Kenya’s Africa Continental Free Trade Area (AfCFTA) Strategic Plan 2022-2027[1] provides a comprehensive approach to industrialization by leveraging on the opportunities presented by the AfCFTA to expand trade. The strategic plan aims to increase the manufacturing sector’s value added by 5 per cent annually from 7.8 per cent in 2022 through tariff liberalization and targeted government interventions. The strategy prioritizes key sectors such as textile, leather, pharmaceuticals, and light engineering while promoting inclusiveness by facilitating the participation of MSMEs, women, youth, and persons with disabilities.
The AfCFTA is African Union’s (AU) flagship project that opens the continent for trade and industrialization by bringing together 55 member States and 8 Regional Economic Communities (RECs)[2]. The Agreement is a detailed legal document containing the protocols on trade in goods, trade in services, dispute settlement, investment, intellectual property rights, and competition policy. Additionally, protocols regarding digital trade and women and youth in trade are also part of the agreement. With a projected US$ 3 trillion borderless market[3], it attracts foreign investors by providing access to a large consumer base. The AfCFTA’s priority industrial sectors include automotive, pharmaceuticals, transport and logistics, and agri-business.
To attain long-term industrialization goals, AfCFTA’s member States have an obligation to gradually eliminate tariffs and non-tariff barriers, liberalize trade in services, cooperate on investment, harmonize intellectual property rights, regulate competition policy, and implement trade facilitation measures[4]. To actualize industrialization under the AfCFTA, the Guided Trade Initiative on Trade in Goods (GTI) has been adopted and is being piloted in 24 countries. The industrial products traded under the GTI include tea, batteries, palm oil, rubber, components for air conditioners, and ceramic tiles. These products are key exports for Kenya, and this presents an opportunity for Kenya to pilot its competitiveness of the products in the region. To pilot the GTI, Kenya exported batteries worth Ksh 9.3 million to Ghana under the AfCFTA. Further, the Kenya Revenue Authority (KRA) has procured 1,500 AfCFTA certificates of origin to facilitate exporters exporting goods under the GTI –AfCFTA framework[5]. That said, the AfCFTA holds a great promise for Kenya’s industrialization.
Currently, Kenya is involved in trading various industrial products that have been designated for trade through GTI and have notably benefitted from strong relationships within the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). However, there is significant untapped potential beyond these borders, through expansion of its reach and exploring trade opportunities with other RECs in West Africa and North Africa as shown in Figure 1. Therefore, the agreement provides an opportunity for Kenya to trade with markets currently engaged under the rules of the World Trade Organization (WTO) Most Favoured Nation (MFN) rates, which are very high.
Figure 1: Value added products exports (Kenya to RECS)
Source: ITC (2023), Trade Statistics
According to ITC trade statistics, Kenya’s exports to the Economic Community of West African States (ECOWAS) in 2022 accounted for a meagre 0.056 per cent of the region’s total imports (a 5.7 per cent drop). However, trade in value-added products with Southern African Development Community (SADC), and Southern African Custom Union (SACU) increased by 51.9 per cent and 87.3 per cent, respectively. It is important to note that the paper and textile industries, manufacturing, and energy sectors comprised a substantial portion of Kenya’s exports to these RECs in 2022. Products from these sectors will receive preferential treatment under the AfCFTA.
Table 1: Kenya’s exports potential for industrial products to RECS where Kenya is not a member (US$ millions)
Source: ITC (2023), Trade Statistics
In the SADC region, Kenya has significant export potential for pharmaceuticals and medical supplies, chemicals and plastics, automotive components, electrical and electronics as well as paper and paper products. These sectors show substantial opportunities for growth, with export potential ranging from US$ 234,253.45 million for paper products to US$ 368,4792.29 million for electrical and electronics.
For the ECOWAS region, Kenya’s top export potential lies in pharmaceuticals and medical supplies, chemicals and plastics, automotive components, electrical and electronics, and paper and paper products. The export potential in ECOWAS ranges from US$ 876,921.27 million for pharmaceuticals to US$ 368,4872.92 million for electrical and electronics.
Further, in the SACU region, Kenya has the highest export potential in electronic and automotive components, chemicals and plastics, pharmaceuticals and medical supplies, and cosmetics and personal care products. This shows that Kenya’s export potential to the SACU region is as high as US$ 368,4874.68 million in the electrical and electronics sector and 253,500.34 million in the cosmetics and skin care sector.
This shows that there is a huge untapped potential in these three RECs, and Kenya needs to focus on sectors such as electrical and electronics, automotive components, chemicals and plastics, pharmaceuticals and medical supplies sector, and machinery sectors.
Kenya has a strong industrial base especially in sectors such as automotive, pharmaceuticals, textile, apparel, leather, and leather products and small and micro enterprises (SMEs) stand to benefit from expanded trade opportunities through AfCFTA. The focus should be on sectors with high export potential such as cosmetics, pharmaceuticals, and chemicals products for SADC, pharmaceuticals, electronics, and textiles for ECOWAS, and automotive components, plastics, and electronics for SACU. This can be through implementing sector-specific policies such as reducing tariffs, streamlining customs, and providing export incentives to enhance competitiveness and expand the market.
The AfCFTA will have a significant impact on facilitating market access in (RECs) of which Kenya is not a member through improved regional integration. The African Industrialization Index[6] indicates that robust regional integration has contributed to the development of strong value chains in the textile and horticultural sectors, particularly in Kenya, Ethiopia, and Tanzania. Therefore, Kenya needs to take advantage of the regional integration opportunities offered by AfCFTA and the presence of special economic zones (SEZs) in the country to promote industrialization. Kenya has gazetted 28 SEZs, which could be used to attract investors with the potential to drive industrialization. By leveraging these facilities, Kenya could increase its industrial capacity and improve the competitiveness of its products and position the country as a hub for industrialization in the region.
In conclusion, the AfCFTA presents an opportunity for Kenya to enhance its industrialization and access markets in other African countries. Therefore, it is crucial to comprehensively review the National Industrial Policy[7]for the year 2012 and the national automotive policy for the year 2022[8] to promote industrialization, according to the AfCFTA priority industrial sectors. Creating a favourable environment for businesses to operate efficiently, improving trade flows, addressing logistical challenges, and enhancing competitiveness in key export sectors could help maximize the industrialization opportunities offered by AfCFTA. It is important to fully implement Kenya’s AfCFTA strategy for 2022-2027 and review the Special Economic Zones Act to align with the AfCFTA objective of promoting industrial development through diversification and regional value chain development[9]. This alignment will be essential for maximizing the benefits of industrialization from AfCFTA, supporting industrial growth and trade expansion.
[1] AfCFTA_Policy_Brief_Final.pdf (trade.go.ke)
[2] https://au.int/sites/default/files/treaties/36437-treaty-consolidated_text_on_cfta_-_en.pdf
[3] Economic Development in Africa Report 2021 | UNCTAD
[4] Agreement Establishing the African Continental Free Trade Area | African Union (au.int)
[5] The African Continental Free Trade Area (AfCFTA) – KRA
[6] Africa Industrialization Index 2022 | African Development Bank Group (afdb.org)
[7] repository.kippra.or.ke/bitstream/handle/123456789/1037/the-national-industrialization-policy.pdf?sequence=3&isAllowed=y
[8]http://www.parliament.go.ke/sites/default/files/202205/Sessional%20paper%20no%201%20of%202022%20on%20National%20Automotive%20policy%20Feb%202022.pdf
[9] https://au.int/sites/default/files/treaties/36437-treaty-consolidated_text_on_cfta_-_en.pdf
Author: Lilian King’ori, Policy Analyst, Trade and Foreign Policy Department