By Harriet Chelang’at / September 12, 2018
Can free trade and resulting elimination of trade barriers across the African Continent accelerate the growth of small and medium enterprises (SMEs) in Kenya, its East African neighbors and beyond? The advantages and disadvantages of free trade have been hotly debated for years but we’ll soon start to see firsthand if the free flow of goods across borders and the collective market power of African countries makes a difference to improving the lot of each.
The recent establishment of the African Continental Free Trade Area (AfCFTA), pushed by the African Union, aims to facilitate free movement of people, goods and expertise between African countries as well as eventually eliminate all intra-Africa trade tariffs in hopes of jumpstarting industrialization, creating economies of scale and regional value chains, attracting more foreign direct investment, enhancing competitiveness, promoting resource allocation and provide a host of other benefits touted by its proponents.
“The World Trade Organization estimates that intra-African trade in 2012 was about 12%. Today, intra-African trade is approximately 16%. This is in stark contrast to much higher rates of intra-regional trade in more developed regions of the world: 70% in Europe, 54% in North America, and 51% in ASEAN.” (Read More)
On May 10th Kenya and Ghana became the first countries to ratify the deal, which must be approved by the parliaments of at least 22 of the 44 African nations that have signed the AfCFTA agreement. If every nation on the continent were to join the pact it would create a “combined gross domestic product of more than $3 trillion and create a market of more than 1 billion people. (Read More)
Over the years, one of the major challenges facing African countries has not only been how to foster economic growth but how to make that growth inclusive. The African Union has been working towards the inclusivity of growth to address challenges such as unemployment, poverty and inequality. However, in as much as Africa is endowed with the resources and the capacity, some of its own resources are in the hands of few individuals who control how these resources are used. When it comes to raw materials needed for production, a share of those resources are taken out of African countries to support indigenous industries in the East and West.
Of particular interest to BlueInventure, is how can SMEs benefit from any opportunities created by AfCFTA if it eventually builds up a head of steam. Many researchers, scholars and philanthropists have had different lines of thought about the value of free trade and how to push its potential economic benefits (like increased employment) down to local economies. Moreover, many regional trade bodies have been created over the years to promote trade facilitation such as COMESA, ECOWAS, EAC and SADC. For SMEs, the challenges of exporting from Kenya to other African countries or beyond are well known. They include:
With the African countries signing this agreement, SMEs could be in a better environment that will facilitate their growth. We believe that if SMEs are provided with the knowledge and tools to tap into a free trade economy, value is created for both entrepreneurs and for communities.
Here are a number of guides and other resources you might want to review so you can begin planning your export strategy and make sure you’re asking the right questions of business advisory firms like Blue Inventure.
Harriet works within the BlueInventure Service Delivery and Projects team where she is involved in projects providing growth strategy and innovation solutions to enable entrepreneurs to win against the odds they face in their markets.
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