Why the TFTA is significant for Kenya
Why the TFTA is significant for Kenya
| Post date: Thu, Jun 25, 2015 | | Category: General | |
The Tripartite Free Trade Area (TFTA) comprising 26 African countries was launched with much fanfare in Cairo two weeks ago. Proponents of the TFTA hail it as an opportunity to access a larger regional market of more than 625 million Africans who account for slightly over half of Africa’s economic activity. In addition, it is hoped that the TFTA will reduce the discordances caused by overlapping memberships by member states in multiple regional economic communities. The multiplicity of regional economic communities has created a plethora of tariff and non tariff barriers to trade, whose reduction could ease movement of goods and services in the continent.
Further, a harmonized customs system could reduce the gains that unscrupulous traders have derived previously by moving goods out of one country or trade region, to another and then back to the first, exploiting differences in customs regimes, reaping illegal profits and swindling governments of duties in the process.
However others have expressed misgivings about the new arrangement, claiming that the similarity of the goods produced and exported by the TFTA member countries make the FTA economically untenable as the benefits that could be derived because of comparative advantage are reduced.
The creation of the TFTA is indubitably significant in the march towards a continental free trade area. In my view, the TFTA presents an opportunity to increase intra-continental trade, which at 12 percent of Africa’s total trade compares poorly to the Americas’ 40 percent and Europe’s 60 percent.[1] The low level of intra-continental trade has been attributed to poor infrastructure and a propensity to trade with and provide better trade terms to Europe than the rest of Africa.
Perhaps the statistics of Kenya’s trade between 2010 and 2014 could indicate what opportunities and challenges exist for Kenya in the TFTA.[2] Although the nominal values of trade with other African countries increased from KSh 300 billion to KSh 390 billion, the proportion of that value to total trade declined from 22.4% to 18%. The statistics on the value of trade with EAC and COMESA partners also show a decline in the amount of trade with those partners as a proportion of total trade. Between 2011 and 2014, the balance of trade with COMESA and EAC partners decreased from KSh 126 billion to KSh 110 billion, and 110 billion to 89 billion respectively. This decline was due to a decrease in the value of exports from Kenya and an increase in imports from states in those regional economic communities. The preferential access provided by the TFTA could stimulate more exporting as more countries will be accessible to Kenyan exports on preferential terms, potentially increasing the value and volume of Kenya’s total trade.
Upon coming into force of the agreement, Kenyan exports will gain preferential access to six more countries that are not members of COMESA or the EAC: Angola, Botswana, Lesotho, Mozambique, Namibia and South Africa. Of these six, South Africa is the most significant trade partner to Kenya. The value of total trade with South Africa ranged between 3% and 4.4% of Kenya’s total trade over the 2011-2014 period, but most of this was due to imports to Kenya. The value of exports to South Africa increased from 2.4 billion in 2011 to 5.9 billion in 2014, while the value of imports ranged from 59 billion to 70.7 billion in the same period. Granted, access of South African products to the Kenyan market on preferential terms could see a significant rise in the trade deficit, but the positive trade and welfare effects realized by Kenyan consumers would outweigh the increased trade deficit.
In conclusion, I should mention that even though the increased integration and liberalization is laudable, policymakers and trade negotiators should be careful not to pursue these goals as ends unto themselves. The primary objective of these agreements should be to further Kenya’s development agenda and raise the living standards of Kenyan citizens.
By Leon Ong’onge – Trade and Development Programme
[2] Data derived Economic Survey 2015
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