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On January 14 2025, President William Ruto of Kenya and His Highness Sheikh Mohamed bin Zayed Al Nahyan, President of the UAE, presided over the signing of the Kenya-UAE Comprehensive Economic Partnership Agreement (the CEPA). This landmark agreement aims to strengthen trade ties, attract investment, and foster economic cooperation between the two nations.
Kenya’s Principal Secretary of Trade, Hon. Alfred K’ombudo, hailed the CEPA as a historic milestone in Kenya-UAE trade relations. He emphasised its potential to foster trade, enhance investment capabilities, and promote collaboration in areas such as logistics and trade in services. The CEPA seeks to eliminate trade barriers, simplify customs procedures, promote industrialisation, and strengthen regional value chains.
The two countries share a long-standing trade relationship that has grown significantly over the past decade. In 2023, bilateral trade reached a total of KES. 445 billion, with the UAE ranking as Kenya’s 6th largest export destination and 2nd largest source of imports, accounting for 16% of Kenya’s total imports. According to the Ministry of Trade and Industry, the UAE is Kenya’s 7th largest export market and 3rd overall trading partner.
Although the agreement is not publicly available, the Government of Kenya, through the State Department of Trade and Industry, has issued concise communiques on its scope and potential impact.
Scope of the Agreement
The CEPA encompasses fourteen key areas, including:
Technical working committees have been established to undertake further consultations on these areas.
Kenya-UAE Trade Highlights
Kenya’s exports to the UAE include agricultural products such as meat, fruits, vegetables, and flowers. In 2023, meat exports to the UAE reached KES. 9.9 billion, representing more than half of Kenya’s total meat exports. Additionally, exports of fruits (pineapples, avocados, and mangoes) amounted to KES. 5.2 billion, while vegetables and flowers generated KES. 5.6 billion.
The UAE’s exports to Kenya primarily consist of petroleum, machinery, chemicals, and other essential products. The CEPA is expected to further diversify and expand trade between the two nations.
Schedules of Commitment: Trade in Services
The CEPA goes beyond trade in goods to cover trade in services, technological innovation, digital trade, and digitally delivered services. These negotiations are guided by international principles, including:
GATT Article XXIV: Territorial application, frontier traffic, customs unions, and free-trade areas; and
GATS Article V: Freedom of transit for goods, vessels, and other means of transport.
The CEPA adheres to WTO principles, promoting preferential and mutually beneficial trade and investment relations.
We highlight below some key issues that should be noted:
1. Limitations on Market Access
To promote and protect investments, the CEPA requires a commercial presence, where foreign service providers must establish local operations. This measure seeks to increase productivity, improve infrastructure, and enhance access to essential services, such as energy, health, ports, airports, and ICT.
A local content requirement applies to non-Kenyan services and suppliers to maximise the local value of inputs and resources. This provision aims to create employment opportunities, promote enterprise development, and facilitate the transfer of skills and technology.
While the CEPA imposes no limitations on the movement of natural persons, measures affecting the entry and temporary stay of specific categories of individuals, such as contractual service suppliers, independent service suppliers, business visitors, and intra-corporate transferees, will remain in place.
2. Limitation on National Treatment
National treatment ensures equal treatment of foreign and domestic services. However, the CEPA allows for certain limitations until finalisation of negotiations, as follows:
a resident firm may be taxed at a lower rate than non-resident firms;
a foreign service supplier is not allowed to own a freehold title but may acquire land on a leasehold basis.
In the wake of negotiations, Kenya is to indicate measures that will not apply to already committed sectors under the WTO and apply to sectors and sub-sectors that will be liberalised.
3. Joint Ventures under the CEPA
Joint ventures (JVs) are crucial for fostering collaboration and accessing new markets. Under the CEPA, a foreign shareholding in JV arrangement should not exceed 75% initially (that is, there should be at least 25% local shareholding). However, after five years of operation, full foreign ownership (100%) will be allowed. This approach is intended to balance foreign investment with local capacity-building.
Organisations considering investment under the CEPA will need to be conscious of the need to also have a local partner for purposes of meeting the local shareholding requirements for the initial 5-year period.
Conclusion
The CEPA presents significant opportunities for Kenyan service providers in sectors such as education, transport, communications, construction, and engineering to access the UAE market. The CEPA aligns with Kenya’s Bottom-up Economic Transformation Agenda (BETA) and is expected to unlock market potential, attract foreign direct investment, and promote technology transfer.
By complementing other agreements, such as the African Continental Free Trade Area (AfCFTA), the Kenya-EU Economic Partnership Agreement, the Kenya-UK Economic Partnership Agreement, and the African Growth and Opportunity Act (AGOA), the CEPA positions Kenya as a gateway to East Africa and global markets.
Should you have any questions regarding the information in this legal alert, please do not hesitate to contact, Daniel Ngumy or Luisa Cetina.
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Contributor
Faith Chelangat – Consultant