What new Africa trade pact holds in store for Kenya

As Africa’s free trade area takes effect, focus is now shifting to how Kenya can strategically angle itself in order to reap maximum benefits.

The African Continental Free Trade Agreement (AfCFTA), which will allow free movement of goods from one country to another, was signed by 44 African states including Kenya in Kigali earlier this year.

The agreement, said to be the largest since the creation of the World Trade Organisation (WTO), aims at boosting intra-Africa trade by making Africa a single market of 1.2 billion people with a cumulative gross domestic product of more than $3.4 trillion.

For businesses, the CFTA commits governments to remove tariffs on 90 per cent of goods produced within the continent and phase out the levy in the future.

President of the African Export-Import Bank (Afreximbank), Benedict Oramah says Kenya and other African nations must implement initiatives that will add meaning to the free trade agreement.

“We need to implement initiatives that will add meaning to that singular event, initiatives that will catalyse a strong production and industrial base for production of export manufacturing, initiatives that will improve our knowledge of, and access to, trade and investment information and initiatives that will facilitate movement of goods across borders in competitive terms,” Prof Oramah said.

The regional pact aims to also establish a single market that will spur industrialisation, infrastructural development, economic diversification and trade.

The new agreement is expected to increase intra-Africa trade beyond the current 13 per cent and improve the prospects of the African continent to attract huge investments.

Kenya has already embraced the free trade pact with the government indicating the creation of the AfCFTA provides new export opportunities for African products whose combined GDP stands at $3 trillion (about Sh300 trillion), covering over 1.2 billion people.

Relax rules

In May this year, President Uhuru Kenyatta urged African countries to relax rules on movement of people and goods between member states to increase trade. Only 12 per cent of Africa’s trade is between countries.

President Kenyatta would later in June join other African heads of state and government in Kigali, Rwanda, to sign the agreement to create the regional trade pact.

“The agreement also covers issues on non-tariff barriers, technical barriers to trade, customs procedures and a framework on transit issues between countries,” said the Kenyan Presidency in a statement by the PSCU then.

Kenyan firms expect the local manufacturing sector to get a new growth stimulus when the Africa-wide trade pact that provides access to a big market is implemented. Countries under the new trading bloc boast a combined GDP of over $1-trillion in the new bloc.

“The Continental Free Trade Area agreement provides an opportunity for Kenya to become a manufacturing hub for Africa and this needs to be harnessed,” said Kenya Association of Manufacturers (KAM) chief executive Phyllis Wakiaga earlier.

The new agreement creates a borderless Africa in terms of trade in goods, services, jobs, investment, free movement of people, intellectual property rights and competitiveness.

A massive gap in trade finance amounting to $90 billion (Sh9.1 trillion) is however among the major limitations of realising the full impact of the free-trade area in Africa, global ratings agency Moody’s warned earlier in a report.

Other factors that could limit the accomplishment of the objectives of the African Continental Free Trade Area are the continent’s under-developed infrastructure and non-tariff barriers.

Strong message

But according to Prof Oramah the signing of the AfCFTA has sent a strong message to the world that Africa is ready to chart “a new path, a path to economic independence and a willingness to look inward for industrial growth.”

He says that Afreximbank was working to promote the emergence of robust continental supply chains and expressed confidence that the networking opportunities at the IATF would become a “potent force to begin to dismantle the well laid colonial structures that have disintegrated Africa for close to a century.”
Prof Oramah spoke at the first-ever Intra-African Trade Fair (IATF) held in Cairo, Egypt.

The IATF, organised by Afreximbank, in collaboration with the African Union, and hosted by the Government of Egypt, attracted about 70,000 visitors.

Former Nigerian President Olusegun Obasanjo, who is also chairman of the IATF advisory council, described the trade fair as a crucial instrument in making the AfCFTA work.

He says that Africa should focus on “what trade is needed, where the markets are, the size of, and the standards in, those markets, and how to join the value chains that serve them”.

Entrepreneurial spirit

“It is our duty to create the environment where the entrepreneurial spirit of Africans can succeed,” he said.

“Stronger economies yield the rewards of better health, education, improved employment opportunities and prosperity for all. I want our future generations to have greater expectations, greater choices and greater opportunities to succeed. It should be their right and I want this to become the norm rather than the exception.”

Moody’s says the regional pact which aims to create a single African market for goods and services, could boost intra-regional trade, which remains far lower than in developing Asian countries.

“There is significant potential for further trade integration in Africa, which the AfCFTA could stimulate,” said Colin Ellis, Moody’s managing director, credit strategy.

“This could improve the region’s credit profiles, given the greater stability and sophistication that intra-regional trade could offer compared with traditional commodity exports to the rest of the world.”
According to the Oxford Business Group, Kenya’s exports are projected to increase by over Sh10.2 billion ($100 million) following full implementation of the free trade pact.

The group notes that with 41.2 per cent of Kenya’s exports destined for free trade pact member states in 2011, compared to the 13.4 per cent share of imports from the same zone, Kenya enters the bloc from a position of relative strength.