The just ended year 2020 saw Kenya negotiate some high-profile trade agreements with its major trading partners including the United Kingdom and United States of America (USA). While the trade deal with the United Kingdom was recently concluded, negotiations on the Free Trade Agreement with the USA are still ongoing.
One of the notable inclusions proposed for the Kenya-USA trade deal is the introduction of quantifiable commitments by the government and state corporations around participation by American enterprises in Kenyan public procurement.
It is noteworthy that Kenya is neither a party nor an observer to the WTO Agreement on Government Procurement, which regulates public procurement between signatories. This Agreement allows suppliers of goods and services in other signatory countries to be treated no less favorably than domestic suppliers in procurement covered by the Agreement while emphasizing the principles of openness, transparency and non-discrimination. Kenya has also not made commitments touching on public procurement in its previous trade agreements and the proposed inclusion of such commitments would if adopted, mark a significant shift in the country’s approach towards public procurement when dealing with its international trade partners.
Public procurement can be a sensitive issue as it involves use of taxpayer moneys and accounts for a large share of economic activity in most countries, moreso developing countries such as ours where the World Bank estimates that upto 26% of GDP is spent on public procurement. It is also an important avenue through which the Kenyan Government creates employment for Kenyans, boosts innovation, supports small and medium sized enterprises and builds emerging industries, all of which keep cash circulating in the economy.
With this in mind, the Government of Kenya has put in place preference schemes and local content requirements aimed at ensuring that Kenyans can participate in and benefit from government contracts. One such example is the Access to Government Opportunities Program, which aims at enabling enterprises owned by youth, women and persons with disability to participate in government procurement. The ICT Policy also contains local content requirements applicable to companies providing telecommunications services in Kenya. Such companies are now required to have 30% Kenyan shareholding as a precondition to licencing. Companies operating in the Energy and Mining sectors are similarly required under the Energy Act, 2019 and Mining Act respectively, to put in place local content plans demonstrating how they intend to incorporate Kenyan goods, services and manpower in their activities.
The main objective of the USA in the ongoing discussions for a free trade agreement with Kenya is to increase opportunities for American firms to participate in Kenyan tenders. It is unlikely that the proposed Kenya-USA trade deal will seek to do away with the preference schemes currently prevailing under Kenya’s procurement laws as highlighted above, noting that the US has on its part, sought to exclude its own preference schemes such as the “Buy America” requirements from the negotiations. It may be the case however, that the USA seeks the phasing out or easing of certain local content requirements in Kenya where these are deemed to be a barrier to market access for US goods and services. It will be interesting to see how the discussions pan out in this regard and how the same will affect, if at all, the already existing local content strategies, such as the 2017 Buy Kenya Build Kenya Strategy, whose main objective is to encourage consumption of locally produced goods and services.
Issues of transparency, fairness and effective anti-corruption measures will also likely feature prominently in the negotiations with the USA as commitments in this regard would create a conducive environment for American firms to participate in Kenyan tenders. Such measures would also benefit the country and Kenyan firms participating in tenders and should therefore be welcome.
If the WTO trade pact and the USA-Mexico trade agreement - which includes public procurement commitments, are anything to go by, some of the commitments that the USA may seek of the Kenyan government and state owned enterprises include a preference towards open tendering, increased procurement through electronic means, publication of future procurement plans, name and address of successful bidders and value of successful bids as well as providing unsuccessful bidders with reasons as to why their tenders were not selected. The Kenyan Government already maintains a public procurement information portal where information relating to government contracts is uploaded, but some of these requirements if they are adopted, would go beyond the information currently provided. By way of example, there is currently no requirement in the Public Procurement and Asset Disposal Act for unsuccessful bidders to be provided with reasons as to why their bids were unsuccessful.
International trade is one of the pillars that the Government will be relying on as part of its recovery strategy following the Covid 19 pandemic. It may therefore be the case that we should expect some changes in Kenya’s public procurement landscape arising from the trade deal, with the focus being on creating a conducive environment for international trade.
The article was also featured in the Business Daily on 12 January 2021.