Daily Nation, Kenya

Kenyan jobs on the line as regional trading blocs warm up to merger

By Muna Wahome

22 October 2008

The pact signed on Wednesday could hasten the proposed African Economic Community but may come too soon, especially for Kenyan manufacturers.

Indeed, in terms of impact, it closely mirrors the entry of Egypt into the Comesa (Common Market for Eastern and Southern Africa) Free Trade Area early this decade, after joining the principally sub-Saharan trade bloc in 1998.

Kenyan businessmen have over the years blamed the Kanu regime for letting in what is ideally a Middle East state of a far much higher per capita income join Comesa, leading to a partnership of the unequal.

Consequently, Cairo has pumped cheap industrial goods, including paper supposedly sourced from the desert country, fuelled by heavily subsidised energy, whose price amounts to a fifth of Kenya’s.

Transnationals have sensibly opted to source goods from energy-subsidised Egypt and shut down plants in Kenya.

In view of the fact that manufacturing and agriculture sectors are the only differentiating features of the mainly agrarian economies of the coalescing countries, the entry of South Africa will predictably have a far-reaching effect on the balance of competition in the region.

South Africa, Kenya, Egypt and, in theory, Zimbabwe are the only significant players in manufacturing and agriculture.

Now besides Cairo, they have to contend with the mineral-rich nation with its superior transport and road infrastructure.

The cheap energy country - whose corporates have since independence and subsequent ending of economic sanctions infiltrated the region, with the notable exception of Kenya - has already managed to take ample space on Kenyan supermarket shelves.

That, even without the tariff concessions which goes with economic blocs. Unfortunately, the business community was hardly represented at the Kampala meeting where the decision to merge Comesa, its sub-set East African Community and the Johannesburg-dominated Southern African Development Community (SADC). But they are the ones who will have to deal with the aftermath at an immediate level.

While none of the promoters, especially Kenya which sells over 40 per cent of its exports in Comesa, can afford to be blind to the trade-creating potential of the bloc, other fears are likely to dominate in the short term.

“It is good to increase flow of trade but that should happen with a level playing ground,” said Athi River Mining CEO Pradeep Paunrana whose company has invested in a number of African countries including South Africa.

“We do not want to be relegated to agricultural production and driving tourists around.”

Certainly, whatever the leaders agree upon in Kampala, the proposed grouping would have to borrow heavily from the creation of the EAC and the model European Union if a shot-gun marriage is to be avoided.

First, the economic disparities within the countries have to be addressed by major players within the bloc and its proponents who include Europeans seeking a unified bloc to negotiate trade agreements with. Inevitably that would encompass injecting funding into the infrastructure of most of the countries.

EU, the most powerful and admired of economic communities, has invested heavily in subsidies for the poorer members.

EAC on the other hand was prudent enough to grant Uganda and Tanzania phased tax protection for their industries against Kenya manufacturers.

Secondly and closely interlinked with the above, the process has to be graduated. Undoubtedly, given the level of underdevelopment in some of the countries, the community should take a few years to mature despite absorption of existing structures.

The Maghreb Union, Economic Community of West Africa (incidentally the promoters of Ecobank), EAC were in the making about a decade while EU took decades.

Lastly and importantly, Kenya, which is the main beneficiary of Comesa and the largely overlapping EAC has to decide whether joining a bloc dominated by Egypt and South Africa means exporting jobs in exchange for tax-free cheap goods or better lives for its citizenry.

After leaving Kampala, the bureaucrats will still have their hands full with a bigger assignment: convincing Kenyans and Parliament.