International Standards and Business Growth Prospects for Kenyan Industries

Last Updated 14 years ago by Kenya Engineer

By Eng. Kiremu Magambo

Export markets provide great opportunities for Kenyan companies to grow and expand their business. However, companies have to overcome one major challenge, which is to provide products that meet national standards. They are also to comply with relevant national technical regulations and codes of practice. One option towards addressing this technical barrier is to adopt international standards.

Empirical evidence suggests that international standards and regulations create rather than reduce trade, both export and import. There is no empirical evidence that adopting international standards opens the local market to outside competition and may kill local industries.

One of the main objectives of every business is to grow. The key growth areas that companies target are profitability, market share, assets and geographical coverage. In a truly free market economy, growth in these key areas is impacted by competition, market size, standards and regulations and geographical limits. Marketing strategies developed by companies aim at minimizing the negative impacts of each of the above factors to enhance their business growth.

Kenya’s market economy cannot be said to be ‘truly’ free. This is because even though prices are not regulated (except kerosene, petrol and diesel), products are not available in sufficient quantities, varieties and adequacy to promote true competition.

Low incomes, small population and poor infrastructure limit the market size in terms of demand of products. These frequent distortions inhibit business growth.

The Export Market
The local business environment has no significant effect on the export market. This market is enormous. COMESA alone is a market serving 400 million people with a combined GDP of US $ 360 Billion and an import bill of US $ 32 Billion.
 

This market provides an excellent opportunity for Kenyan industries and it is gratifying to note that a number of Kenyan companies have ventured into the said market with a majority focusing on Eastern Africa.

Before venturing into the export market, companies must be aware of national standards, relevant technical regulations and codes of practise that they are to comply with.

Standards-This is a document established by consensus and approved by a recognized body, that provides for common and repeated use, rules, guidelines or characteristics for activities or their results, aimed at the achievement of the optimum degree of order in a given context.

Standards are based on the consolidated results of; science, technology and aimed at the promotion of the optimum community benefits.The recognized body that approves standards in Kenya is Kenya Bureau of Standards (KEBS).

Regulations-a document that provides binding legislative rules adopted by an authority. In Kenya the authorities vary depending on the object and type of regulation. In the case of energy for example, the Energy Regulatory Commission would be the relevant authority and the National Environmental management Authority (NEMA) would be the relevant authority for environmental regulations.

Code of practice– a document that recommends practices or procedures for the design, manufacture, installation, maintenance or utilization of equipment, structures or products.

A technical regulation is a document that provides technical requirements either directly or by referring to or incorporating the contents of a standard, technical specification or code of practice.

To avoid conflicts between national and international standards, nations usually declare through legislation the superior standard. In Kenya, where a conflict arises, the Kenya Standard prevails. This is normally the case in many countries.

Standards and regulations serve specific objectives, which may include health, safety, compatibility, environmental protection, quality, technology transfer, variety control, better utilization of resources and removal of trade barriers. 

The Impact

National standards and regulations can have negative impacts to imports if in their preparation, adoption or adaptation and application; they accord favourable treatment to products of national origin. This is because they then create technical barriers to imports of competing products.

Furthermore, the cost of compliance, which might involve product and process modifications including conformity assessments, increases the cost of the imports making them less competitive.

International standards and regulations can also have negative impacts by creating barriers to exports from developing countries like Kenya. This happens if they do not take into account the country’s level of development, technical, financial, trade, infrastructure and production methods.

To address these legitimate concerns, the Agreement on Technical Barriers to Trade provides for special and differential treatment of developing countries.  Developed countries are obliged to take into account the special circumstances of developing countries in formulating standards and provide necessary technical assistance to suit the local conditions.

Advances in technologies, financial systems and modes of transportation have made doing business across borders easy. The internet and e-commerce enables companies of any size to market its products globally. New and innovative global finance and banking systems and services have made it fairly easy and cost effective to conclude international financial transaction. Concisely, adequate and cost effective infrastructure now exists to market products globally. The existence of this infrastructure affords Kenyan manufacturers great opportunities for growth and expansion through exports.
Effects of different National standards

When supplying to different Nations with different standards the production cost goes higher.  It means your products must be revised to suit the specific target market.

To gain access to markets with differing national standards, countries and/or regions may establish mutual recognition agreements (MRAs) in which each country or region accepts products testing data of the other to obtain required certification for conformity with national standards. The other options include national treaties in which two or more countries agree to provide market access to each other’s products; laboratory-to-laboratory agreements in which laboratories agree to mutual recognition and acceptance of products that have been certified by any one of them; standards harmonization in which differences between standards of same scope are minimised or eliminated and international standards.

With the exception of the international standards, all the other approaches to access to markets with differing national standards have geographical limitations in the sense that the market is limited to participating parties. On the other hand, international standards when adopted by a country provide access to global markets.  

International standards have positive and significant impacts on exports from a country. Two studies reported negligible impacts and only two studies reported negative impacts. In the same literature review study, 14 out of 24 studies showed that adoption of international standards has a positive and significant impact on imports into a country. This means that the imports into a country would increase. In the same report by Swann, studies based on Perinorm, a database of standards published by 23 countries as well as the leading international standardization bodies such as IEC,ISO, ITU  and European bodies such as ESTI and CENELEC, show that the effect of standards is to create more trade rather than reduce it.

The impact of international standards to trade is a complex matter and to determine the impact of adopting such standards requires detailed studies focused on specific countries and products. The above studies covered developed countries and the findings may not necessary be applicable to Kenya or other developing countries. However, Kenya has a much more developed industrial base compared to most other countries in Comesa. It is therefore a net exporter to these countries.
 

Therefore, what does Kenya gain by adopting international standards?To start with, Kenyan companies that adopt international standards have immediate access to international market. Take the case of IEC for example. IEC standards are recognized in all member countries of IEC, which are over 50. Most of our electro-technology standards are either adopted or adapted IEC standards.

More importantly, Kenya being a net exporter of manufactured goods in the region, would gain increased access to the regional market providing an avenue for more rapid growth and expansion to local companies.

By adopting international standards, Kenyan companies would greatly reduce the cost of compliance and the resultant economies of scale would result in more competitiveness of locally produced goods.

Standards create confidence in consumers that the product is safe for use and that it meets a minimum performance requirement. For an international consumer, an international standard creates more confidence in imported products that may not meet national standards. Consequently, local products that meet international standards will more readily get export market acceptance.

The increased trade between Kenya and other countries will greatly contribute to the country’s GDP and reduction in Kenya’s current account deficit. By adopting international standards companies are enhancing their contribution to the country’s economic growth.

There are several other tangible and intangible benefits associated with adoption of international standards but the above are the major ones. With the current enabling infrastructure for facilitation of international trade, it is recommended that Kenyan manufacturers should adopt international standards to create confidence and trust in Kenyan products and gain access to international markets. This will provide great opportunity for local industry to thrive and grow irrespective of the local economic environment.

The Author Eng. Kiremu Magambo, a Corporate Member of IEK  is a member of the Kenya National Committee of the IEC and the Principal Consultant with Rencon Associates Ltd, a Renewable Energy, Energy Efficiency and Power Systems Consulting firm.  He can be reached at kiremu.magambo@rencon.co.ke