FLORA: Kenya – Ethiopia bilateral trade key for growth of private sector


President Uhuru Kenyatta and Ethiopian Prime Minister Hailemariam Desalegn

By Flora Mutahi, Nairobi, Kenya

The Kenya Economic Update released by the World Bank earlier this year termed Kenya as a ‘solid performer among its peer groups’ owing to a consistent growth rate of 6per cent between 2006-2014. However, in the same breath the study shows that our country cannot keep pace with East African peers such as Ethiopia and Rwanda whose annual growth rate is way above 6 per cent and with the case of Ethiopia it even goes to 10 per cent per annum.

This comes as no surprise given our steadily declining exports and a shortage of productive jobs. Yet we know that intercontinental trade has always played a key role in our economy. According to statistics, Kenya’s top markets for export are in Africa, which takes a market share of Sh231.4 billion (46.1%), followed by Europe Sh123.2 billion (24.5%) and Asia Sh107.5 billion (21.4%). These numbers tell us that our best bet for turning this tide around is to trade these same neighbours.

For instance, Ethiopia is the fourth largest economy in Sub-Saharan Africa and will predictably be the third largest by 2025, overtaking Angola; meaning that, jointly Kenya and Ethiopia provide a market of 125 million people with a combined GDP of $67 billion.

The country is known for its agro based industries in leather, coffee, bamboo products, natural gum and flowers but has a young manufacturing sector which contributes only 4 percent to its GDP. In comparison Kenya’s manufacturing sector is much bigger. Despite this drawback, the country is a force to reckon with when it comes to energy and forests. The Gire dam network and the Millennium dam have an installed capacity of over 2000 MW, giving Ethiopia the capacity to become a major supplier of energy in the region. It is no secret that manufacturers there pay six times less than Kenyan manufacturers for electricity.

Kenya has, in the past, worked with Ethiopia to transfer know-how to develop their agro processing sector. However, trends in recent years indicate that where livestock movements used to be southern (into Kenya) now they are heading north mainly, and this can be attributed to the fact that Ethiopia is increasingly developing its leather sector to meet global standards.

It’s not all smooth sailing however, because despite having the largest livestock population in all of Africa, Ethiopia’s milk deficiency is at nearly 90 percent. Meanwhile, Kenya’s dairy sector is currently doing very well comparatively and this presents a great opportunity for an economic partnership that will benefit both countries. We have done this before as was the case when several years back, Ethiopians came to Kenya for expertise in growing tea. Their proximity to tea consuming nations, such as Sudan, Egypt and the Middle East gave them leverage to be a key supplier despite being a landlocked country.

Opportunities exist for Kenyans to invest in Ethiopia especially in the food and beverages, financial and dairy sectors. Ironically, Ethiopia imports beverages from South Africa yet Kenya could easily meet this demand.  It is also a key exporter of cereals, vegetables, copper, ores, tyres and concentrates, textile yarns, spices to Kenya, and has an effective Ethiopian Commodity Exchange – a trading platform for agricultural commodities from which we can learn a lot.

Ethiopia also has various opportunities in trading with us, especially if we look at our mobile sector and more specifically niche products such as MPESA. The country’s ICT sector is not yet liberalized as demonstrated by their one and only state owned service provider, Ethio Telkom.  In comparison, our robust ICT sector has received global recognition with newer innovations emerging to transform various aspects of our economy, hence raising our profile as a competitive business environment,

Moreover our economy has indeed grown from an industrious banking sector, which can benefit Ethiopian businesses. Despite recent shocks in the sector ours still remains sturdy thanks, in part, to policies instituted by the Central bank; which is also know-how that the Ethiopia can master in their quest to make their sector more liberal.

Indeed there are some few hurdles to our free trading and exchange of knowledge with Ethiopia for instance, the yet to be signed Free Trade Agreement that will see them become a member of COMESA. Nonetheless we are hoping that these and other obstacles can be resolved as we continue to explore possible areas of mutual benefit through various avenues for example trade missions, trade fairs, expos and business forums.

The LAPSSET project is a harbinger of great development and partnership with both our countries having commissioned the 800km railway line to Addis Ababa from Lamu. These projects will pave the way for joint investments and will serve as a catalyst to activate some of the activities proposed in the signed Special Status Agreement.

The writer is the Vice Chairperson of the Kenya Association of Manufacturers

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