Local manufacturers are likely to benefit immensely from a newly implemented Africa-wide trade pact that provides access to a bigger market for their goods.
The African Continent Free Trade Area (AfCFTA) protocol, launched at the Africa Union summit in Niger on Sunday after five years of deliberations, provides a single market of goods and services for 1.2 billion people with an aggregate Gross Domestic Product (GDP) of over $2 trillion (Sh200 trillion).
The adoption of the historic 55-nation agreement makes the whole continent a single market. Protocols will be aligned such that a Kenyan farmer can export avocado to Egypt duty-free, just as a Rwandese will be able to buy cocoa from Ghana.
Kenyan manufacturers and exporters are upbeat that the trading bloc will be a boon for the country’s trade.
Export Promotion Council chief executive Peter Biwott said Africa-wide trade, if well planned, could double the country’s exports, thereby eliminating the Sh1.15 trillion gap between exports and imports.
“We import [goods worth] Sh1.7 trillion and we export Sh613 billion. The deficit can be eliminated if we increase our manufacturing and export enterprises. We target to get our exports to the mark of Sh2.3 trillion,” said Mr Biwott.
The government, he said, has a robust plan to make export trade efficient for existing enterprises as they recruit and train new ones in collaboration with the county governments.
This is in a bid to scale up the range of products besides improving the manufacturing sector as a pillar under the Big Four agenda.
“Agriculture dominates the export sector, but it’s largely not value-added. We need to add value and our focus is on our main foreign exchange earners like tea, coffee and horticulture,” he said, adding that President Uhuru Kenyatta’s directive aiming to double manufacturing’s share of GDP to 15 per cent is a great enabler of the export trade.
Earlier, Kenya Association of Manufacturers chief executive Phyllis Wakiaga said the AfCFTA agreement provides an opportunity for Kenya to become a manufacturing hub for Africa that needs to be harnessed.
Although national borders theoretically will not hinder trade in goods and services and free movement of people, among others, no boom is expected immediately, says a report released on June 27 by the United Nations Conference on Trade and Development (UNCTAD).
The 2019 Economic Development in Africa report, Rules of Origin for Enhanced Intra-African Trade, warns that the gains may not be evenly distributed among the 54 member states, if proper trading rules that factor in trade patterns, tariff profiles, liberalisation schedules and dependence on tariff revenue are not made.
Also, the AU team already anticipates bottlenecks based on existing problems curtailing intra- Africa trade. They are characterised by the struggles that the Regional Economic Communities (RECs) have been facing, resulting in low intra-REC trade and intra-Africa trade.
The blocs are the East African Community, Common Market for Eastern and Southern Africa (Comesa), Economic Community of West African States (Ecowas) and Southern African Development Community (SADC). The newly released economic report mainly focuses on the Rules of Origin (RoO), laws set by a country to determine the nationality of the goods they will import.
While presenting the UNCTAD report, Dr Chris Onyango, an expert on international issues, said RoO are an integral part of international trade agreements and are like a passport for a product to enter a free-trade area (FTA) and circulate without having duty imposed.
“This report established that RoO is an important concept of the FTA — how these rules are designed, enforced and verified will critically determine the size and distribution of the economic gains from the AfCFTA and will shape the future regional value chains on the continent,” Dr Onyango said.
RoO can be good-specific. For example, exports of a commodity whose raw materials or inputs were entirely from that country could be more acceptable than one whose raw materials were imported. If Uganda, for instance, imports wheat from Kenya and produces bread, Tanzania may import it on the grounds that the wheat went through more than 35 per cent processing or value addition. Some goods are rejected if processing does not meet the threshold.
Processing a product changes the category under which it falls in customs, and partners agree on the percentage of that value. If the percentage is set too high, it will be restrictive for partners while a lower value encourages cross-border sourcing of inputs.
According to the report, intra-African trade was only 15.2 per cent in 2015-2017, with the share of exports from Africa to the rest of the world ranging from 80 per cent to 90 per cent in 2000-2017, making the continent the region with the highest export dependence in the world.
Growth in intra-African trade has been constrained by a number of factors, including differences in trade regimes, restrictive customs procedures, administrative and technical barriers, limitation and production, inadequacies of trade-related infrastructure, trade finance and trade information, lack of factor market integration and inadequate focus on internal market issues.
A massive gap in trade finance amounting to Sh9.1 trillion is, however, among the major limitations to realising the full impact of AfCFTA.
Another key challenge is the need to harmonise the multitude of RECs on the continent, which result in many countries with overlapping membership in several blocs.