Regional integration should be made a priority across Africa

Posted On Friday, 03 May 2019 09:40
The Continental Free Trade Area logo The Continental Free Trade Area logo

By Kiprono Kittony

The push to boost intra-regional trade, cross-border investment and economic integration in Africa has reached a pivotal phase. This April, Gambia became the 22nd country in the continent (Kenya was among the first ones) to ratify the Africa Continental Free Trade Agreement, helping the historic trade deal gather the minimum required ratifications to come into full effect.

Signed last year in Kigali, the capital of Rwanda, the AfCFTA presents Africa with a golden opportunity to unleash the power of its industries, create jobs for the masses of unemployed youth and fast-track development.

Most rich industrialised countries started the regional integration journey in the 1960s, meaning that their industries have enjoyed access to larger markets outside national borders for close to six decades. This head start in cross-border trade and investment explains why industries in these countries enjoy crucial competitive advantages such as economies of scale and specialisation.

When firms produce at scale, which is possible if they have easy access to markets outside their national borders, they not only manage costs better and hence get more profitable, but also find it easier to specialise in one area. Firms become better at making any product they specialise in, allowing them to build comparative advantages, price their products more competitively and create well-paying quality jobs.

For African countries to enjoy these benefits, individual countries need to open up their markets to firms domiciled in other countries within the continent—something that the AfCFTA and other agreements signed within free trade areas such as Comesa and the EAC will greatly aid with.

However, for the process of integration in Africa to be successful, governments must let the private sector lead the charge but provide the right set of policy incentives and political support needed to get things done.

African firms must be allowed to freely develop supply chains across the continent. Moreover, there shouldn’t be unjustified fears over ‘foreign’ companies taking over local jobs, as cross-border trade and investment usually help foreign firms build symbiotic commercial relationships with local firms in different supply chains. These relationships ultimately build the capacity of local firms, allowing them to produce at scale and as a result create more jobs.

In Kenya, the private sector is ready to champion the regional integration agenda. This is the message I have gotten from my numerous interactions with business persons across the country. Businesses in both the corporate world and SME sector are keen to capitalise on the benefits of integration, but encounter difficulties doing so. One key difficulty is increased trade disputes.

Trade disputes within the EAC continue to put entire industries at risk. For example, since March 2018, Kenya no longer enjoys duty-free entry into Tanzania for confectionery products such as sweets, chocolate and chewing gum, despite EAC regulations allowing for this. In place of duty-free access, Dar has slapped a 25 per cent import duty on Kenyan confectionery products, rendering them uncompetitive in the Tanzanian market.

Tanzania’s adamancy to remove punitive import duties and reintroduce duty-free access for Kenyan confectionery is based on claims that Kenyan manufacturers rely on imported duty-free industrial sugar for production, hence gaining an unfair advantage over local Tanzanian business.

This, however, should not be an issue as other confectionery players across the region – and not just Kenya – also rely on importation of duty-free industrial sugar under the same remission scheme, since none of the EAC member states produces industrial sugar.

By introducing healthy competition, regional trade usually puts pressure on local industries to improve competitiveness. For example, the recent case of Ugandan eggs being cheaper than those produced in Kenya is a wake-up call to Kenya to address the competitiveness of its agroindustry.

We also need to identify the comparative advantages we enjoy as a region – such as a young labour force, recent investments in transport infrastructure and access to over 80 ports worldwide via Mombasa, among others – and leverage on these to develop joint import substitution plans.

There are a lot of products we import as a region that we can produce by ourselves at a lower cost, helping us build regional capacity, reduce trade deficits and strengthen macroeconomic indicators.

Importantly, much broader reforms are needed at a political level. This is because regional integration is generally more successful where there is minimal political and ideological difference among participating countries.

Tanzania and Kenya therefore need to work on their issues; but so, do Rwanda and Uganda, whose ongoing diplomatic stand-off has resulted in disruptions at their borders, impacting trade and investment.

Kiprono Kittony is the Chairman, Kenya National Chamber of Commerce and Industry This email address is being protected from spambots. You need JavaScript enabled to view it. This piece appeared in The Star on 29th April 2019.