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KAM says home hurdles will hurt Kenya in Africa trade deal

EAC rules of origin also said to be more restrictive.

In Summary

•AfCTA is envisioned to create a single continental market for goods and services, with free movement of businesspersons and investments. 

•It is targeted at expansing intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation regimes.

Workers at the MAS Intimates Kenya Limited at the Athi River EPZ Complex/FILE
Workers at the MAS Intimates Kenya Limited at the Athi River EPZ Complex/FILE
Image: PSCU

The business costs, bureaucratic policies and unfriendly regulations threaten to derail Kenya from tapping into the African market, local manufacturers now say. 

The Kenya Association of Manufacturers said the hurdles expose Kenyan industries to low export volumes, as their products are expensive compared to other key markets. 

This is against cheaper imports from other African markets, under the African Continental Free Trade Area (AfCFTA) which seeks to address tariff and non-tariff barriers.

AfCTA is envisioned to create a single continental market for goods and services, with free movement of businesspersons and investments. 

However, Kenya which is among the 49 member states that have ratified the agreement, lacks product competitiveness due to quality challenges, high trade investment and trade costs. 

A study by the Kenya Association of Manufacturers (KAM) on the implication of the AfCTA on Kenya’s manufactured products and their impact on Kenya’s trade also notes the current EAC rules of origin are more restrictive. 

This is particularly in more competitive sectors like food, beverages, tobacco, plastics and rubber. 

It puts Kenya’s global competitiveness index at around 55 per cent and for Africa, and it ranges between 35 per cent to 60 per cent, an indication of constrained business environment.

KAM acting chief executive Tobias Alando yesterday said Kenya’s export market in Africa is expected to increase with the full implementation of AfCFTA. 

However, if unaddressed, challenges such as dwindling country competitiveness, lack of product competitiveness and supply chain constraints shall hinder local manufacturers from reaping the benefits that come with AfCFTA. 

Others are non conducive business environment as well as institutional and infrastructural constraints.

“At the firm level, Kenya’s business community needs to develop export strategies for various trade agreements," said Alando.

He said the country further needs to implement business development programs to penetrate and expand to new markets and develop capacity to be able to meet the demands of the African markets.

Nationally, the association wants the government to prioritise the conclusion of pending areas in the negotiations; work on competitiveness drivers to ensure Kenya takes advantage of the African market and fully implement the National AfCFTA strategy. 

High energy costs compared to neighbouring Ethiopia and Egypt have been some of the major concerns by local players, who say it is making Kenyan goods expensive when production costs are factored in.

The cost of electricity in Ethiopia for example is as low as $0.03 (Sh3.57 )per kWh, Egypt $0.06(Sh7.14) and South Africa $0.09 (Sh10.72).

In Uganda, manufacturers pay $0.10 (Sh11.91)per kWh while in Tanzania the cost of electricity stands at $0.14 (Sh16.67)per kWh.

Their Kenyan counterparts are paying an average Sh16 per kilowatt hour, which is a reduction from a previous Sh24 per kWh, thanks to a recent move by the government to cut power costs by about 15 per cent. 

Business in the country are however heavily taxed to support the government’s spending, which is heavily inclined towards recurrent expenditure and debt repayment. 

Meanwhile, lack of a proper rail and road network in some countries and connection among trade bloc is likely to slow down trade under AfCTA, KAM says. 

Kenya trade is globally oriented with international markets accounting for 62 per cent of exports, with Africa export share taking about 38 per cent on average.

Imports from Africa take about 12 per cent.

Kenya’s biggest trading blocs are EAC, COMESA, SADC and SACU(The Southern African Customs Union).

Impact of tariff liberalisation under AfCTA, on Kenya’s economy, is estimated to grow imports by five per cent at 90 percent tariff liberalisation, and at 11.4 percent at 100 percent liberalisation.

There are strong value chains in agro processing, textile and garment, footwear, mining, leather, rubber and plastic sectors, KAM says.

AfCFTA tariff liberalisation impacts positively on vehicles, food and beverages, metal, vegetables and chemicals.

To date, 54 African Union member States have signed the AfCFTA.