How the trade war between China and the US can impact Kenyan participation in Global and Regional VCs, African political collaboration and environmental protection. The investment focus on intra-regional value chains can change and diversify the economic structure while encouraging the industrialisation of African economies faster than GVC participation or bilateral trade.

1. DEBT, GEOPOLITICS, GVCs AND COVID-19
Rouja Johnstone 10 September 2020
Infrastructure development
and Kenya’s debt to China -
Increasing level of debt accumulation
vis-à-vis China – arising largely on
account of Belt and Road Initiative
(BRI) related infrastructural projects,
have sparked public criticism and
political unease
• In an effort to spur economic
development, over the past few years
Kenya has turned to China for funds, technology and equipment to develop its
infrastructure.
• Investments in infrastructure and ICT have contributed to Kenya’s increasing
participation in GVCs such as agribusiness and apparel and to economic growth.
• In 2017 the railway that links Mombasa to Nairobi opened and is the country’s
biggest infrastructure project since independence.
• By 2019 Kenya’s debt to China soared to $6.47 billion- a 766% increase in 6 years.
• Critics accuse President Uhuru Kenyatta’s government of saddling future
generations with unbearable debt burden by borrowing more funds from China.
• The nature of Kenya’s GVCs participation has evolved from commodity to limited
manufacturing requiring further investment in HR and technology development as
well as the creation of a favorable policy and regulatory climate to attract FDI and
expansion of GVC participation, while ensuring stronger social and environmental
protection.
https://thegeopolitics.com/post-covid-19-will-chinas-debt-trap-diplomacy-in-africa-falter/
https://www.cadtm.org/Kenya-caught-between-debt-and-political-indifference
How the trade war between China and the US can impact Kenyan
participation in Global and Regional VCs, East African political
collaboration and environmental protection
Google image
THE COST OF ENHANCING CONNECTIVITY FOR WIDER GVC
PARTICIPATION
How the trade war between China and the US can impact Kenyan
participation in Global and Regional VCs, African political
collaboration and environmental protection

2. 2
Geostrategic rather than
economic rational to shape
Kenya’s trade future – As
part of the geopolitical race for
influence in Africa the U.S. aims to
counter China’s influence through
new bi-lateral trade deal with
Kenya. The major economic shift
could reshape the economy,
undermine regional integration
efforts and reverse progressive
environmental regulations.
• The political tensions between the great powers offer an opportunity for Kenya to
diversify trade and investment away from China.
• Through the new trade agreement, Kenyatta will look to attract huge US investment
and improve its integration in international markets and GVCs through enhanced
FDI in key economic sectors such as Kenya’s agricultural sector including Kenya-
based agritech startups.
• For the US, the free trade agreement will open the doors for further similar trade
deals in the future, which will allow the US to counter China’s growing investment
in the region.
• In the context of the trade negotiations, a letter by the American Chemistry Council
has been made public, urging the U.S. and Kenya governments to prohibit the
imposition of domestic limits on “production or consumption of chemicals and
plastic” and on their cross-border trade in anticipation that Kenya could serve in the
future as a hub for supplying U.S.-made chemicals and plastics to other markets in
Africa.
• Pressure to repay debt and re-ignite the economy after the pandemic-induced
slowdown has made Kenya more vulnerable to external pressures and potentially
less assertive in trade negotiations.
https://www.nytimes.com/2020/02/06/business/economy/trump-kenya-trade-talks.html
https://www.nytimes.com/2020/08/30/climate/oil-kenya-africa-plastics-trade.html
https://www.nytimes.com/aponline/2020/09/01/world/africa/ap-af-kenya-us-plastic-trash.html
https://www.the-star.co.ke/business/kenya/2020-09-01-kenya-denies-secret-plastic-deal-reports-in-
us-trade-negotiations/
https://www.globalbusinessoutlook.com/what-does-a-free-us-kenya-trade-deal-mean-for-africa/
Kenya's control
over its trade and
GVC particpation
U.S. powerplay to
counter China’s
influence
HOW GEOPOLITICS SHAPE KENYA’S GVC PARTICIPATION CHOICES

3. 3
Acceleration of
structural change,
diversification and
economic resilience
may be closer through
deeper regional
integration and RVC
development - The
pressure to repay major depts
to China and global stagnation
in GVC expansion and FDI will
place the Kenyan government
under severe pressure to sign a
trade agreement with the US
even if it may compromise Kenya’s stringent and progressive environmental
regulations and undermine regional integration efforts under African Continental
Free Trade Agreement (AfCFTA) and East African Community (EAC) to negotiate as
a block. However:
• EAC’s trade with the global north and Asia consists of over 80% raw materials and
unprocessed goods, while the bulk of intra-regional exports are manufactured goods
- thus, failure to integrate into higher stages of GVCs does not prevent the upgrade
of RVCs and associated benefits.
• AfCFTA is the largest single market offering great potential for the development of
intra-regional value chains that can change and diversify the economic structure
while encouraging the industrialization of African economies.
• The COVID-19 crisis has exposed the degree of dependence on international
markets. For example, the Kenyan flower and tourism industries have had to lay off
the majority of their workforce due to demand contraction in European markets and
loss of trade as a result of disruption of international travel and logistics.
• The COVID-19 crisis gave the world an opportunity to re-evaluate the environmental
costs of economic development patterns and GVCs. African countries bear
increasing costs of climate change adaptation and environmental regulation is an
important long-term investment in stability and sustainability. Geographical
proximity means that RVCs, as opposed to GVCs, have the potential to reduce the
transport-related carbon emissions.
RVC VS. GVC INTEGRATION – RETHINKING THE OPTIONS
Source: UNCTAD-2018

4. 4
“The developmental and policy discourse has been skewed excessively towards equating
“export success” with the ability to integrate into GVCs and sell products in high-income
country markets. Policymakers in East Africa have, for a long time, embraced such policy
strategies. In turn, the region has become more exposed and prone to GVC-related
shocks, as seen with the onset of the current COVID-19 crisis. A more rapid expansion
of regional trade, by contrast, is arguably the surest and safest way to diversify trade and
reduce vulnerability, with the added plus that it is kinder on the environment.”
- Andrew Mold and Anthony Mveyange, AFRICA IN FOCUS: Trade in uncertain times: Prioritizing
regional over global value chains to accelerate economic development in East Africa (April 15,
2020)
https://www.brookings.edu/blog/africa-in-focus/2020/04/15/trade-in-uncertain-times-prioritizing-
regional-over-global-value-chains-to-accelerate-economic-development-in-east-africa/
https://africa-eu-partnership.org/en/africa-europe-alliance-0