Kenya could be one of the major beneficiaries of Africa’s free trade area once the treaty starts rolling out in July.
The Africa Continental Free Trade Area (AfCFTA) is expected to create 2 million jobs for East Africans, with the bulk expected to go to Kenyans because of the quality of human resource talent.
Implementation of the AfCFTA is expected to ease movement of goods and people across Africa, meaning Kenyans will be able to easily access better jobs in other countries that currently have restrictions on foreign labour.
A new report also notes that the free trade area will increase the exports from East Africa to the rest of the continent by $1 billion (Sh100 billion).
“It is the citizens of East Africa that will be the principal beneficiaries of the AfCFTA,” said the report by the United Nations Economic Commission for Africa and TradeMark East Africa.
“East Africa has a lot of talented young people – often university graduates – who are un- or under-employed in their home countries. A more open continental labour market will go a long way towards addressing skill-shortages… and provide the freedom for individuals to live and work where their talents are best rewarded.”
The region is also expected to receive a further Sh180 billion ($1.8 billion) in welfare gains.
The flip side is that local firms might find it hard to penetrate other markets as well as protect their local turf, as products from other regions find their way freely into the Kenyan shelves.
While the increased competition could be a boon for consumers, local firms might be disadvantaged because of their smaller sizes when compared to firms from other regions.
The report noted that local firms would have to scale up their operations to be able to compete effectively with others.
Currently, 54 of the 55 African Union member states have signed the AfCFTA, promising to create the single largest trade bloc in the world with 1.3 billion people and a $2.5 trillion (Sh250 trillion) market.
The report titled ‘Creating a Unified Regional Market - Towards the Implementation of the African Continental Free Trade Area in East Africa’ indicated that East African firms were relatively small compared to their peers, particularly in West and Southern Africa.
If not well prepared, the local firms might face what could be insurmountable competition at home while failing to make inroads in other markets on the continent.
“East African firms struggle in terms of the small average size of their operations,” said the report.
“It will be difficult for companies to compete at the continental level unless there is significant upscaling of economic activities... Put simply, in many sectors, companies in East Africa need to be larger if they are going to succeed in a wider continental market.”
Of the top 500 African companies, there were only 34 firms from the region or just 6.8 per cent of the total. Only three were in the top 100.
“Bearing in mind that East Africa accounts for approximately 16 per cent of Africa’s GDP, and 35 per cent of the total population, the region’s companies are clearly underrepresented at the continental level,” it said.