US tech giants

Kenya is on a charm offensive to lure US tech giants dumping China due to relentless tiffs between Washington and Beijing.

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Ruto’s plan to attract American tech giants looking to relocate from China

Kenya is confident of winning the race to become the manufacturing hub for giant American tech firms looking to relocate or diversify out of China on the back of unending trade tensions between Washington and Beijing.

President William Ruto has cited commitments to give unspecified incentives to investors to set up data centres in Naivasha, with access to geothermal power, as a key selling point for multinationals in technology to put up plants in Kenya.

The rising cost of wages and on-and-off trade tiffs between Washington and Beijing have seen US manufacturers in labour-intensive sectors such as textiles and furniture migrate production lines to other countries like Indonesia and Bangladesh over the last decade.

Recent reports have suggested US firms that produce electronic products such as smartphones and tablets are the latest to slow down fresh investment in China and are considering shifting production lines to other countries with African markets as one of the key candidates.

“The whole tech space …is the space that we must pay very special attention to. And it is the reason why I travelled to the Silicon Valley [in the US] with the assistance of my good sister Meg [America’s ambassador to Kenya Meg Whitman] so that we can speak the language of technology to the leading companies globally,” Dr Ruto told participants attending the launch of AfCFTA’s Trade and Development Centre at the Strathmore University Tuesday last week. “It is because of the pitching that we have made, and it is because of that even they can now start the opportunity in Africa because that’s where the future is.”

Dr Ruto in September joined months-long Kenya’s roadshow in the US, which sought to market Kenya as the manufacturing hub for American firms looking for new low-cost production bases.

The Kenyan leader made a case for Kenya’s business and investment potential in technology during the meeting in San Francisco which was attended by officials from tech giants, including Microsoft, Cisco, IBM, Kyosk, and SunCulture. The roadshow was launched on April 25 in New York City with a focus on attracting investors into the apparel sector, moved to Chicago on September 13 to scout for investors in agri-business before proceeding to San Francisco from September 15.

“We are now beginning to leverage on the interest [by US tech giants] on our continent. I want to confirm that Kenya is already aligned in terms of data centres. We have already committed 1000 acres in Naivasha for the development of data centres with green energy because we believe this is a service that we do not just need it just for Kenya; we need also for the region [Africa],” the President says.

“This is one export we can also export globally. We can also export to America and balance our trade and also Europe. And that is the space that we intend to ensure that we take charge and deliver on it.”

Data centres allow mobile network providers such as Safaricom, banks, internet service providers, retailers, and content providers to centralise their computing and networking equipment for collection, storage, processing, distribution, and access to large amounts of information.

Some of the major companies that run data centres in Kenya include EADC Liquid, iColo, Africa Data Centre, Access, Safaricom, MTN Business, and Telkom Kenya.

The facilities are heavy electricity gobblers, explaining the location of Naivasha where the largest capacity of geothermal power to Kenya’s grid is generated. Kenya Electricity Generating Company, controlled 70 per cent by the State, has in the past revealed a plan to lease out 845 acres at its Olkaria geothermal field in Naivasha to investors, pledging to sell them electricity at discounted rates.

That was part of the proposed KenGen’s Green Energy Park where the power producer is targeting international investors to set up industrial and non-industrial activities such as offices, data centres, research and development centre, hospitality as well as visitor experience centres.

Kenya appears to have a head-start in Africa when it comes to future dealings with American firms, largely due to the ongoing bilateral trade negotiations between Nairobi and Washington.

The two countries are locked in negotiations under the US-Kenya Strategic Trade and Investment Partnership (STIP) whose terms they started stitching together in July 2022 before the end of former President Uhuru Kenyatta’s term in office.

“The STIP is actually a way of – Kenya will undertake, and we – together we’ll undertake additional commitments that we believe will improve Kenya’s investment climate and environment, and that at the end of the day, Kenya will be in a better place to attract the kind of investment for the kind of job growth that they’re looking for,” Constance Hamilton, the Assistant US Trade Representative for Africa and the lead negotiator for America in the bilateral talks said on October 26.

“What we do has to work for Kenya before we say that this is something that we will replicate someplace else. We have to make sure we get it right. But I’m very excited about the progress that we’re making.”

Kenya has long sought a full free trade agreement with the US to replace the two-decade-old Agoa deal, but progress has been dragged by regime change in both countries.

The Agoa pact, first enacted in 2000 before renewal for 10 years in June 2015, allows duty- and quota-free access to the US for thousands of products such as food and beverages, wood, plastics, and rubber from sub-Saharan Africa, but Kenya has largely tapped the apparel line.

Ms Hamilton, however, maintained that the STIP will not graduate Kenya out of the African Growth and Opportunity Act (Agoa) which the US Trade Representative was keen to renew upon expiry mid-2025 subject to approval by lawmakers– the Congress.

David Monda, who teaches public policy at the City University of New York, is worried Kenya will struggle to negotiate anti-dumping measures in the STIP. That has the potential risk of undermining Kenya’s broader trade interest in other regional blocs such as the 21-member Common Market for Eastern and Southern Africa (Comesa), the seven-nation East African Community, and the African Continental Free Trade Area.

“I'm also concerned about intellectual property. US companies come to invest in Kenya, but the government doesn't have patent and intellectual property laws in place to protect Kenyan intellectual innovation in IT [Information Technology] and AI [artificial intelligence] more broadly. There is a danger of the next M-Pesa being shipped off to Silicon Valley,” Prof Monda said via email.