It has been happening for quite some time, but many African countries have started trading goods under the African Continental Free Trade Area (AfCFTA) agreement.
Kenya has sent a consignment of Kenyan tea to Ghana in the past months along with locally made car and truck batteries. Rwanda has also exported processed coffee beans to the West African nation.
“It’s a positive step,” said Nixon Paloma, group finance officer at Associated Battery Manufacturers. The firm is one of only two companies in Kenya participating in a pilot project called the Guided Trade Initiative.
The initiative supports companies operating in certain products in select countries through the AfCFTA process. The idea is to test – and prove – that the AfCFTA system works and eventually achieve intra-regional trade under the AfCFTA. As well as Kenya, Rwanda and Ghana, it includes Cameroon, Egypt, Mauritius, Tanzania and Tunisia.
On January 1, 2021, the world’s largest free trade area became operational with much fanfare. and the failure of 10 of the 54 signatories to ratify it.
opening new markets
Associated Battery Manufacturers has long exported its lead-acid and solar batteries to more than a dozen African countries. But these are mostly within the free trade area of COMESA, the common market for eastern and southern Africa, where the Nairobi-based firm benefits from a lack of tariffs on its products.
The company, with a turnover of $120 million (€114 million) per year, Paloma told DW, was not exporting beyond the Democratic Republic of the Congo because “it did not benefit from the duty-free status.”
This is not uncommon on the continent, where intra-African trade accounts for about 15% of total trade. This is very low compared to other world regions, such as Europe, where it is 67%, and Asia, where it is 60%.
In the past few months, however, the battery company has shipped two AfCFTA-certified shipments of car and truck batteries to Ghana, valued at some $60,000 per container.
Before doing so, the firm had to get its products audited by the Revenue Authority of Kenya and the Manufacturers Association to ensure the batteries met rules of origin. These are standards tailored to the specifications of each product to guarantee that it is made in the exporting country and is therefore eligible for AfCFTA preferential tariffs.
The Nairobi-based firm’s products contain some 70% local inputs and 30% imported components, meaning they qualify as “Made in Kenya”, Paloma explained.
barriers to doing business
Paloma said exports to Ghana this year under the AfCFTA agreement only reduce the usual 20% import duty for batteries to 2%. But with the tariff set to decline by 2% per year until it becomes zero, the company is keen to start building its brand in West Africa, he said. This way, its name will already be established when it comes to duty free status.
Under the AfCFTA agreement, cross-border taxes on 90% of goods must fall to new levels by 2030 at the latest, although tariffs on many products will be phased out even earlier.
But tariffs are just one of many barriers to doing business across Africa. Logistics is another major hurdle. It took a long six weeks for the first shipment of batteries to move from the ports of Mombasa to Tema near Accra, as the goods went via Singapore.
“The point is that there is not enough trade to warrant ships sizable enough to carry goods from one [African] Nixon Paloma said, “They have to be taken straight to the next port.” They find it easier to transport goods to a transshipment port in Asia or Europe, where they will receive substantial loads that go to West Africa.
But three-quarters of Africa’s goods are moved on roads, which are often poorly made. according to african development bankThis increases the cost of logistics on the continent, which can add 75% to the price of African goods.
adding value to raw materials
Igire Coffee, the only Rwandan firm to export AfCFTA-certified goods so far, also sees the free trade deal as an opportunity to explore West Africa’s untapped markets for its “Made in Africa” coffee due to the drop in tariffs.
The women-led company has shipped 105 kg (231 lb) of roasted Arabica coffee beans “Made in Rwanda” to Ghana, and more are to follow.
Kigali CEO Brigitte Harrington told DW that people in countries like Ghana and Nigeria are buying coffee grown in Africa. But it is being sent overseas for processing and packaging and then shipped back, which “makes absolutely no sense.”
He hopes that by opening up intra-regional trade, the AfCFTA will encourage more African companies to add value to the continent’s abundant natural resources and raw materials rather than sell them overseas.
The share of processed and semi-processed goods in intra-African trade is much higher than in trade with the rest of the world. business briefing by the United Nations Center for International Trade.
“Western companies pay $6 per kilo for green coffee beans that sell for between $45 and $50 per kilo after processing,” she said. “The women who fertilize, tend and harvest the beans can only get $2 per kilo. We have to change that.”
push the numbers
While the number of companies with certified AfCFTA products is still small, countries such as Ghana say they are helping hundreds of firms obtain rule of origin certification.
One of them is the Benso Oil Palm Plantation (BOPP) in western Ghana, which the team recently visited. The firm, which directly employs around 500 people and indirectly provides work to over 1,500 people, grows oil palm and processes the fruit into crude palm oil and palm kernel oil .
“They profiled this company and came to the conclusion that we qualify,” said BOPP director Samuel Awonia Awala, who expects the certification of BOPP to be completed by the end of the year.
While most palm oil is turned into cooking oil and consumed domestically, BOPP primarily exports palm kernel oil, which is used in cosmetics and soaps, to countries including Singapore, Countries like Spain and Canada are included.
Avala said the company is “deciding” to do more exports within the continent. “Doing business within Africa has its advantages. We need to improve this so African countries can trade more and more with each other.”
Edited by: Crispin Mwakidu