What you need to know:
- According to the World Bank, Kenya will be among the big gainers of the pact with Ivory Coast and Zimbabwe bettering it.
- In Eastern Africa, 4.8 million will be lifted out of abject poverty, once the pact is implemented fully.
Kenya is has been tipped to be among top beneficiaries of the Africa-wide free trade pact that came into force last month.
The new deal is expected to provide access to what has been described as the biggest market in the world.
The African Continental Free Trade Area (AfCFTA) came into force on January 1, 2021 setting the stage for 54 countries including Kenya that have signed up to the agreement, to reap from creation of a single continental market of 1.2 billion people and a GDP of Sh275 trillion. Only Eritrea is yet to make up its mind.
Experts say Kenya is well placed to take advantage of service trade liberalisation under the AfCFTA, particularly in areas such as financial services, ICT and tourism.
According to the World Bank, Kenya will be among the big gainers of the pact with Ivory Coast and Zimbabwe bettering it.
The World Bank cited the Kenya's relatively developed industrial potential and human capital, which it says will give east Africa's largest economy an edge from reduced trade barriers on the continent as well as the already low trade costs and barriers with neighbouring countries.
“Most of AfCFTA’s income gains are likely to come from measures that cut red tape and simplify customs procedures. Tariff liberalisation accompanied by a reduction in non-tariff barriers — such as quotas and rules of origin —would boost income by 2.4 percent, or about $153 billion. The remainder — $292 billion — would come from trade-facilitation measures that reduce red tape,” the World Bank said in a report.
The main objectives of the AfCFTA are to create a single market for goods and services, facilitate the movement of persons, promote industrial development and sustainable and inclusive socio-economic growth, and resolve the issue of multiple membership, in accordance with agenda 2063. It lays a foundation for establishment, in future, of a continental common market.
In addition to boosting Kenya’s trade with other African trading partners, the continental trade pact is expected to improve prospects for structural diversification by increasing demand for manufactured goods exports, said Andrew Mold, Head of Regional Integration and AfCFTA Cluster in Eastern Africa, at a forum last year.
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 bloc.
The group earlier noted that with 41.2 percent of Kenya’s exports destined for free trade pact member States in 2011, compared with the 13.4 per cent share of imports from the same zone, Kenya enters the bloc from a position of relative strength.
The treaty was initially slated to come into effect on July 1 last year but this was delayed by the Covid-19 outbreak.
However, the AfCTA secretariat secretary general Wamkele Mene sees a silver lining in the crisis as it exposed Africa's overreliance on imports from China, the US and Europe and thus the need to remedy the situation.
"Covid-19 has demonstrated that Africa is overly reliant on the export of primary commodities, overly reliant on global supply chains," said Mene during launch of the free-trade area, adding: "When the global supply chains are disrupted, we know that Africa suffers."
In addition, most African countries prefer trading with their colonial masters instead of amongst themselves.
The trade pact is expected to reverse this a move that could ensure foreign exchange remains within the continent, in addition to boosting African businesses and creating jobs.
Presently, countries import goods and services, including farm produce, available within the continent from elsewhere.
Another benefit of the agreement, according to analysts, is that it will provide a platform for Small and Medium Enterprises (SMEs) integration into the continental economy and accelerate Kenyan women’s empowerment.
According to World Bank study, AfTCA will lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day.
The pact could boost Africa’s income by $450 billion by 2035 (a gain of 7 percent) while adding $76 billion to the income of the rest of the world; and increase Africa’s exports by $560 billion, mostly in manufacturing, says the World Bank.
It will also spur larger wage gains for women (10.5 percent) than for men (9.9 percent); and boost wages for both skilled and unskilled workers—10.3 percent for unskilled workers, and 9.8 percent for skilled workers.
In Eastern Africa, 4.8 million will be lifted out of abject poverty, once the pact is implemented fully.
"Creating a single, continent-wide market for goods and services, business and investment would reshape African economies. The implementation of AfCFTA would be a huge step forward for Africa, demonstrating to the world that it is emerging as a leader on the global trade agenda,” said Caroline Freund, Global Director of Trade, Investment and Competitiveness, who co-authored the World Bank study.
On his part, Albert Zeufack, Chief Economist, Africa, said: "Creating a single, continent-wide market for goods and services, business and investment would reshape African economies. The implementation of AfCFTA would be a huge step forward for Africa, demonstrating to the world that it is emerging as a leader on the global trade agenda."
Critics, however, say implementing the agreement will be a process not an event.
President Uhuru Kenyatta said recently the success of the pact will help the continent overcome some of its pressing economic challenges.
The President, who made the comment during a meeting with AFCTA’s Secretary-General Wamkele Mene, reaffirmed Kenya’s commitment to the pact while rallying other African states to work closely with the agency’s secretariat to ensure continental trade arrangements succeed.
Kenya is also pursuing a new bilateral trade deal with the UK post-Brexit. It hopes that new deal would cushion her from potential hits after partner States of the EAC failed to conclude an Economic Partnership Agreement with the EU.
In the half-finished EPA deal, the EU allowed Kenya interim duty-free market access although this cannot be relied on until other remaining partners of the EAC put ink to paper to make it binding. Only Kenya and Rwanda signed the deal.
At the same time, Kenya and the US on July 8 last year formally launched negotiations for a land mark bilateral trade pact.
Kenya is keen on signing the new trade deal with Washington before the expiry of the current arrangement under the Africa Growth and Opportunity Act (Agoa), which allows sub-Saharan African countries to export thousands of products to the US without tariffs or quotas until 2025.
Agoa grants 40 African States quota and duty-free access to the US market of more than 6,000 product lines. Two-way goods trade between the US and Kenya totalled Sh118 billion in 2019, up 4.9 percent from 2018.