KENYA’S NEW FAVOURITE CUSTOMER: IRAN
On his first trip to Iran last June, Joseph Kamau Kiminda quickly learned that Iranians care about a few things more than tea. The CEO of Kenyan tea company, Cup of Joe, spent time with everyday Iranians who, immediately after rolling out of bed, put tea to boil, leaving it on all day. His Iranian business counterparts called him most days, including Saturdays, at six in the morning to discuss tea for three to four hours. He even received a lecture on tea quality from the secretary of an Iranian tea distributor. “They know tea,” Kiminda concluded.
Since Kiminda’s visit to the Middle Eastern nation of 75 million last year, it has become his biggest market, well ahead of Pakistan and India. He says Cup of Joe exports 200,000 kilos of high quality tea a month to Iran.
After negotiating an agreement with the international community to curb their nuclear program last July, Iran is back on the global economy in full force. Sanctions were lifted early this year and savvy business people and investors are rejoicing. Companies from the United States and Europe are doing business in the Republic and China just signed a $600 billion trade deal with Iran. Kenya and other East African nations are getting in the mix as well.
As one of the world’s largest tea exporters, Kenya is particularly excited for Iran’s economic reopening. Edward Mudibo, managing director of the East African Tea Trade Association, predicts that exports to Iran will increase five-fold in the next two years, from $3.8 million today to approximately $18 million. That’s still nowhere near their largest market, Pakistan – which imported $104 million last year – but Iranians give Kenyan manufacturers the ability to focus on higher quality tea with value added.
Of course, the ports of East Africa and Iran will be dealing in much more than tea. A number of Iranian companies have made their way to East Africa over the last few months, looking for investment, says Hadi Farajvand , the Iranian ambassador to Nairobi. He says Iranian companies are pursuing investment in agriculture, petroleum and pharmaceuticals. Everyday Iranians and East Africans will feel this increase of trade between Iran and East Africa. Iranians, though they have had access to a limited amount of Kenyan tea, will have a greater variety of tea to choose from. “Everyone who is dealing with tea is going to Iran,” says Peter Gitata, chairman of the Kenyan Tea Buyers Association.
Iranian companies have indicated they are also interested in setting up a low-cost pharmaceutical plant in Kenya, says Farajvand. One pharmaceutical company, which he wouldn’t name, has already held negotiations with local counterparts. In Farajvand’s office in Nairobi, there is a stack of medicines on a bookshelf, which were sent ahead by a pharmaceutical company that is coming to Kenya in the next few weeks to show off its product. Among the stack, there is Clamox and Zaxime, both antibiotics. Kenya imports the vast majority of its drugs from abroad, particularly India and China. While drug prices are not as exorbitant as in years past, it is still relatively expensive to buy pharmaceuticals. Local Kenyan paper, the Daily Nation, recently found some drugs to be 500 percent more expensive in Kenya than other countries – prices are especially high for painkillers and antibiotics, according to the paper.
Despite their trade deficit, Kenyan pharmaceutical companies are on the rise. There are over 30 local manufacturers and the market is expected to grow 14-18 percent from 2014 to 2018, according to U.S. Department of Commerce figures . One of the ways Kenyan companies plan to leapfrog the competition is through investment from abroad. Foreign companies, like Iranian ones, can provide the much-needed capital, technology and expertise. Already, Kenya is exporting pharmaceuticals to Tanzania and Uganda. If the industry is successful, the effect will be simple: “East Africans will have the medicines they need, when they need them” at a price they can afford, says Wilberforce Wanyanga, a consultant for the United Nations Industrial Development Organization.
In late March, the Kenya Association of Pharmaceutical Industry (KAPI) released a code of practice for its members, the main pharmaceutical companies operating in the country. The code is a form of self-regulation that William Mwatu, chairman of KAPI, says will “increase transparency and accountability.” KAPI will have the ability to fine member companies for infractions. Kenya is now the second African country, besides South Africa, to adopt a self-regulatory code, which Vreni Schoenenberger, manager of policy, ethics and compliance at the International Federation of Pharmaceutical Manufacturers and Associations, calls a “major step” in the right direction. Countries with less-developed pharmaceutical industries, like Kenya, Tanzania and Uganda can learn a lot from Iran. Despite the sanctions, which were imposed in 2006 by the United Nations, Iran has retained a very strong industry. Iran produces 90 percent of its medicines and aims to be self-sustaining in the next few years, according to a 2013 study by US-based consulting firm Frost and Sullivan.
However, there are few fields in which Iranians have more expertise than petroleum. The country is one of the top ten producers worldwide and produced 3.4 million barrels per day last year, according to the U.S. Energy Information Administration. And East Africa, whose countries are in the process of looking for and extracting petroleum and natural gas, could be the ideal opportunity for Iranian petroleum investment. In fact, in 2012, Kenya and Iran signed a Memorandum of Understanding, which would have seen Kenya import 80,000 tonnes of crude oil from Iran. But the agreement went south after US-imposed sanctions targeted countries that bought oil from Iran. Now, the Iranians are trying to bring the deal back to the table, says Farajvand. The Iranian Embassy in Nairobi is spearheading the memorandum’s renewal, which would not only import oil from Iran but also support exploration and extraction in East Africa. The big obstacle for any oil investment right now is the low oil prices. The cost of oil nose-dived from approximately $120 per barrel last year to $30 this year. Still, many believe East Africa is ripe for exploration. Some 1 billion barrels of oil have been found in northwestern Kenya, which president Uhuru Kenyatta aims to export by September of this year , a lofty goal according to some.
Both Tanzania and Mozambique are sitting on massive liquefied natural gas (LNG) reserves and are in the process of extracting and exporting it. Combined, the countries have reserves of over 150 trillion cubic feet of LNG, almost an entire year of global production. East Africa certainly has potential that Iran can help tap, but demand in the region has already far outstripped supply. East Africa imports the vast majority of its refined petroleum products and imports are expected to grow alongside population, wealth and infrastructure. (This shouldn’t be a shock to anyone who has ever tried to navigate Nairobi or Dar es Salaam traffic jams).
Developing pharmaceutical and petroleum product trade will benefit East African nations, but will also increase their trade deficit with Iran. In 2014, Iran sent three times as many goods to Kenya as vice versa. One of the ways in which the two countries hope to turn the tide is through agriculture.
A number of Iranian companies have expressed interest in growing rice, corn and wheat in Uganda, Kenya and Tanzania. They also plan on setting up processing plants, which will add value to the crops before shipping them off to Iran or elsewhere. Food products are a specialty of the region — currently, agriculture makes up about 25 percent of Kenya, Uganda and Tanzania’s GDP. And the region has certain advantages over Iran for agriculture, in particular its favourable climate – farmers can harvest two to three times a year there. But it’s not going to be easy to export agriculture from Kenya, says Farajvand, mainly because of the lack of infrastructure. It’s difficult to get crops from good land to the port in Mombasa, Kenya for one, and farming is not as industrialised in Kenya as in Iran.
To understand why Iran is looking outside of its borders to essentially grow food, it’s necessary to look at the country’s food and water security. Due to climate change, population growth and subsidised water, Iran has quickly and severely depleted its water supplies over the last few decades. Jason Rezaian, Iran correspondent for
the Washington Post, says
Iran is heading for a water shortage of “epic proportions.” While the country’s annual precipitation is about one-third of the global average, Iranians consume twice as much water than the global average. But the main user of water is agriculture – about 90 percent of water is used by agriculture, according to the state’s Environment Protection Organisation. And, according to other state figures, the amount of water wasted in agriculture irrigation reaches 60 percent.
While Iran is in a semi-arid part of the world with less natural water sources, mismanagement is the main reason for the water shortage, says Mehdi Mirzaee, a professor of water resource management at Tehran’s Islamic Azad University. “Sometimes I think that because of our poor ability to manage water, we call nature as guilty,” Mirzaee wrote via email. Since Iranians have grown accustomed to large water subsidies, it will prove difficult to convince them to cut back. Regardless, the majority of savings could come from more efficient agricultural techniques – or, outsourcing agriculture all together.
Iran isn’t only trading in goods. Last year, Iran and Uganda signed a memorandum of understanding that outlines cooperation between the two nations, including their police forces. Since the agreement, Iran has helped construct a hospital and polyclinic for the police and trained officers in forensic science and cybercrime management. Ugandan Inspector General of Police, General Kale Kayihura, was quoted in the local press as saying, “the capacities of Iran’s police are on par with developed countries.” Granted, this is debatable – the country routinely executes homosexuals and tortures political prisoners and intellectuals, among other abuses.
Uganda has also received police aid from another international outcast, North Korea. According to a UN report, North Korea provided marine rescue training, paramedical training, constructive engineering and martial arts training.
But for the majority of the people in both Iran and Kenya, the other country will only become familiar with tourism. So far, less than 1,000 Iranians per year visit Kenya and vice versa. However, a few companies are trying to change that. One tour company has recently visited Kenya and conducted negotiations to bring more Iranians over. Eventually, Farajvand hopes to have a direct flight from Tehran to Nairobi.
Iran’s increasing engagement with East Africa is not only a sign that the lifting of sanctions will bring about a more active Iran in the global economy, but the growing economic importance of East Africa. While some in nations, like the United States, that are traditional adversaries to Iran might be weary of Iran becoming more hands-on in geopolitically crucial regions like East Africa, Kenyan officials and businessmen seem to welcoming the Iranians with open arms. As Peter Gitata, chairman of the Kenyan Tea Buyers Association, put it: “What I read in the international media about Iranians is very wrong.”
April 26, 2016