ASSESSMENT

Readiness of SMEs for the AfCFTA implementation

The AfCTA is set to expand intra-Africa trade through the harmonization and coordination of trade liberalization.

In Summary

• According to the World Bank, the new market, created under the African Continental Free Trade Area (AfCFTA) agreement is estimated to be as large as 1.3 billion people across Africa.By Sakina Asman.

•The AfCTA is set to expand intra-Africa trade through the harmonization and coordination of trade liberalization.

Shops in a residential area.
Shops in a residential area.
Image: GODFREY KIMEGA

As a flagship project of the African Union’s Agenda 2063, the African Continental Free Trade Area (AfCFTA) is, a blueprint for attaining sustainable, inclusivity and development across Africa.

It aims to boost intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states, covering trade in goods and services, investment, intellectual property rights and competition policy.

With its well laid out principles, Africa Continental Free Trade Area (AfCFTA) can be described as an ambitious trade pact, a game changer that is set to aid Small and Medium Sized sector become big winners in the cross-border trade within Africa.

The AfCTA is set to expand intra-Africa trade through the harmonization and coordination of trade liberalization and facilitation instruments across the various regional economic communities on the continent.

The AfCTA entered into force on 30 May 2019. African countries opened their markets on January 1 2021, under the continental free trade agreement and duty-free trading of goods and services across borders is now underway despite the COVID-19 pandemic and other teething problems. According to the World Bank, the new market, created under the African Continental Free Trade Area (AfCFTA) agreement is estimated to be as large as 1.3 billion people across Africa, with a combined gross domestic product (GDP) of $3.4 trillion. This has a potential of lifting up to 30 million Africans out of extreme poverty.

The future of increased Intra-Africa Trade lies with the SMEs; however, we must ask how ready our SMEs are for the AfCFTA implementation.

The government and the private sector organizations have a role to create an enabling environment in readiness for the implementation of the ACFTA. This should be done as early as now through the creation of an assessment tool that can help assess the readiness of the Kenyan SMEs.

By doing the Assessment, it will help the SMEs understand how the trade agreement works and how they can leverage on the opportunities it presents and help them make the best use of the business opportunities that comes with it.

Some of the critical areas for assessment are but not limited to; Production capability, Ability to compete, Ability to innovate, Ability to export and Knowledge about the AfCFTA.

As Africa gets ready to open its trade doors, most of its SMEs still lack production capabilities. An important element that shows how firms are resourced both internally and externally, add value to their products, expand and diversify their products.

Taking into account price, quality and quantity of products produced and sold, it will be difficult for SMEs to compete. For example, within a span of three years, we have seen prices of products rise. Higher prices indicate that firms will find it difficult to compete with similar goods. The volume of production should also be assessed as low volume of production might render them uncompetitive, a challenge that mostly arise from high raw materials, credit and utility costs and charges.

The capability of SMEs to innovate is another important assessment area, how creative are our SME firms when it comes to product design, new machinery or plants and or even in research and development.

Readiness to export is one major challenge, especially to the upcoming SMEs. The government must ensure that SMEs firm are in possession of export certificates, as this helps to determine those who are already exporting or have the potential to export in preparedness to enter the foreign markets.

Intense and wide creation of awareness of AfCTA is also important. Do they understand the agreement, what is its objectives and how will this change the way of doing business, and emphasis must be placed on the roots of origin, a key element in ensuring exports to the African markets under the AfCFTA.

All sectors of SMEs have a unique selling point that gives them a comparative advantage over their African counterparts. Kenya should leverage on their uniqueness and make them AfCTA ready.