Kenya proposes ways of merging trading blocs

Kenya has floated new proposals that could help defray the threats posed by the disparities of economies that will be covered in the planned merger of Africa’s three regional market blocs.

Analysts have warned the relative higher ranking Kenya, South Africa and Egypt could jeopardise the goal of a free trade area (FTA) made up of Comesa, SADC and EAC.

Kenya’s Trade permanent secretary Adbulrazaq Ali on Tuesday admitted that the superior nature of the three economies could jeopardise the merger plans but pointed out that the danger could be addressed.

Key among the proposals by Kenya is that the regional blocs adopt a flexible framework that accommodates the needs of the individual countries participating in the grand free trade area (FTA) negotiations.

It also proposes the creation of transitional measures that would be supported by programmes to help disadvantaged countries adjust to adversity that may come with the shift.

“The measures may also include taking into account existing market access conditions among the countries of the three regions including economic partnership agreements(EPAs),” Mr Ali said in Nairobi when he addressed a meeting of CEOs of business organisations from eastern and southern Africa.

Three regional trading blocs — the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa) in 2008 agreed to form a free trade area covering more than 527 million people with an estimated combined gross domestic product of about $624 billion.

A roadmap to guide the merger has since been circulated and member regional blocs are currently preparing to give their views on it.

Analysts have warned that the realisation of an FTA comprising the Comesa, SADC and EAC may run into trouble owing to the economic and institutional disparities of the 26 participating member states.

“The similar nature of products in the regions means that the more developed economies of Kenya, Egypt and South Africa are in a much better position to market their exports. This also raises a concern over possible polarisation as investment may be attracted towards these economies. This has the potential to seriously undermining the proposed integration effort,” Mr Tsidiso Disenyana, of the South African Institute of International Affairs (SAIIA) warned in a presentation at an African economic conference in Addis Ababa in December.

Mr Disenyana added the imbalance could deny other participating economies the chance of attracting investment, magnifying the challenges that have been met by the individual regional economic communities if not dealt with effectively.

Mr Ali, however, said views that Kenya, South Africa and Egypt were better placed to grow their exports ignored some basic resource endowments.

“This view ignores the comparative abundance of rich agricultural land and resultant opportunities for investment and production in both large and small-scale agriculture and subsequently food processing in some of the smaller economies,” the PS said.

Apart from the dangers of economic polarisation, analysts at the South African Institute further pointed out that the fact that the majority of countries in the three regional economic communities (RECs), with the exception of South Africa and Egypt, are dependent on trade taxes for fiscal revenue would amount to a major obstacle for tariff liberalisation.

In countries such as Lesotho, Namibia and Swaziland, trade taxes account for over 50 per cent of the total fiscal revenue.