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Promoting Sustainable Export Trade in Kenya: Unlocking Opportunities with AfCFTA

Introduction

The African Continental Free Trade Area (AfCFTA) is a game-changing initiative that creates a unified market for goods and services across the African continent. AfCFTA presents significant opportunities for Kenya to expand its Africa export markets, contributing to GDP growth and sustainable economic development. By participating in regional value chains, promoting industrialization, and diversifying its export base, Kenya aims to leverage the AfCFTA to enhance its economic prospects. The main products targeted for export include fisheries, medicine, fertilizer, paper, industrial chemicals, livestock, fruits, vegetables, spices, handicrafts, mining, and oil and gas. Priority service exports include professional services, tourism, education, healthcare, financial services, ICT, cultural and sports services, and transport, and logistics.

The country has made significant progress in implementing the AfCFTA, demonstrating its commitment to regional integration and intra-African trade. In October 2022, Kenya exported its first goods of locally made car batteries and tea to Ghana under the AfCFTA. This comes after the release of the Kenya AfCFTA implementation strategy (2022 -2027) to consolidate, diversify, and expand exports to African markets and ensure that its manufacturing sector attains 5% real value-added increases per annum.

Kenya has seen growth in exports to African countries, with notable increase in exports to Ethiopia and Egypt. The value of domestic exports has steadily increased from 2019 as shown in Table 1. Kenya’s exports to Africa increased by 15.7% in 2022, with the East African Community (EAC) being a key market. In addition, exports to the EAC grew by 17.7% in 2022, reaching Ksh 357.7 billion compared to Ksh 309.3 billion in 2021, driven by increased exports to Tanzania and Rwanda.

Table 1: Value of selected domestic exports (Ksh million)

YearCoffeeTeaPetroleumChemicalsFishHorticultureCementOther
June 202326639.7699933.747655.5647905.574082.8381993.373280.1240572.4
202238748.23163121.210225.6871569.195593.42120236.43974.81361541.8
202127225.481307745911.1657181.883410.26133229.41583.59303756.8
202022985.43130270.15652.8249496.612725.94113186.81081.77239306.8
201920908.07113518.15287.6145627.023407.55102928.7654.8227158.2

Source of Data: Central Bank of Kenya

Currently, Kenya has strong trade relationships with several African countries, including Uganda, Tanzania, South Africa, Ethiopia, and Rwanda. These countries serve as key destinations for Kenyan exports and important sources of imports. The country has been actively exporting goods to various African countries, with export values showing growth trends over the years as shown in Table 2. Moreover, Kenya is exploring trade opportunities with emerging markets such as Nigeria and Ghana, indicating its intention to expand its presence on the continent.

Table 2: Value of exports to selected African countries (Kshs Million)

YearUgandaTanzaniaZambiaEgyptRwandaZimbabweEthiopiaSomaliaS. AfricaDRC
June 202374,21235,3315,38316,52723,8151,5209,54312,8483,70313,065
202296,43456,5747,42026,77040,1732,74614,93115,3146,85017,810
202191,01044,9268,01421,17430,5192,98211,63413,4333,95824,455
202071,69331,3894,44118,98325,2101,1377,87611,3783,48114,293
201963,70233,6084,36418,92823,1759786,51511,8353,29313,464

Source of Data: Central Bank of Kenya

By actively participating in the AfCFTA negotiations, Kenya aims to secure favourable terms that protect its interests and promote fair competition among participating nations. The country advocates for the need to address non-tariff barriers, streamline customs procedures, and protect intellectual property rights. Kenya’s engagement in the AfCFTA negotiations underscores its determination to leverage this historic agreement for economic growth and development. This engagement in the African Continental Free Trade Area offers substantial prospects for broadening its export horizons within the African continent. This accord promises to improve market entry, attract foreign direct investments, and foster sustainable economic development. It further serves as an avenue to attract increased African investments in Kenya and encourages Kenyan enterprises to extend their operations to a continental scale.

Policy Interventions and Existing Gaps in Addressing Trade Obstacles in Kenya

The country’s strategic goal, as outlined in the Kenya AfCFTA implementation strategy (2022-2027), is to consolidate, diversify, and expand exports to African markets, focusing on achieving 5% real value-added growth in the manufacturing sector annually. The strategy is aimed at leveraging AfCFTA to secure African markets for Kenyan goods and services, promote value addition, diversify products, protect intellectual property rights, and encourage inclusive participation, especially among MSMEs, women, youth, and persons with disabilities. This strategy is designed to significantly contribute to Kenya’s national development by harnessing AfCFTA’s potential for economic growth and inclusivity. It also includes specific export targets across various sectors, from fisheries and pharmaceuticals to professional services and transport and logistics, with a focus on achieving a 5% annual real value-added growth in the manufacturing sector.

However, implementing AfCFTA presents various difficulties, including production and supply constraints related to transport infrastructure, production linkages, competitiveness, and integrating micro, small, and medium enterprises (MSMEs) into value chains. With the AfCFTA requiring clear rules of origin to determine eligibility for preferential treatment, there also exists a limited harmonization of trade mandates within the East African Community (EAC), and Foreign Affairs ministries, which may potentially result in trade policy conflicts hindering the seamless implementation of trade agreements. Further, non-tariff barriers that create complexities in the smooth flow of goods across borders hamper intra-African trade. These limit Kenya’s ability to fully capitalize on export opportunities and diversify its export base.

Kenya’s economy is vulnerable to fluctuations in global demand and prices due to its over-dependence on a few key commodities. In addition, environmental hazards and climate change affect agricultural productivity and pose risks to sustainable export trade especially for agricultural commodities. Moreover, obstacles related to insufficient infrastructure, specifically concerning transport networks and energy systems, inadequate connectivity, exorbitant transportation costs, and inefficient export processes impede trade efficiency and create difficulties for importers.  Exporters from Kenya to neighbouring nations also encounter hurdles such as informal cross-border trade, subpar infrastructure, barriers beyond tariffs, and complicated administrative procedures (WTO, 2019).

Conclusion and Recommendations

Kenya has demonstrated its commitment to promote regional integration and sustainable trade and actively participates in the AfCFTA negotiations. The country has taken steps to streamline its trade policies and regulations, enhance infrastructure, and strengthen its institutions to support a seamless transition into the AfCFTA framework. Moreover, Kenya has recognized the need to diversify its export markets beyond traditional partners and explore new opportunities within the African continent. By leveraging its comparative advantages, such as its agricultural productivity and skilled labour force, Kenya aims to position itself as a leading exporter within the AfCFTA. Kenya’s engagement in the AfCFTA negotiations highlights its commitment to promoting sustainable export trade and economic development. To maximize the benefits of the AfCFTA and ensure long-term success, the following recommendations may be considered.

The government can enhance the efficiency of export processes by modernizing and upgrading trade infrastructure and prioritizing investments in transport networks and energy systems to improve connectivity and reduce transportation costs. This will facilitate efficient trade within the AfCFTA framework. Additionally, the government can support exporters in meeting international quality standards and compliance requirements through capacity-building programmes, technical assistance, and certification support.

The country could focus on diversifying its export base to reduce dependence on a few commodities. Exploring new sectors, such as manufacturing and services, can help seize opportunities presented by the AfCFTA and increase export competitiveness. Providing exporters with timely market intelligence, trade information, and access to financing opportunities will enable them to make informed decisions and capitalize on emerging trends and market demands. Supporting industries with high growth potential, such as information technology, financial services, and tourism, by encouraging value addition to export-oriented manufacturing and services will increase the competitiveness of Kenyan products in international markets.

Strengthening coordination and cooperation among relevant agencies is necessary to ensure the effective implementation of trade agreements and standards. This includes eliminating non-tariff barriers to trade and addressing regulatory and technical obstacles that hinder the smooth flow of goods across borders. Diversification efforts should involve identifying and targeting new export markets and products that align with Kenya’s comparative advantages. This will enable negotiation of favourable market access terms within the AfCFTA framework and other regional trade agreements.

Finally, there is need to strengthen collaboration with regional communities (EAC, COMESA and SADC) by harmonizing trade policies, eliminating trade barriers, and promoting intra-regional trade. Further, establishing robust monitoring and evaluation frameworks will help track the progress and impact of trade policies and interventions, and regularly assess their effectiveness and making necessary adjustments.

Authors: Catherine Nyaboke , KIPPRA Young Professional

Kelvin Kamunye, KIPPRA Young Professional

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