What new phase of Africa free trade deal means for Kenyan exporters
What you need to know:
- Kenya, Cameroon, Egypt, Ghana, Mauritius, Rwanda, Tanzania and Tunisia are participating in this initial stage that marks a milestone in the ambitious continental trade deal.
- The products being traded by the eight countries include horticulture, tea, ceramic tiles, batteries, pharmaceuticals, palm kernel oil, rubber, and components for air conditioners.
- Once the trade deal is fully implemented, exporters of agricultural and manufactured goods will get a share of the one billion-customer market being opened up by AfCFTA.
Farmers and manufacturers will benefit most from the opening up of intra-Africa trade, with the first export of tea from Kenya to Ghana under the African Continental Free Trade Area (AfCFTA) this week leading the way.
On Friday evening in Accra, the AfCFTA Secretariat held a ceremony to launch the Guided Trade Initiative on the margins of the 10th Meeting of the Council of Ministers.
The AfCFTA spokesperson tweeted that this marked “the beginning of the continental agenda” that would enable countries to trade more freely and efficiently. “This is a historic event that will change the way Africa does business forever,” said the spokesperson.
Kenya, Cameroon, Egypt, Ghana, Mauritius, Rwanda, Tanzania and Tunisia are participating in this initial stage that marks a milestone in the ambitious continental trade deal.
The products being traded by the eight countries include horticulture, tea, ceramic tiles, batteries, pharmaceuticals, palm kernel oil, rubber, and components for air conditioners.
“The Guided Trade Initiative intends to achieve its goal through matchmaking businesses and products for export and import between these interested State Parties in coordination with their national AfCFTA implementation committees,” said the secretariat in a press statement.
Once the trade deal is fully implemented, exporters of agricultural and manufactured goods will get a share of the one billion-customer market being opened up by AfCFTA, which will impact directly the performance of many small and medium enterprises (SMEs), large corporates and farmers who have struggled to get markets in the past.
The AfCFTA—a Pan-African initiative targeting to liberalise intra-Africa trade through the elimination of tariffs and non-tariff barriers to create a single market for African goods and ultimately have a continental customs union—will boost farmers and businesses not only by growing their incomes but also boosting their capacities to sell goods of high value to fetch maximum returns.
On Wednesday in Nairobi, President William Ruto led senior government officials to witness the first export of tea to Ghana through the AfCFTA framework. He committed to implementing policies to cut the cost of agricultural and manufacturing production to prepare Kenya to compete with other African countries.
“Our next agenda when we will be discussing our budget is to eliminate any barriers in the tea sector that come as a result of taxation,” he said, observing that other measures were also being taken to reduce the cost of farming.
The President said AfCFTA provides the opportunity for Kenya to reverse the trend of exporting huge volumes of unprocessed products and adding value locally, before selling to the newly available market.
He promised the government will establish a facility at the Dongo Kundu special economic zone, to support tea exporters in the process and add value to the product before exporting, to fetch maximum prices outside.
The AfCFTA has been propped as the continent’s liberator from over-exportation of raw materials and unprocessed goods, in favour of high-quality products that will lift Africa from its current poor contribution of about three per cent to global trade.
It also targets to raise intra-Africa trade from below 20 per cent currently to over 50 per cent.
“We believed from the beginning that AfCFTA is the way to liberate our continent from underdevelopment. It is in our interest that we actualise the benefits that come with the infrastructure being built by AfCFTA so that our continent can take its rightful place as a mover in the economy of the world,” Dr Ruto said.
Conceived a decade ago by the 18th African Union ordinary session of the assembly of heads of state and governments, AfCFTA’s seeks to boost intra-African trade to promote socio-economic development, boosting Africa’s trading position in the global market and creating a single market for goods and services.
This should be implemented through tariff concessions by member states. Ultimately, it targets 90 per cent tariff liberalisation and elimination of non-tariff barriers.
Members started offering tariff concessions last year and the reduction of cross-border taxes charged on goods will proceed progressively until 2030 when most of the commodities will be traded across borders tax-free.
AfCFTA Secretary General Mene Wamkele, who was in Kenya this week, observed that opening up the African market for trade among member states would address issues that have held the continent back, such as excessive exportation of unprocessed goods and poverty.
“On the face of it, this initiative may appear to be about trade, but actually it goes deep into the heart of Africa’s economic development, creating opportunities for young people and uplifting our continent so that we’re no longer the headquarters of poverty in the world and so that one day we too as Africans can be as globally competitive as any other part of the world,” he said.
Lifting people out of poverty
Mr Wamkele observed that while Africa has been largely exporting unprocessed goods, most of them have been used for the manufacture of high-quality products that are then brought back at high prices.
A World Bank study last year stated that if implemented effectively, the AfCFTA could lift at least 100 million Africans from poverty, raise the continent’s GDP by $450 billion and boost intra-Africa trade by 80 per cent.
When traders from one country export goods to another country, taxes that have traditionally been imposed on such goods make them more expensive in the destination market, thus reducing their marketability.
But this will now be eliminated when it’s fully implemented, creating a level playground for businesses across borders and boosting the quality of products on the continent and trade competitiveness.
Trade Cabinet Secretary Betty Maina says Kenya has already been scouting markets where exports will be channelled after the guided trade initiative was launched Friday, and among those already identified to be used for piloting are Mauritius, Cameroon and Egypt.
“Kenya has taken its place very seriously in these negotiations and we have been some of the first movers. This pilot initiative of guided trade under the AfCFTA has been preceded by preparations in our country. Our trade facilitation agencies, the revenue authority, Kebs and all other related have aligned themselves and have prepared the necessary documentation to support,” she said.
The ministry said the new market offered better options for Kenya to diversify from traditional export markets, hence growing export earnings.
Kenya has always struggled with a negative balance of trade historically due to huge gaps between exports and imports, with last year having recorded a trade deficit of Sh1.4 trillion, from Sh999 billion in 2020.
“Earnings from total exports could only cater for 34.6 per cent of the country’s imports, during the year under review,” the Economic Survey 2022 stated.
The Kenya Export Promotion and Brand Agency (Keproba) says the AfCFTA framework will open up trade between Kenya and countries with which it does not have bilateral trade agreements, expanding her export basket.
“Because the country was chosen to participate in the guided trade initiatives, it has gained enormous leverage, particularly with countries such as Ghana and Cameroon, with whom the country does not have preferential market access arrangements. This is the best time for Kenyan exporters to experiment with marketing,” it says, adding it is currently engaging county governments to find a platform to advocate export trade and branding initiatives in preparation for the new opportunity.
“Keproba recently signed a memorandum of understanding with Kenya Association of Manufacturers (KAM) on September 30 to collaborate and partner in the development of the manufacturing sector towards enhancing market access of value-added products to regional (AfCFTA) and international markets.”
Mr Ken Gichinga, the chief economist at Mentoria Economics, says the new market not only offers diversification for Kenya from its main traditional export markets but also provides an opportunity to nurture other export products that will boost local businesses.
“When we diversify markets, this then minimises concentration risks that come with overreliance on few markets. It also means that business performance will be boosted and thus the government will collect more revenues and seal budget deficits.”
The economist says the biggest benefit to businesses will be resilience, which will be assured by the availability of the market.
While Africa continues to contribute the bulk of Kenya’s exports, it still fetches less than half of Kenya’s total exports.
In 2021, out of the country’s Sh743.7 billion total exports, products destined for the African market accounted for Sh309.3 billion or 41.5 per cent of the total exports.
It is expected that with AfCFTA, Kenya will boost its exports within the continent to about 80 per cent of total exports. President Ruto said that for this to happen, value addition and creating strong brands for principal export commodities must happen.