Kenya gets access to Sh113bn new facility to tame Africa free trade losses

Kenya will be able to tap a newly created $1 billion (Sh113 billion) fund by the African Export-Import Bank (Afreximbank) designed to "mitigate the impact” of the African trade deal under implementation.

The adjustment fund which is expected to eventually build up to $10 billion in ten years will be available on request to countries and businesses that are likely to suffer disproportionately large revenue losses following the elimination of tariffs with the implementation of the African Continental Free Trade Area (AfCFTA). 

“The fund is necessary to ensure that no country is worse off due to the implementation of the AfCFTA,” said Benedict Oramah, president of the Cairo-based bank during the launch of the fund on Wednesday.

Kenya was the first country in the eastern Africa region to ratify the trade deal after the National Assembly adopted it.

The pan-African free trade zone aims to bring 1.3 billion people together in a $3.4 trillion (Sh384 trillion) economic bloc that supporters say will boost living standards, encourage development and make Africa less dependent on trade with other regions.

The new trade fund will provide short- to medium-term financing to vulnerable countries and businesses enabling them to adjust smoothly to sudden tariff revenue losses, said Afreximbank.

The fund is structured in three kitties comprised of the base fund, general fund, and credit available either in concessional or commercial terms for businesses and governments. 

The base fund will consist of contributions from parties to the trade pact, grants and technical assistance funds from development agencies.

According to AfCFTA secretary-general  Wamkele Mene, the fund is necessary to cover the short-term financial losses and support medium-to-long term adjustments of production activities in African countries to enable them to take advantage of the opportunities arising from the deal.

“We want to make sure that in the implementation of the AfCFTA that there is inclusivity of benefits whether countries are big or small and industrialized or not so that everybody benefits,” said Mr Mene said.

Some studies estimate that the financial losses associated with the removal of trade tariffs amount to over $4.1 billion (Sh463 billion) in the short term across the continent.

Business Daily could not immediately establish how much losses Kenya would suffer or whether it would at all.

Member states of the AfCFTA recently concluded their negotiations on rules of origin, a move expected to significantly cut tariffs on goods moving within the continent.

Mr Mene, said the conclusion of negotiations on rules of origin was an important milestone towards a successful implementation of the free trade pact.

“Now that we have 87.7 percent of rules of origin agreed, we are now in the position for member states to gazette these legal instruments at the national level so that countries can apply these rules of origin from a customs point of view,” Mr Mene said earlier.

Trading under AfCFTA was to start officially on January 1, 2021, but it could not be implemented as problems regarding rules of origin remained unresolved, making it difficult to identify products that could enjoy the preferential tariff regime under the agreement.

Each trading bloc has its own common external tariff (CET), which it charges on goods coming outside its member states.

For instance, EAC charges up to 50 percent duty on goods being shipped from other regions such as members of the Economic Community for West Africa (Ecowas).