oil
distribution business. The respondents in the manufacturing industry were widely
distributed from food processing to metal fabrication. This is an indication that the
decline in exports in Kenya mainly affected all the sectors in the manufacturing industry.
The study also found out that the major challenge leading to decline in Kenya’s exports
to the EAC countries is unfair competition due to illicit trade in imports to the EAC
countries with the challenge accounting for over 29% of the total decline in Kenya’s
exports to the EAC countries.
Respondents interviewed expressed a huge concern over the proliferation of cheap goods
into the East African markets. Exporters across the board: ranging from exporters of
aluminum, steel products, textile to computers and accessories all echoed the above
sentiments. According to the respondents, importation of cheap goods has a detrimental
multiplier effect on Kenyan exports. Because foreign firms enjoy much lower costs of
production, their goods are much cheaper than Kenyan goods hence lowering the
competitive advantage previously enjoyed by Kenyan products in the EAC. Likewise, the
respondents classified illicit trade in imports to the EAC countries as either sub-standard
goods, counterfeits or goods whose cost insurance and freight is under declared so that
the cost of import duty paid is low.

34
Respondents in the steel, aluminum, textile and metal works sector lamented that even if
they sell at cost, the illicit imports products still offer much lower unit prices making it
impossible to compete favorably. A respondent company manufacturing poly-propylene
woven bags has lost its entire Tanzanian market due to cheaper imports. Some
respondents lamented over the tax discrepancies imposed on imported goods. They said
that some of those goods are declared as intermediary goods yet they are finished goods.
Therefore, only subject to 10% import duty as opposed to 25% import duty. This has
given the imported goods another upper hand over locally manufactured goods.
Many of these respondents felt helpless when competing with goods imported goods.
Many felt that the EAC governments needed to do more to protect them against this
competition which they term unfair. One of the respondents in the hair additions industry
decried that there had been several cases of interception of products already in the
market, whose goods were passed off as the manufacturer’s products. This occurred
mainly in Uganda and Tanzania where the measures to protect local industry seem not to
apply when they affect Kenyan manufacturers.
According to an article in the Business Daily (Business Daily, 2013) trade in counterfeits
has grown into a Kshs70 billion annual businesses rivaling key foreign exchange earners
like tourism, tea and horticulture. Several respondents noted that counterfeits imported
into East African markets from are slowly killing local industries. They highlighted that
counterfeiting has taken an intelligent twist where it constitutes only a slight variation in
the brand name and logo. This makes it difficult for the consumer to distinguish between
the genuine product and the counterfeit.
One of the Respondents has taken a beating cheap imported counterfeits that saw the
plant operate at about 25% of its capacity. Due to unrelenting competition from these low
cost imports, it had to shut down its manufacturing plant letting go of 99% of employees.
They have also had to change their business model from manufacturing to a more
commercial-oriented outfit. They now import their commodities from their affiliate in
Egypt to sell locally. The Venn diagram below is respondents’ classification of Chinese
goods imported to the EAC markets.

35
Respondents commented on the immense institutional incapacity by the standardization
body. They noted that the standardization body does not seem to have capacity to handle
the current plethora of counterfeit goods nor do they have adequate measures to avoid
their entry in the first place. Respondents noted that illicit trade in imports is not only a
Kenyan problem but more so an East African problem as well. The threat of cheap goods
and their detrimental effect to local industries cuts across the region. The effect is even
worse in other EAC countries whose industries are in their infancy stage. Therefore, there
should be a joint regional effort to protect local industries.
17% of the respondents indicated that the Tax Regime in Kenya was unfavorable for
business and it accounts for 10% of the decline in total exports to the EAC countries.
Kenya’s VAT Act strongly came out as an impediment to export business. Others are the
Industrial development fee (IDF fee) as well as the railway development fund (RDF). The
respondents stated that the RDF and IDF make Kenyan manufactured goods 5% more
expensive than other COMESA and SADC countries. The VAT charged on goods in
theory should not have any impact on business as those in a refund position (where input
vat is greater than output vat) get refunds; while those in a paying position (where output
vat is greater than input VAT) make payments to KRA by the 20th
of the following
month.

36
The respondents mainly complained of pending VAT returns running into years. They
stated that delayed returns affected their cash flows prompting them to secure loans from
financial institutions at very high interest rates of between 18%-25%.The interest expense
reduces their profit margins prompting them to increase selling prices ,an effort that
usually translates into their goods becoming uncompetitive in an already competitive
environment. Most of the middle sized exporters who experienced cash flow problems
exited from the export business. Respondents from the Oil and Petroleum Industries have
noted a sharp increase in their unit prices. Prior to the enactment of the VAT Act the KPC
Tariff stood at US $56 per 1000 liters. It now stands at 116% ×US $56 per 1000 liters.
Oil vendors in Dare salaam for instance enjoy much lower rates as their products are
loaded directly from the port therefore they do not incur the KPC tariff. It is important to
note that even large manufacturing firms can suffer serious liquidity problems as
profitability is not an indication of liquidity.
8% of the respondents indicated that confusion surrounding the implementation of EAC
Duty Remission scheme and EAC Customs Union protocol accounts for an average of
10% of total decline of Kenya’s exports to the EAC countries. The EAC Customs
management Act provides for duty remission which is administered through EAC
Customs Management Regulations. 100% of products manufactured under any export
promotion scheme are expected to be sold outside EAC but in case they are sold in the
EAC region then only 20% of the annual production be allowed provided full duties,
levies and other charges are paid (East African Business Council Paper on the Status of
the Implementation of EAC Duty Remission Scheme Within the Framework of EAC
Market, August, 2013).
The respondents affected by this challenge are those who were previously in the Kenya
duty remission scheme. The change on the description on what constitute an export
market as not inclusive of the EAC countries resulted in massive reduction in exports for
manufacturers including those in the EPZ who had previously considered the EAC
markets as exports .As a result most of the manufacturers in the scheme were advised to
exit from it in anticipation for them to take advantage of the customs union protocol in
which Kenyan exports would not be subjected to CET.

37
However Uganda and Tanzanian authorities were accused of charging CET of 25% on
Kenyan goods of manufacturers who had since exited from the duty remission scheme.
This therefore implies that for a substantial period of time between 2009 and 2012 the
manufacturers were subjected to both the import duty in Kenya as well as the export
destination country. This made the goods from the Kenyan manufacturers significantly
expensive, hence exiting from the market. The innequlibrium in the market was resolved
by the availability of cheap substitutes from and Egypt. Egypt being a country with
subsidized electricity; their goods tend to be relatively cheaper. The good news is some
respondents who remained adamant despite the challenges have reported that Ugandan
authorities through intense lobbying have since adhered to the customs union protocol.
Tanzania however is accused of charging CET to date on Kenyan goods destined to
Malawi and other non EAC member countries leading to the collapse of Kenyan exports
particularly to Malawi.
Another challenge identified by the respondents is the existence of lengthy and
inconsistent customs procedures particularly in Tanzania. Tanzanian authorities were
accused of coming up with random legislations that significantly affected trade. Tanzania
customs procedures were considered to be extremely tedious and time consuming with
the documentation process being extremely manual .For example in Tanzania importers
need to seek the pre –initial import declaration form, then go to the Tanzania Revenue
Authority in Dar-Es-salaam for entry booking, duty payment and issuance of the release
document indicating the barcode used as an authorization document for import. This
process makes trading in Tanzania very difficult. The Tanzania Food and Drug
Association has also made it increasingly difficult for exporters especially in the food
processing industry to gain permits to export to Tanzania. The Respondents assert that the
compliance requirements keep shifting leaving them in a precarious situation.
High cost of electricity and alternative energy sources in Kenya was also identified as
another challenge that has contributed to the decline of Kenyan exports to the EAC
countries .A majority of the respondents said the high cost of energy increased their cost

38
of production and hindered their ability to compete in the region. Many of the
respondents cited made comparison with Egypt where she cost of electricity was many
times lower and its reliability largely assured compared to Kenya. This made glass and
steel products manufactured in Egypt cheaper and more competitive for importers in the
EAC. Where electricity is unreliable, manufacturers were forced to rely on alternative
sources of energy which were more expensive. The prices of the products hence
increased making them uncompetitive in the region. One of the respondents made a
decision to set up manufacturing plants in Tanzania and Uganda where the cost of
electricity is considerably lower than Kenya.
Though not a member of the EAC, political volatility in South Sudan over the past one
year has dealt a serious blow on export numbers of some of the Respondents interviewed.
Through Uganda, some of our Respondents’ particularly in the cement industry exported
their goods to South Sudan. A quick glance on a map shows two routes to South Sudan.
The first route through Uganda and the second route through the North of Kenya
(Lokichogio). Due to poor infrastructure and insecurity presented by the second route, it
is a no brainer why the first route would be more feasible. Following the political
volatility, the Respondents lost all their South Sudan market which dealt a serious blow
to their export numbers. According to the Respondents, stability in the country has not
been attained therefore their exports to South Sudan have not been resuscitated. There is
evidently a strong link between political instability and declining exports.
Many respondents mentioned that as a result of newly imposed county levies, they not
only pay levies in their county of manufacture but also in every other county they pass
through as they transport their produce. One respondent company that has a segment of
its operations in Eldoret said that at the sight of their branded vehicle, they are required to
pay county levies in each of the counties they pass through on their way to their
manufacturing plant in Nairobi. These levies have raised the fixed costs which in turn
have raised the cost of production. This cost is later passed on to the consumer who
purchases the commodity for a much higher cost than before.
5.2.1 Other emerging issues

39
Monitoring and Evaluation of the single window system
May 2014 saw the launch of the single window system by the East African heads of state.
The Single window system aims at promoting both national and intra regional trade by
removing the trade barrier of the goods moving across borders, reduce the cost of doing
business and thus enhance competitiveness. However despite the potential benefits, just
like any other project in its implementation stages; there have been a number of obstacles
particularly in regard to the understanding of the system itself, the complexity associated
the compliance requirements, project support requirements and overall change
management programs.
Consensus among the Respondents interviewed is that the Single Window System is
indeed a good system. In fact respondents in the oil and gas industry were full of praises
for the single window territory as it was good for their business. This could be attributed
to the fact that some of the players in the oil and gas industry were part of the pilot
project and had therefore had the opportunity to master the new system. However 15%
of the respondents indicated that they were experiencing challenges with the system and
this has added to the list of the problems already affecting exporters in Kenya. The
respondents indicated that there was inadequate user training and capacity building on
how to use the system effectively for business.
The respondents indicated in most occasions when KENTRADE invited them for
training their efforts were usually frustrated by system downtimes and hence not learning
much from the KENTRADE training program. In fact one of the biggest impediments to
the implementation of the SWT was frequent system downtimes that significantly
delayed the export process. The respondents indicated that frustrated importers who find
the new system too complex to learn or too expensive to comply with and is not
adequately supported by the institutions enforcing it have opted to import from and
Dubai, something they are quickly learning and appreciating given that imported goods
from outside EAC countries seem not to be subjected to the same system requirement
making such transactions more appealing to the importers who are resistant to change.
The issue of Institutional incapacity to adequately carry out their mandate such as user

40
training, follow up support ,communications and lack of expertise even by the institutions
themselves came out strongly . They noted that usually when they have challenges when
using the system they do not know whom to contact for direction. The institutions
mentioned were KRA and KENTRADE. The respondents indicated that even the
institutions enforcing the new law did not understand the new system very well. A phone
call to KRA and KENTRADE would lead to several call transfers that usually do not
yield much as there was no particular person known to the exporters as being an expert in
that field.
With the new system the export starts with sending an invoice to the importer. The
importer then pays the taxes on the goods to be imported .Once taxes are paid the
importer sends the document online to the seller in Kenya indicating the goods to be
imported, the quantity and the truck to be used and most importantly the sealing pin code;
the sealing pin is used by the SGS agents to securely lock and unlock each truck. Once
documentation is complete the goods are loaded and the truck is then sealed by the SGS
representatives after verification of the goods by the KRA agent, URA agent for goods
going to Uganda and of course the clearing agent. This therefore means that a single
transaction requires the presence of all the four representatives of the mentioned
agencies.
The problem with this process is that goods can be invoiced but the importer can take
several days to pay for taxes partly due to not understanding the process and partly due to
insufficient cash at the time, making the manufacturer /exporter incur additional storage
costs and delays. The system also complicates the financial reporting as an invoice is
considered a sale when in many cases the goods have not left the manufacturers premises,
there were cases where goods invoiced had not been dispatched for more than a month.
The respondents also wondered if the system allowed credit sale transactions.
The system gets even more complicated when one truck is being used to transport goods
purchased differently from different manufacturers a phenomenon which is common with
many Ugandan trucks; many importers prefer to load goods from different manufacturers
in one truck for purposes of attaining efficiency, resource utilization and cut down on

41
transport costs. However the problem of sealing and unsealing using different sealing
codes from different transactions in different selling points coupled with the need to have
the various agents present for verification before sealing makes the whole process
complicated, time wasting and business unfriendly. The process of coordinating all these
elements and coupled with challenges of inadequate personnel from the government
authorities, corruption ,system downtimes ,delay in payments ,client confusion ,lack of
trust of the new system and inadequate support from the implementing authorities make
the whole process so complex.
Importers have had to transport goods in trucks which are half filled due to delays leading
to capacity wastage hence financial losses .The respondents noted that the electronic
tracking device is very costly and that importers who have not had the capital to install
the devices have temporarily had to do with hired transport vehicles that have been fitted
with device. Delays in transaction processing lead to demurrage charges. On the other
hand, failure to utilize the hired trucks to full capacity leads to losses. Another scenario is
when goods ordered do not fit into the one truck it was assigned to transport; in this
scenario the respondents do not know how to handle such a situation.
One would rather be surprised on how a program that is so new accounts for the decline
in Kenya’s exports to the EAC Countries particularly since the research was
commissioned just a few months after it was launched. But yes, in this short period of
time the respondents had a lot of complaints concerning the SWT something that the
research team did not anticipate. This explains the reason for the further decline in Kenya
exports particularly to Uganda in 2014.
5.3 Conclusions
The study concludes that the reason for the decline of Kenya’s exports is as a result of
Kenya’s inability to remain competitive and strategic in its trade negotiations, tax
administration, investor support programs and local industry that have all combined and
created room for influx of cheap substitutes from to the East African markets.

42
5.4 Recommendations for policy
As noted earlier ;the application of general prescriptions to the developmental problems
of an individual country like Kenya seem not to address the unique challenges that affect
the Kenyan economy and in particular the manufacturing sector whose growth has
stagnated for the past decade. The Kenyan economy has witnessed increase in imports
and recently a decline in exports to the EAC countries; it is therefore pertinent that
effective policies tailor- made for the Kenyan economy are formulated and implemented.
For this to happen there should be an understanding of the international trade problems
ailing the manufacturing sector which will then inform the formulation of appropriate
policies aimed at enhancing export led growth and consequently a reduction in import
reliance.
Long term Action plans
As is evident in the findings of the study the threat of on the long term survival of the
Local manufacturing industry in Kenya is unmistakable. The study therefore strongly
recommends taking of affirmative action in protection of local industry from illicit trade
in cheap by providing investors with incentives to manufacture locally instead of
outsourcing to .has great manufacturing advantages of efficient technology, large, skilled,
efficient and cheap labor force, weak currency, cheap energy sources, readily available
raw materials and a political government actively involved in the elimination of its
international trade barriers; all this put together and it almost becomes almost impossible
e for a developing country to compete fairly with such as technologically advanced
nation.
The growth of the manufacturing sector is the only way Kenya’s unemployment
problems can be solved. As population increases there is need for expansion of job
opportunities available for the youth in Kenya. Outsourced manufacturing only allows
companies to continue being in business as distributors but the job losses associated with
the close down of factories means that the gap between the rich and the poor in Kenyan
will continue to increase hence creating social problems of instability and inequality in

43
Kenya. It’s therefore pertinent that there should be a combination of investor incentives
as well as protectionist policies aimed at growing and protecting the local industry
respectively.
How then do we achieve development without ruining the good business relations that
Kenya enjoys with particularly with the much needed funding for infrastructural
development projects that has seen massive upgrade of both urban and rural roads? The
secret lies in making manufacturers choose to invest in Kenya despite the diseconomies
of doing so. This can be done by reviewing of the East African duty remission scheme
ACT to allow duty free imports on raw materials not locally available in Kenya for local
manufacturing and value addition without imposing restrictions on where they can sell
the finished product and not imposing any duty on sales on the EAC markets. This
therefore calls for prudent diplomatic relations between the EAC countries for them to
realize that with the current CET being imposed on goods produced under the duty
remission; EAC countries are losing their local markets to cheap imports
To curb the challenge associated with the substandard and counterfeit goods there is
need to ensure that there is upgrading and harmonization of quality control standards
between the EAC countries standardization authorities such as KEBS, TBS, UNBS, RBS,
and BBN. These institutions should ensure that their quality procedures and regulations
are in harmony to eliminate the need for repetitive tests. They should also set a uniform
bar/benchmark by consulting with KAM on the quality of new products imported from
the to curb entry of substandard goods into the EAC markets. To achieve this, anti
dumping laws should be reviewed so that transacting in substandard goods should be
considered as dumping and hence contravening of the antidumping regulations.
Consequently all importers should be registered including the nature of items imported
and the manufacturer of such items; this will ensure counterfeits and sub-standard goods
can be traced to one particular manufacturer and importer. Additionally it’s highly
recommended that shipping insurers be required to enter into co-insurance partnership
program with local insurers to avoid under declaration of cost Insurance and Freight for
imported goods.

44
Additionally consumer protection oversight authorities should be engaged with the
standards authorities to ensure effectiveness in policy implementation. The Single
window system can actually be used to counter the problem of counterfeiting if are also
subject to the system .This is because with single window system goods are subject to
quality checks at source and the anti-counterfeit and standards authorities will be able to
trace back the goods to the original manufacturers and their distributors to effect legal
action against them. These Institutions should be empowered with the human resource
and financial resources needed to effectively meet their mandate so as to avoid further
proliferation of Chinese goods into the market.
On would argue that even with these systems and controls in place corrupt individuals
employed by these entities would still allow substandard goods, counterfeits, under-
declaration of CIF, weighbridge discrimination and overloading to take place at the
presentation of a bribe. to curb this its highly recommended that anti-corruption
authorities in East Africa jointly source highly reputable audit firms to continually audit
the assets and generate capital statements for individuals facilitating trade such as KRA
clearing agents, KEBS officials and weighbridge officials all across east Africa . Asset
declaration and consequent generation of capital statements are accounting tools used by
tax authorities to identify tax evaders, the same system can be used to identify those who
have illegally acquired wealth and improved lifestyles through corruption. Individuals
who cannot justify their asset sources should be terminated immediately. This might
sound like a long shot but it’s the only effective way of fighting corruption in East Africa.
Medium term action plans
Consensus among the Respondents interviewed is that the Single Window System is
indeed a good system but is definitely took-off on a rocky start. Proper implementation of
the system is important if the benefits of implementing the systems are to be enjoyed by
the stakeholders affected by its implementation. There is need for additional and
continuous user training on use of the systems as currently the level of stakeholder
capacity and awareness is extremely low. Institutional capacity enhancement for
enforcing authorities such as KRA and Kentrade to train their employees and create

45
expertise se in this area should be done for them to adequately handle the challenges
associated with the implementation of the project.
There should be monitoring and evaluation of the performance of the single window
system in form of feedback surveys so that challenges can be addressed in time to
enhance system improved. The enforcing authorities need to immediately increase the
number of personnel involved in the clearing and verification checks of exports because
currently the available agents cannot adequately meet the efficiency needs of the
manufacturers.
Consequently, the SWS, should be reviewed so that the process can accommodate the
unique nature of export business in East Africa such as use of pro-forma invoices instead
of invoices, use of credit sale transactions instead of cash only and a review of the system
to eliminate current inefficiencies mentioned in the discussion of challenges. Further, the
single window system’s requirement for the electronic cargo tracking system which
pushes small exporters to consolidate cargo and have it containerized should be made be
more sensitive towards the smaller exporters who comprise of the majority of exporters
to the region. It is important to note that the lengthy export procures in Kenya complicate
the SWS. The export procedure should therefore be reviewed so that need for excess
verification personnel and repetitive practices are eliminated.
Short term action plans
Despite the adoption of the customs union protocol, it is evident that Kenyan goods are
still being subjected to CET. It is important to note that as a result of the adoption of EAC
duty remission scheme; most Kenyan manufacturers have exited from the scheme and are
paying duty and VAT on their imported raw materials; being subjected to CET after
exiting from the remission results in a pure case of double taxation a reason for the
massive decline of Kenya’s exports to the EAC. The study recommends that this should
be addressed by ensuring immediate adherence to the customs union protocol by EAC
countries as this is a case of unfair trade practice. With this approach, the Kenyan
government will begin to see positive results of improved exports in less than six months.

46
An Export Processing Zone (EPZ) is a Customs area where one is allowed to import
plant, machinery, equipment and material for the manufacture of export goods under
security, without payment of duty. The East African duty remission act limits the market
size of companies that are in the scheme such that these companies can only export 20%
of their exports to the EAC countries and the remaining 80% to outside EAC. Companies
in the EPZ lost over 80%of their exports markets due to the adoption of the east African
duty remission scheme. To resolve this there should new negations with the East African
countries on the treatment of companies in the EPZ because failure to do so will make
these regions redundant in less than 3 years. A simple solution exits where a criteria of
what constitutes the EPZ can be changed to allow companies at the EPZ to operate just
like other businesses outside the EPZ without any EPZ benefits since as of now there is a
zero effect on weather a company operates within the EPZ or not if their target market is
within the EAC due to the adoption of Customs union protocol. On the other hand the
companies can be advised to set up factories outside the EPZ such as in industrial area
and take advantage of the customs union protocol which eliminates the need to pay duty
in EAC countries subject to strict adherence to the customs protocol something that is
currently not happening fully.
There is need for the government to undertake in energy planning to meet future growing
needs of the manufacturing sector. Respondents recommended the urgent need for the
introduction of an electricity tariff from 11pm-5am to utilize the low demand. Further,
there is need to benchmark the cost of electricity with competing countries such as
Egypt whose energy costs are so low it makes Kenyan products unable to compete with
Egyptian products. Power outages that push manufacturers to use fuel to sustain
production have rendered the production processes very expensive. The government
should ensure that industrial areas do not suffer from power outages at all.
Since the Revenue Authority has a responsibility to give VAT refunds as provided for in
Part VIII of the VAT Act 2013, it should ensure that these refunds are done in time for
manufacturers to invest further into their industries and forestall the inconveniences and
actual losses incurred from having to seek further financing from banks to sustain their
businesses. IDF fee and RDL have contributed to Kenyan goods being 5% more

47
expensive than COMESA and SADDC imports. The Respondents strongly recommended
their elimination.
Exporters to South Sudan faced a slump in their export numbers following the disruption
of war early this year. It is therefore in our best interest to ensure that there are successful
negotiations leading to political stability in the region. Most of the exporters identified
South Sudan as a potential market and is likely to compensate for their loss of markets in
the EAC countries. They also believe that South Sudan being part of the EAC will
enhance the peace process and improve certainty and reduce the risks of business. The
Respondents believe that being a member of EAC will enhance the peace process, an
element key to their business success.
Kenyan exporters are subject to central and county levies. Having established that county
governments are now imposing county levies increasingly becoming an impediment to
the ability of manufacturers to export to the region, it is recommended that the central
government and other stakeholders need to encourage a harmonization of levies imposed
and also importantly building the capacity of county governments on why such levies
may eventually do more harm than good if they prove an impediment to local industry’s
export activities.
Limited pipeline capacity is a factor that accounts for over 90% decline of exports in the
oil and gas sector. This is attributed to inadequate pipeline distribution network which has
become inadequate with increased local demand for oil products and the closure of the
inefficient Mombasa refinery. Currently there is an ongoing expansion of the pipeline
network which once completed shall resolve the problem. The refinery is recommended
to be used as fuel storage facility due to its capacity as this will address the limited
capacity issues .Kenya has experienced competition from established local industry in
Uganda due to the effectiveness of its import substitution policy .This study recommends
that Kenya should learn and adopt the same policy as this will reduce reliance on imports.
Monetary union should be adopted do address the problem of exchange rate volatility .the
ministry of agriculture should look into improving the quality of milk production in
Kenya as this was identified as a reason for the decline in the dairy sector.

48
5.5 limitations of the study
Every study inevitably encounters certain levels of limitations due to a variety of factors.
The study targeted companies whose exports to the EAC countries have been declining.
Some of the targeted respondents had since closed business and could not be traced. The
study therefore did not feature the opinions of such respondents. Some respondents could
not give the researchers much information due to the restrictive nature of their company
policies this was particularly true with multinational firms.
5.6 Areas for Future Research
The study focused on the reasons for the decline of Kenya’s exports to the EAC
countries. Future research should review the performance of Kenya exports to other non
EAC sub-Saharan African countries. Further researchers should review the disparities in
tax practices in the EAC countries and its impact on investment decisions for purposes of
informing harmonization framework of EAC tax regimes. There should also be an
evaluation of the performance of the private in Kenya’s alone as this study excluded
Kenya in study of EAC markets

49
APPENDIX I: INTRODUCTION LETTER
COMMISSIONER OF CUSTOMS SERVICES
KENYA REVENUE AUTHORITY: CUSTOMS SERVICES DEPARTMENT
12TH FLOOR, TIMES TOWER BUILDING: HAILE SELASSIE AVENUE
P. O. BOX 48240 -00100
Nairobi, KENYA
Dear Sir/Madam,
RE: LIST OF KENYAN EXPORTERS TO THE EAST AFRICAN COMMUNITY
Based on the KNBS Economic Survey 2014 there is a clear indication that Kenya’s
Exports to the EAC have been declining for the past five years. As a result of this the
EAC is undertaking research to identify the causes of the steady decline and possible
solutions to inform policy. Our intended research methodology entails direct interviews
with Kenyan exporters to the region as they are better placed at articulating the problems
encountered and possible solutions. In this regard we write to request for a list of Kenyan
exporters to the EAC Countries i.e. Uganda, Tanzania, Rwanda and Burundi and if
possible the value of their exports.
Name of
Exporter
contact
details
country
exported to
commodity
exported
quantity
exported value of export
Your assistance will significantly add to the value of the research
Yours sincerely,

50
APPENDIX II: QUESTIONNAIRE
SECTION A: General information
Name of the company:………………………………..
In what category of industry does your organization fall into for example
Manufacturing: ………………………..
For how long has your company been exporting to the EAC Countries previously Uganda,
Tanzania, Rwanda?
Less than 5 years 6-10 years 10-15Years Over15 year
Which countries in the EAC do you export your products to? You can tick more than
one
Uganda Tanzania Rwanda Burundi
7. Has your organization established any subsidiaries in any of the EAC countries
YES NO
If yes state which county/countries highlight the year of establishment
Uganda, year____ Tanzania Year______ Rwanda, year____ Burundi
year _
To what extent did the following policy initiatives inform your decision to establish
subsidiaries in the EAC countries Use a five point scale where 1=Not at all, 2=little
extent, 3=Moderate extent, 4= Great extent, 5=Very great extent. Tick below
accordingly.
1.

51
Reason for establishing subsidiaries in the EAC Countries 1 2 3 4 5
Lower rate of domestic taxes in EAC countries compared to
Kenya.( please specify comparing Kenya to EAC
countries)___________
High transport and freight costs that necessitated subsidiary
development
Low energy and electricity costs in EAC countries (give
example comparing Kenya to EAC countries )_________
There is cheap labour in EAC countries compared to Kenya
Your decision was informed by good political government and
political stability
Ease of doing business in those countries is better than in Kenya
Your decision was inevitable as the governments in those
countries made it impossible to do business as a non resident
company(please indicate what tactics were employed to frustrate
your non resident status)______________
Your decision was informed by good infrastructure in EAC
countries
OTHER PLEASE SPECIFY
………………………………………………………………………………………………
………………………………………………………………………………………………
………………
9 .how would you compare business climate in Kenya with EAC Countries
………………………………………………………………………………………………
……....
What is the annual value of the production in that subsidiary and/or subsidiaries?
____________

52
Would you say that your organizational exports to the EAC have been declining?
YES NO
If yes what is the average annual value of the decline __________
If no indicate the approximate annual percentage growth__________
SECTION B: Possible reasons for the decline of exports to EAC /Challenges
affecting exports to the EAC Countries
To what extend do you consider the below stated international trade challenges to be the
reason for the decline of Kenya’s /your company’s Exports to the EAC countries .Use a
five point scale where 1=Not at all, 2=little extent, 3=Moderate extent, 4= Great extent,
5=Very great extent. Tick below accordingly.
Reasons for the decline of Kenya’s Exports values to the EAC
Countries 1 2 3 4 5
There is a sense of protectionism of local companies by EAC
countries governments hence not able to compete
effectively(please state protectionist tactics employed
)___________________________________
Decline in unit price of commodities exported
(specify reason for decline )___________
Increased local demand Kenya hence reducing amount exported
(give reason why you have not expanded your production to suit
local demand __________

53
Your company meets its profit targets even with the decline in
export hence no pressure to sustain exports growth.
Cost of doing business and exporting to the EAC countries have
become unsustainable hence rendering the markets unattractive
(specify the costs)________________________________________
Lengthy licensing and customs procedures in Kenya ( give example
comparing Kenya to EAC countries )_________
Unfavorable tax policy in Kenya ( give example comparing Kenya
to EAC )_________
Under developed infrastructure in Kenya that render Kenyan Goods
non competitive (describe nature of infrastructure)_________
Competition from importation of goods from other trading
blocs/countries(please state the country that is your competitor in
the regional market and give reason why cannot compete
effectively with them__________________
High cost of production in Kenya (specify industry)___________

54
Competition from local resident companies in EAC countries
(specify industry) _______________
Tedious and costly tax compliance requirements in kenya
(specify)_______________
Length and tedious licensing processes in Kenya ( give example
comparing Kenya to EAC countries )_________
corrupt government tendering process in Kenya
Case of protectionism in EAC countries( specify nature of
protectionist policies and country ) _____________
Kenyan goods have increasingly become expensive due to stronger
Kenyan shilling

55
The VAT act in Kenya has increased the cost of production making
Kenyan goods expensive
Increased business risks associated with exchange rate volatility
The drawbacks of duty remission scheme
OTHERS:The list above might not be exhaustive or is not applicable to your case. Kindly
PLEASE SPECIFY any other reason for the decline of Kenyas /Your organizations
exports to the EAC Countries
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………………………
……………………………………………………………………………………………
SECTION C: Response strategies
What strategies and policy interventions would you advice the Government to implement
in order to reverse the worrying trend of Kenya’s declining export to the EAC countries.
Using a five point scale where 1=Not at all, 2=little extent, 3=Moderate extend, 4 to=
Great extent, 5=Very great extent. Tick below accordingly.
Recommendation for Kenya government policy
interventions 1 2 3 4 5
The adoption of a single currency in EAC to reduce
exchange rate volatility and exchange losses
Monitoring of The customs union protocol adoption in

56
all countries to ensure adherence to the set regulations
development of modern market distribution challenges
across the east African markets
partnering with financial institutions to modernize
financial systems in The EAC markets
Recommendation for Speedy infrastructure
development in Kenya
OTHERS: PLEASE SPECIFY
…………………………………………………………………………………………….
…………………………………………………………………………………………….

REPORT ON THE REASONS FOR THE DECLINE OF KENYA'S EXPORTS TO THE EAC COUNTRIES

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