Kenya’s exports increase by more than $100m after agreement

By Claire Wanja/Statement

The signing of the Tripartite Free Trade Agreement (TFTA) in June is being heralded by many in Kenya as a turning point in regional integration.

The TFTA, which is  an economic integration initiative pursued by three of the continent’s Regional Economic Communities (RECs); namely, The East African Community (EAC), The Common Market for Eastern and Southern Africa (COMESA) and The Southern African Development Community (SADC) and while all 26 member states have signed an in principle agreement, implementation will be the next step.

Once implemented, the agreement will create a 26-member integrated economic entity spanning Egypt to South Africa, covering some 17.3 Million square Kilometres and creating a market of around 632 Million people – equivalent to more than half the population of Africa. With a combined GDP of $1.2 Trillion, the new trade bloc would account for around 60% of the continent’s economic activity.

Overall, Kenya’s trade balance is expected to see substantial gains from the agreement. According to a recent analysis by the Ugandan Ministry of EAC Affairs, Kenya is expected to be one of only five countries in the bloc to see exports increase by more than $100m following full implementation of the TFTA. Moreover, with 41.2% of Kenya’s exports destined for TFTA member states in 2011, compared to the 13.4% share of imports from TFTA participants, Kenya enters the bloc from a position of relative strength.

In particular, Kenya’s industrial and manufacturing sector is likely to be reignited by greater access to the broader TFTA market. Manufacturing is one of the priority sectors identified by the government as a key engine for future growth in its Vision 2030 development plan. Importantly, the TFTA gives Kenyan exporters preferential access to six new markets not already covered by the EAC or COMESA, namely Angola, Botswana, Lesotho, Mozambique, Namibia and South Africa.

“The TFTA and the Continental Free Trade Area agreements provide an opportunity for Kenya to become a manufacturing hub for Africa, and this needs to be harnessed,” Phyllis Wakiaga, CEO of the Kenya Association of Manufacturers, told the Oxford Business Group.

However, the effect the TFTA will have on other economic sectors is less clear. Many countries included in the agreement remain heavily dependent on agriculture, including Kenya, where agriculture directly accounts for over 27% of the country’s GDP, 20% of formal jobs and more than half of total employment.

At present, agricultural products enjoy some of the most protective tariffs in sub-Saharan Africa, with an average tariff of 24.9%, according to the World Bank’s Overall Trade Restrictiveness Index, compared to 14.4% for total trade in the region.

Perhaps foreseeing the difficulties inherent to liberalising the sector, the signatories of the agreement restricted the movement of goods deemed “sensitive,” many of which are agricultural products, until at least 2017.  Agricultural goods like sugar, maize, wheat and rice will be subject to duty and quota restrictions, as will other products such as cement, plastics, electronics and paper. The intention is to give these industries time to adjust to increased competition from players in other markets included in the TFTA.

  

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