Realization of Maximum Benefits from Liberalization of EGS:

Kenyan Case

By

Moses Ikiara

Kenya Institute for Public Policy Research & Analysis (KIPPRA)

Outline

• Introduction

• Demand for EGS in Kenya

• How is demand met?: Imports vs Domestic Production

• Kenya’s exports of EGS, Barriers?

• How benefits to Kenya from liberalization of EGS can be maximized.

Introduction

• Presentation looks at evolving demand for and supply of EGS in Kenya & how benefits from liberalization of their trade could be maximized

• Focus is on environmental goods• Persuaded by the broad definition of EGS: “goods

& services whose production or consumption benefits the environment or which are inherently beneficial to the environment”

• Environmental protection receives considerable attention in Kenya but environmental problems persist.

Demand for EGS in KenyaDemand for EGS is high judging from: • 60% of urban and 34% rural populations have access to

safe drinking water. • 29% of urban population served by a water-borne

sewage system. No sanitary landfill. • Less than a quarter of solid wastes collected in Nairobi.• Excessive deforestation, now only 2.5% of land under

forest.

This status is attributable to:1. Rapid population growth: Population growth rate 3.4% in

1989; about 2.4% currently. Rural-urban migration, influx of refugees.

2. Weak economic performance: Growth slowed from 6.6% (1960s) and 5.2% (1970s) to 0.8% in 2000-2002. Incidence of poverty: 48% in 1982 to 56% in 2002. Per capita ODA: $ 50 in 1990 to 16 by 1998. High expenditure on debt servicing crowding out essential public services.

Demand for EGS in Kenya3. Heavy dependence on wood fuel and ecosystem services in

general. Wood fuel supplies 70% of energy, 21% from petroleum and 9% from electricity (hydro largely). High rate of biodiversity loss. Air pollution becoming serious, with transport consuming 56% of fossil fuel in the country.

4. Pressure from stakeholders, donors, civil society and consumers. Green Belt Movement, Residential associations in Nairobi. Tourist hotels increasingly using energy and water saving technologies, eco-friendly detergents and shampoos, improved waste management systems.

5. Multilateral environmental agreements (MEAs) and related mechanisms. Kenya hosts UNEP, has signed many MEAs such as UNFCCC, CITES, Ramsar Convention. Has used CITES to fight ivory trade.

Demand for EGS in Kenya6. Domestic policy and institutional responses:

Environmental policy has been improving. Environmental Management & Coordination Act (EMCA, 1999) has given power to the government to apply economic instruments to manage environment and natural resources: customs & excise duty waiver for imported environmental capital goods, tax rebates for environmental protection industries, fees or user charges proportional to environmental damage. Requires envntal audits, EIAs.

7. Trade policy reforms: serious liberalization in early 1990s, including abolition of trade licensing and foreign exchange controls. By 1998, simple average tariff had been reduced to 12.8%. Stronger regional integration has increased Kenya’s exports: COMESA took 15% of Kenya’s exports in 1990-92; 34% by 1996-98.

Demand for EGS in Kenya• Fairly vibrant trade in EGS in the country: charcoal

(including eco-charcoal), solid waste mgt services, solar energy materials, water tanks, water treatment chemicals, improved cooking stoves, etc.

• Recent strengthening of environmental legislation to increase demand for EGS.

• Incentives exist to encourage environmental friendly technologies. Examples:

- 5% duty on polyethylene for waste disposal

- 15% duty on water tanks, chlorine

- 15% duty on hard rubber waste compared with 2.5% on less polluting rubber waste

- 10% extra duty on imported motor vehicles that are 8 and above years old

- High export taxes (25-40%) on live wildlife to protect fauna

How is Demand Met?• Capital goods (trucks, tippers, pumps, meters,

machinery for water supply & solid waste mgt) largely imported. Same with chlorine, fertilizers, solar photovoltaic (PV) modules, solar water heaters, wind turbines, etc. Low tariffs & hardly any NTBs. Some of the imports e.g. waste compactors not suited to local conditions.

• Some ‘environmental’ goods are also produced domestically:

- 84% of firewood sustainably produced from individual farmlands

- Tea plantations have developed own eucalyptus plantations for tea leaf curing, switching from expensive & carbon intensive petroleum fuel

How is Demand Met?- Charcoal & briquettes from alien species (e.g. Australian

black wattle, water hyacinth), and from wastes like charcoal dust, organic waste, sawdust, rice & coffee husks, sugarcane waste.

- Small amounts of useful products (boxes, pots, furniture) from scrap metal and from alien weeds like water hyacinth

- Some solar water heaters- Energy-efficient stoves – used in about 50% of urban

households and many schools, hospitals, etc. - Small amounts of organically produced products like food

and fibre (cotton)- Small amounts of products harvested from the ecosystem

such as honey, extremophiles (have been used to develop industrial enzymes in developed world e.g. Tide Alternative Bleach Detergent). Commercial value could stimulate conservation just like tourism creates stimulus for conserving wildlife

How is Demand Met?• Game meat sustainably produced from culled wildlife

• Eco-tourism: One of Kenya’s main exports

What do these products suggest?

• Defining environmental goods on the basis of how they are produced could be important for developing countries. Could this flexibility be considered only for developing and LDCs as S&D treatment?

Exports?, Barriers?Little outside eco-tourism exports, and to the region:• Some re-exports of solar photovoltaic modules

• Base-metal waste & scrap, chlorine, mineral water

• Goods exported via consumption by tourists

Trade agreements & regional blocs create great potential

Barriers?• High tariffs in the regional market, e.g. 40% on min. water

• Infrastructure problems & high cost of transportation

• Lack of market information on EGS

• Capacity to produce envntal goods for export weak

• Foreign travel advisories

• Insufficient foreign appreciation of indigenous knowledge in the country

Maximizing Liberal. Benefits1. Improve domestic supply capacity by involving the

private sector and local communities in decision making and other operations, installing the necessary public capital investments, improvement of investment climate, faster impleme. of policy & legislative reforms in tandem with liberal., & international support.

2. Improve understanding of the domestic EGS industry & international market: comparative & competitive adva. of the domestic sector. Need studies & capacity building

3. Ensure facilitative & supportive multilateral trade regime:

- S&D treatment including gradual liberal. as understanding improves, greater flexibility in attaching market access conditions, allowing goods defined on the basis of production method for developing and LDCs (e.g. organically produced products), allowing goods harvested from the envnt (such as honey and extremophiles as commercial value stimulates conservation!).

Maximizing Liberal. Benefits- Flexibility to protect (and gradually liberalize) ‘infant

industries’ of some of the environmental goods in which developing or LDC countries have or could develop comparative and competitive advantage.

- Rather than focusing on the development of an exhaustive list yet technological advances are changing rapidly, greater attention should be given to development of eligibility criteria and evaluation mechanisms. The list could then be gradually improved.

- Decisions should be made in a way that stimulates developing countries to develop potential environmental goods industries, i.e. could market access be improved even for not-yet-existing environmental friendly goods?

- Simultaneous negotiations on environmental goods and services so that developing and LDC countries have opportunity to use concessions on the goods for gains in the services (e.g. eco-tourism).