The Cruel Domino Effect

Are global political and economic events taking place in the Middle East or in Europe likely to have a domino effect on Africa? One country in East Africa has cruelly experienced this effect on its essential trade market.

In recent years, the sanctions against Iran and the consequences of Brexit are a “hot potato” in the international arena. These issues have a broad impact on global politics and economics. But what could be the consequences of these events on other countries and markets that have no direct connection with those events?

Agriculture, which includes the tea market, constitutes a significant component of the Kenyan economy, accounting for about a third of the country’s GDP. As a result, any damage to the tea market has a significant impact on its annual GDP growth.

According to the International Trade Centre in 2018, the global export trade volume of the tea market was 6,959,176 USD. In the same year, Kenya was liable for 1,126,895 USD, which accounts for 16.2% of the global market.

Some will argue that this figure is encouraging because it ranks Kenya on the top of the world’s tea export in 2018, only second to China, which has a market share of 25.7%. However, I would like to argue that the sanctions against Iran and Britain’s decision to leave the European Union have significantly harmed and indirectly impacted the growth of Kenya’s tea market.

Britain was a significant trade partner of Kenya’s tea market mainly for the sake of domestic consumption and re-exporting to other EU countries, until June 2016. According to the Tea Directorate of Kenya, the volume of tea imported from Britain declined from 5.4 million kilograms in 2016 to 3.1 million kilograms in 2017. A reduction of 42%.

The head of the Directorate claimed that the main reason for that dramatic change was Great Britain’s Brexit. As a result of that, countries such as Germany, The Netherlands and Poland chose to detour Great Britain and import tea directly, leading to an ebb in the volume of tea trade between Great Britain and Kenya.

Since 2005 there has been a significant rapprochement between Iran and Kenya. During Ahmadinejad’s term as president, the two countries began to tighten their trade ties. Iran is a valuable trading partner for Kenya, and in 2013 the Ayatollahs imported 10,226 Tons of tea from Kenya, which accounts for 2.8 percent of its tea market. In 2018 Iran was ranked as the world’s fifth largest tea importer, purchasing tea from Kenya for 280,000,000 USD.

In October 2018, Kenya was forced to stop importing oil and gas from its trade partner, Iran. The reason for that was the threat of the US Administration to impose sanctions on countries and companies that will continue trading with Iran.

According to Kenya National Bureau of Statistics, the quantity of tea export was decreased from 44,107.54 MT and value of 11,014.55 KSh Million in November 2018, to amount of 38,680.97 MT and value of 9.781.31 KSh Million in December 2018. The KTDA, Kenya Tea Development Agency, claimed that the main reason for this dramatic and shocking reduction in the tea market was the sanctions that were imposed on Iran.

Today, Kenya’s tea market is in the midst of a process of recovery from the crisis it was exposed to due to the Brexit and the sanctions on Iran. In 2018, the largest tea importer from Kenya turned to be Pakistan, which I am sure has been examined and analyzed in depth by the Kenyan Government to avoid further unexpected trade-damage.

The domino effect of politics and economic matters occurring in one country in the world can lead to a political or economic shock in another country. When analyzing financial investment in a particular country, we must also search for political aspects and their global impacts on that particular region.