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Opportunities and challenges presented by the AfCFTA

President Kenyatta joined other African heads of state on March 21 in signing the #AfCFTA. What does this mean for Kenya? It means that Kenya's goods and services could have a broader market to sell to. It also means that locally made goods and services will face increased competition from similar products in the African market, especially if other countries have a comparative advantage. What is the projected net effect of these two sides of trade? Well, it's difficult to predict. It depends on which goods are on the schedule of reduction of tariffs both for other countries and Kenya.
Pres. Kenyatta signs the AfCFTA Image courtesy of PSCU 

Looking at other similar regional pacts such as North America's #NAFTA or the EU, we can see that trade between countries increases many fold. But as in the case of Mexico which saw the bankrupting of peasant farmers due to cheap corn and other agricultural produce from subsidized American farms, the aggregate effect might be positive, but certain sections of society are likely to suffer if protections are not implemented. In the case of EU, Germany emerged very strongly due to its comparative advantage especially in high--value products. Certain sections of the EU market, such as the more rural folk of the UK, felt the pinch, a factor that in part played a role in #brexit.

What is the opportunity for Kenya?
1. A broader market for goods and services will boost trade and GDP
2. Freer movement of people may provide cheaper labor for the private sector
3. Cheaper imports will reduce production costs for industries relying on them; this may ramp up production and lead to production of cheaper finished goods
4. Kenya has the opportunity to grow its value-addition industries; this will require deliberate government effort to promote such industries
5. More people coming into Kenya may increase local aggregate demand for goods and services

What are the challenges?
1. Freer movement of people will put strain on socioeconomic services and opportunities that are already under pressure, e.g. health care services, housing, transportation infrastructure, land etc.
2. Competition from similar and cheaper goods from the African market may hollow out segments of industries, lead to job losses
3. Access of the common market by non-African countries with comparative advantage in specific industries may reduce competitiveness of Kenya's goods

So, there you have it, some of my thoughts on the #AfCFTA. There will be winners and losers. We must be ready to ensure there are more winners, and prepare to compensate the losers.
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