Manufacturers bet big on Africa trade pact

Nigerian President Muhammadu Buhari signs a landmark free trade agreement ahead of the African Union summit at the Palais des Congress in Niamey on July 7. The African Continental Free Trade Area was officially launched at the summit. PHOTO | AFP \ ISSOUF SANOGO  

In Summary

• Kenya’s exports projected to rise by more than Sh10.2bn when the deal is fully effected.
• Kenyan manufacturers are banking on the agreement to take the lead in producing competitive products in terms of quality and prices.

By BRIAN NGUGI
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Kenya’s manufacturing sector is betting big on the proposed Africa-wide trade pact that will provide access to what has been described as the biggest market in the world.

Nigeria became the latest member to sign the landmark agreement, which aims to increase trade among African countries. With Eritrea as the only African country not to be part of the trading bloc, the potential for the regional initiative to transform the economies of the member states looks pretty real.

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 with the 13.4 per cent share of imports from the same zone, Kenya enters the bloc from a position of relative strength. Only 12 per cent of Africa’s trade is between countries, signifying the huge promise for participating countries.

Kenyan manufacturers are banking on the agreement to take the lead in producing competitive products in terms of quality and prices.

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

President Uhuru Kenyatta has been at the forefront in pushing for deeper trade ties among African countries, driven by the realisation that Kenya will reap massive benefits, particularly in efforts to achieve industrialisation.

When he joined other African heads of state and government in Kigali, Rwanda, in June last year to sign the agreement to create the trade pact, Mr Kenyatta painted a sanguine outlook about the regional initiative.

“The agreement covers issues on non-tariff barriers, technical barriers to trade, customs procedures and a framework on transit issues between countries,” said the President.

The entry of Nigeria — the largest economy in the continent — into the group has injected fresh impetus to the ambitious project. The focus now shifts to the implementation of the pact, with some experts saying it will not be an easy ride for the deal to the peak of its potential.

Negotiations

In May last year, Mr Kenyatta urged African countries to relax rules on the movement of people and goods among member states to increase trade.

The first challenge is cutting tariffs for goods from countries within the bloc. Kenya, jointly with other African states, will be headed for another round of tough negotiations as they seek common rules for their newly formed free trade area.

Easier travel and elimination of most tariffs are expected to usher in a new era of development.

Another mountain to climb is a huge gap in trade finance amounting to $90 billion (Sh9.1 trillion), global ratings agency Moody’s warned earlier in a report.

Other factors that could limit the accomplishment of the objectives of the free trade pact are the continent’s underdeveloped infrastructure and non-tariff barriers.

According to Benedict Oramah, president of the African Export-Import Bank (Afreximbank), the signing of the pact has sent a strong message to the world that Africa is ready to chart “a new path … to economic independence and a willingness to look inward for industrial growth”.

Afreximbank has already instituted a Sh103 billion ($1-billion) “AfCFTA Adjustment Facility” to enable countries to adjust in “an orderly manner” to sudden significant tariff revenue losses as a result of the implementation of the agreement.

“This facility will help countries to accelerate the ratification of the AfCFTA,” said Prof Oramah, telling the heads of state that, by starting the operational phase of the pact, “you have started a movement”.

“You must not look back,” he continued, “This movement is now unstoppable”.

Initiatives

Prof Oramah addressed the 12th Extraordinary Summit of African Union (AU) Heads of State, where the bank announced a series of initiatives to support the implementation of the Agreement for the African Continental Free Trade Area.

According to Moody’s, the regional pact, which aims to create a single African market for goods and services, could boost intraregional trade that 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 earlier. “This could improve the region’s credit profiles, given the greater stability and sophistication that intraregional trade could offer, compared with traditional commodity exports to the rest of the world.”