As a new Africa-wide trade pact takes effect, Kenyan manufacturers are now looking for ways to position themselves strategically to maximise the benefits.
The Kenya Association of Manufacturers (KAM) has entered into a memorandum of understanding with the Africa Export-Import Bank (Afreximbank), which is expected to provide a fresh growth stimulus for the local manufacturing sector, with significant potential in intra-African trade across all subregions.
This agreement is the largest since the creation of the World Trade Organisation (WTO) and aims to make Africa a single market of 1.2 billion people with a cumulative Gross Domestic Product (GDP) of over $3.4 trillion (Sh513 trillion).
However, there are still challenges to overcome, such as supply chain, infrastructure, and information gaps.
To overcome obstacles, the strategic partnership with the Pan-African Trade Bank aims to empower Kenyan manufacturers by providing them with the means to explore and seize opportunities within the regional trade pact, says the lobby.
By leveraging Afreximbank’s extensive trade flow data, KAM, the umbrella body for manufacturers in the country, reckons it will gain a deeper understanding of intra-Africa trade dynamics.
Currently, intra-Africa trade stands at less than 20 per cent, significantly lower than other global trading blocs like the European Union (EU), where trade within the bloc accounts for 70 per cent.
“If you look at the EU trade within the bloc is 70 per cent. The deal will help with trade finance, capacity building and trade data and this will help Kenyan manufacturers and Kenyan businessmen to start doing business,” says KAM Chief Executive Anthony Mwangi.
The manufacturer’s lobby says that the collaboration with Afreximbank will not only streamline trade financing and enhance capacity building, but also furnish valuable trade data.
This will empower Kenyan manufacturers and businessmen to engage in cross-border trade with greater efficiency. “This creates a very good framework for us to cooperate with Afreximbank,” says Mr Mwangi.
“As a bank, they have a lot of data on trade flows from West to East, East to West, North-South and we want to work with them to understand how the trade in Africa is happening.”
For businesses, the African Continental Free Trade Area (AfCFTA) commits governments to remove tariffs on 90 per cent of goods produced within the continent and phase out the levy in the future.
According to Benedict Oramah, the President of Afreximbank, there is a need for African countries, including Kenya, to implement measures that will give significance to the free trade agreement.
He suggests that these measures should encourage the development of a strong production and industrial base for export manufacturing, improve access to trade and investment information, and facilitate the movement of goods across borders competitively.
The ultimate goal of the regional agreement is to establish a single market that will promote industrialisation, infrastructure development, economic diversification, and trade.
“We need to implement initiatives that will add meaning to that singular event, initiatives that will catalyse a strong production and industrial base for the production of export manufacturing, initiatives that will improve our knowledge of and access to, trade and investment information and initiatives that will facilitate movement of goods across borders in competitive terms,” Prof Oramah says.
The Afreximbank says it wants to pump money into Kenyan firms in various sectors as the Pan-African lender eyes an increased role in the Kenyan economy. Afrexim, which finances and promotes African trade, says it will work with both the government and private sector to bankroll various projects in need of funding.
Afreximbank has in the past decade financed several local big-ticket deals, including debt to national carrier Kenya Airways. The regional lender focuses on private and public sector loans, guarantees and advisory services. Its range of financing programmes and advisory services includes trade and project financing, and export development guarantees.
President William Ruto recently unlocked a plan by the Cairo-based lender to finally set up shop in Kenya.
The lender three years ago reached a deal with neighbouring Uganda to set up its Sh3 billion regional headquarters in Kampala following red tape by Nairobi. The choice for Kampala was seen as a major blow to Kenya as it denied Nairobi the benefits that come with hosting such top international organisations.
But President Ruto recently said the pan-African lender would finally get the necessary approvals and backing to set up a branch in Nairobi.
The regional pact aims to establish a single market that will spur industrialisation, infrastructural development, economic diversification and trade. Limited production capabilities within Africa are therefore being compensated for through imports. The aim is to ensure this manufacturing deficit is satisfied within the continent and enabled by AfCFTA.
Kenyan firms expect the local manufacturing sector to get a new growth stimulus when the Africa-wide trade pact that provides access to a big market is implemented.
The new agreement creates a borderless Africa in terms of trade in goods, services, jobs, investment, free movement of people, intellectual property rights and competitiveness.
Analysts also say the AfCFTA has opened a new chapter for the continent and rekindled hopes for recovery through trade in a post-Covid-19 world.
In its recent Trade and Development Report, the United Nations Conference on Trade and Development (UNCTAD) estimates that the AfCFTA could boost intra-African trade by about 33 per cent and cut the continent’s trade deficit by 51 per cent.
At the same time, global ratings agency, Moody’s says the regional pact which aims to create a single African market for goods and services, could boost intra-regional trade, which remains far lower than in developing Asian countries.
According to the Oxford Business Group, Kenya’s exports are projected to increase by over Sh15.1 billion ($100 million) following the 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 to the 13.4 per cent share of imports from the same zone, Kenya enters the bloc from a position of relative strength.