[Column] Rajan Shah: Is Kenya AfCFTA-ready?
19-02-2021 14:45:00 | by: Bob Koigi | hits: 2626 | Tags:

For many, the Africa Continental Free Trade Area was a manifestation of the long sought-after Pan African dream – a united continent, bringing together its natural resources in a common market, to the benefit of its people.

The willingness of countries to come together and ratify this dream is the first step, and perhaps one would say, the rudimentary one. The next step is to delve into the reasons why this dream has not been actualized for years. This requires a critical look into our own systems and structures as individual countries, as well as the compatibility to the well-intentioned plans on paper.

Trade Facilitation and Logistics

As a country, we have made some efforts to address the trade facilitation challenges that limit our export growth. This includes the Single Window System, the launch of the Integrated National Export Development and Promotion Strategy and so on. However, the persistent issues in our transport systems hinder our own internal movement – from Port to ICDs to factories.

Since November 2020, there have been delays at the port, with containers taking more than 4 days to get cleared, resulting in congestion. Manufacturers have been experiencing unnecessary delays, thus incurring storage, railage and demurrage costs.

This has been attributed to low human capacity (shortage of manpower) and inadequate machinery/equipment to handle the containers. The high costs triggered by these delays lead to challenges in sourcing for raw materials, forcing companies to close some production lines due to interruptions in scheduled production.

Tied to this is another glaring gap where different countries have different procedures and processes when it comes to cross border trade as well as their own complex set of challenges. How do we make the pieces fit? What we are likely to experience is non-uniform order clearance logistics across the continent, unfamiliar customs and administrative procedures, and diverse transit policies of goods across the different Regional Economic Communities (RECs). Let us also consider that some of these countries have non-functional trade arrangements with each other.

Competitive advantage

Existing regional economic block shall create their own challenges and weaken our competitive advantage in the regional market. For example, both Kenya and Egypt are members of the Common Market for Eastern and Southern Africa (COMESA). Since COMESA is a free trade area, some goods are imported at zero tariffs between member states.

This means that Egypt can source for raw materials, that are not available in the region or continent, cheaply from countries with whom they have trade agreements. Consequently, they will be able to sell finished goods to Kenya at zero duty. However, Kenyan Manufacturers are disadvantaged as they have to source for raw materials or intermediate goods at a higher price due to custom duties from countries outside the EAC making their prices uncompetitive.

Countries such as China and India subsidize their local manufacturers to enable them to boost exports with some sectors even having an oversupply of goods.

Such is the scenario that we are stepping into with a bigger regional market and we need to urgently effect measures that will ensure that we can compete favourably with advance markets and venture into new markets.

Some measures

It is imperative that the Government institutes significant policy reforms and streamlines trade facilitation services to reduce the cost of doing business.

We recommend a review of Kenya Ports Authority and Kenya Railways Corporation tariff with view of merging and reducing them with a view to making inbound and outbound costs more competitive. In order to fully utilise the rail system, more railway sidings need to be rehabilitated and new ones to provide last mile services.

Additionally, we need to ensure that we are not vulnerable to unfair trade practices. In this case, we need to urgently equip the Kenya Trade Remedies Agency (KETRA), which was enacted under the Trade Remedies Act (2017), to investigate and clamp down on unfair practices disadvantaging locally made products.

Deliberate drive

To drive industrial growth, Ghana launched a programme aimed at growing its industrial capacity and output. These initiatives were designed to increase investments in the country’s manufacturing sector and boost value-addition for its exports. Ghana’s manufacturing sector has since grown, with the value of its exports increasing four-fold between 2000 and 2017 to 670 million Dollars.

We too can make it happen. However, we need to remain focused, identify sectors where we have a competitive edge and then harness the opportunities of exports that these sectors offer. The AfCFTA has been termed as a gamechanger. It is incumbent upon us to determine whether this will be a great thing for our industrialization – or the harbinger of our deindustrialization. As they say, the proof of the pudding is in the eating!

Rajan Shah is the Vice Chairman of Kenya Association of Manufacturers