Kenya can reap big from trade agreements

Africa has a great opportunity to grow markets and intra continental trade with the recently signed free trade agreement.

When President Uhuru Kenyatta went to Mozambique in March, he came back having created strong relations and opportunities.

The talks produced more focus on bilateral agreements that opens opportunities for Kenyan companies to increase partnerships and trade. Mozambicans will, for instance, be able to travel into Kenya freely.

African nations must prepare for escalation of trade as market integrations and access can unlock the potential and growth of manufacturing, transport and food security—increasing employment opportunities, especially for the youth. I would be alarmed by a number of challenges in Africa, but a learning from most of the world’s recent economic success stories shows they pegged their growth on a vibrant manufacturing industry fuelled by expanding globalisation and development of a skilled workforce.

INDUSTRIAL CAPABILITIES

It is important to note that the manufacturing industry depends on markets as much as industrial capabilities. At 50 million people, the Kenyan market is relatively small to support a vibrant growth in the manufacturing industry. However, the regional free trade deal will support increased exports, up-scale investments and sustain employment.

It will stimulate intra-Africa business and create an opportunity for Kenyan businesses to sell brands in new segments and markets, besides opening subsidiaries in many African economies.

There are more opportunities that will emerge from liberalised markets in Africa as the continent seeks to increase the volume of trade from the current 15 per cent to global levels like that of Asia (58 per cent) and the European Union (67 per cent).

Trade agreements do not succeed without political goodwill and leadership to turn opportunities into realities. There are also intercultural gaps that companies require appropriate strategies to handle.

For example, Mozambique and Angola are Portuguese-speaking countries that inherited some cultural aspects from their coloniser while Kenya is an English-speaking Commonwealth country. The flipside is that African cultures have many great common experiences and leveraging on these adds value.

LEADERSHIP

It is important to build African brands that can take market leadership and connect to the multi-nations culture. Kenya has an advantage sitting in the centre of the East African market. However, the region remains short on good quality cross-border road and rail links.

Inland countries eager to connect into regional and global value chains, such as Rwanda and South Sudan, are still waiting for new railways from Kenya and Ethiopia to reach new borders. The situation is echoed right across the continent, and will require significant political will to develop much needed infrastructure to facilitate growth in overall trade.

 Intra-African trade still plays a trifling role overall. To offer some perspective, intra-EU trade is worth 65 per cent of the region’s total trade; while trade among the South East Asian nations plus China, Japan and South Korea reached 45 per cent recently. The difficulties in moving goods within and between African countries creates challenges to the expansion plans of manufacturing and retail businesses.

They struggle to access the inputs or to distribute widely and competitively across nations.

BARRIERS

Governments need to work together to open up new overland transportation routes, and reduce the bureaucratic barriers to moving goods and services. I believe that Africa has no shortage of regional economic communities and customs unions. The African continental free trade area deal signed off recently is the best agreement for growth of the private sector and investments.

As intra-African trade gains momentum, its constituent economies will find new opportunities to diversify away from extractive industries and into manufacturing and modern services, climbing the value chain. This diversification, along with the release of latent material resources and human talent, will not only accelerate the pace of development but also increase economic growth and business resilience.

Within certain regions, such as the East African Community, the necessary political will and intergovernmental coordination to drive interconnectivity should be accelerated. There is also a case for open skies to improve connectivity and boost investment and tourism.

Chris Diaz is a trustee on Brand Africa and director of Brand Kenya