Smell the bilateral roses.

The post-war push for integration and globalisation led to the creation of many (MANY!) supranational organisations. Chief among them the UN (1945), World Bank (1944), the IMF (1945), and the WTO (which in 1995 replaced the General Agreement on Tariffs and Trade from 1948).

These organisations have set out to integrate the global economy like never before. We are all, in a sense, still recovering from horror scenes in places like Nagasaki, Hiroshima, Normandy and Stalingrad. From the awful promise mutually assured destruction.

Mostly and until recently, these supranational organisations have been successful. Conflict is down, wealth and health are up. Trade has trumped conflict and the globe has become a lot smaller. For example, the WTO touts statistics that in the post-war era as a whole, trade grew at one-and-a-half times the rate of expansion in global GDP; in the two decades running up to the financial crisis of 2008, it expanded at fully double the rate of world growth.

However, cracks have started to appear. What seems to be an inability of organisations such as the WTO to keep up with the times has led to parties like America becoming disenfranchised with new powers (China) being treated as a ‘developing’ country, and Britain feeling stuck in its ties to the sluggish economies of the EU.

Today’s more skeptical attitude can also be felt in developing cities like Nairobi. Kenya is a centre for the UN in Africa, and anecdotally I have witnessed the ridicule of vehicles baring UN number plates. The story goes that these UN minions are out of touch, keeping to themselves in barricaded communities, spending enormous amounts on foreign goods and high salaries for foreign workers who don’t actually do very much to help Africa or the world.

At a macro economic level, the new attitude towards these supra-nationals means that when trade is liberalised, it is through bespoke arrangements between willing partners—not by across-the-board multilateral negotiations. In this new world, it could soon become hard to remember what the point of the WTO is. As stated in this excellent article:

“Even with the best will in the world, a technocratic body like the WTO is always going to struggle to deal with brute political power play. And right now, it is operating in anything but a good-will environment. The many useful things that this inherently feeble body can usefully achieve are slipping beyond its reach—because it is as strong or as frail as its most powerful members, above all America, want it to be.”

With this global backdrop, Kenya and South Africa are commonly involved in their own fair share of supra-national organisations:

South Africa and Kenya are both members of the World Trade Organisation (WTO); African Union (AU) which is in the process of negotiating a continental free trade area (CFTA) as well as members of the tripartite free trade agreement (TFTA) comprising of members of the Common Market for East and Southern Africa (COMESA), the East African Community (EAC) and the Southern Africa Development Community (SADC), … but there has been no bilateral trade agreement between the two countries….

Trump would probably argue that these supranational organisations are getting in the way of a fruitful bilateral agreement.

I would probably agree.

Tusker vs. Castle. Remembering a beer war.

In 1998 I was a 16 year old just starting to drink alcohol in Nairobi. I remember clearly the arrival of South African beers (Castle lager) in the bars as an alternative to Tusker, the king of Kenyan beer. Castle came in cans, and until then it had all been glass Tusker bottles. Tusker soon started to can their beer to keep up, which I always nostalgically thought was a pity.

What I didn’t understand was the turbulent backdrop to these shiny cans and bottles sitting on the shelves in all the pubs. A corporate war was started when SA Breweries landed in Nairobi and invested in a plant in Thika. SAB entered East Africa’s largest economy through a business partnership with local brewer East Africa Breweries Ltd, maker of Tusker.

Lucrative markets and very similar products meant that it was a race to the bottom for both parties to keep or gain market share. After much drama (accusations of sabotage, protectionism, underhanded tactics by both parties), a price war benefiting consumers and a huge influx of different brands of beer into the market, the deal soon fell apart, forcing SABMiller to shut down its Thika plant and exit Kenya in 2002.

So what? Why does this matter? To me this is an important example of the SA vs Kenya dynamic. Synergies and opportunities are spotted, but what could have been an opportunity for strengthened bonds and cultures turned into a one-on-one brawl. Perhaps this is due to the nature of the product itself. Highly commoditized, all that was left was grabbing market share by any means. Prices dropped, tactics by all accounts got dirtier.

If South Africa and Kenya are to trade successfully, then perhaps the product traded needs to contain a little more differentiation, a little more art. It must demonstrate clearly its addition and novelty to the local market. Ideally there is no local equivalent to protect, because neither country wants to let the other one in if they feel the market already exists. Both are proud of their status as African giants. As an example, South Africa won’t allow Tusker to be sold in SA. A trademark technicality has kept it out for decades.

Recently SABMiller is back in the Kenya market but is only importing beers into the market. A more cautious approach is probably wise considering the first foray.

If I was going to trade goods into Kenya, I would try to find something that is just not available yet, and introduce it carefully with local partners. This was done with cell phones, pay tv and many other goods which didn’t trigger a price war. I’m sure there will be more to come.

Anyways. Happy Sunday chimps!