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Looking to Africa first

Kenya should keep an eye on the African Continental Free Trade Area while negotiating a free-trade agreement with the US

Magda Shaheen , Saturday 29 Aug 2020
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The US and Kenyan governments launched negotiations on a free-trade agreement (FTA) between the two countries in early July. The topic raises a few salient questions, which initially revolve around the reasons that led these two countries to negotiate a FTA at a time that at the very least was unfavourable to both of them.

We may wonder why the United States chose Kenya to be a model for a FTA, when the continent includes seven of the 10 fastest-growing economies in the world, many of which have equally good relations with the United States. However, Kenya is the one country to have broadly followed mainstream orthodoxy and the economic-liberalisation prescriptions of the Washington Consensus, in which the state’s role in economic activity is minimal.

We may also wonder about the goals of each country and the risk that Kenya is taking upon itself in negotiating such a FTA without prior coordination with the other African countries. Most importantly, there is the question of the impact of these negotiations on Egypt as a leading country in Africa whose previous attempts to negotiate a FTA with the US were not a success.

It should be recalled that the implementation of the so-called African Growth and Opportunity Act, known as the AGOA and approved by the US Congress in May 2000, aims at establishing preferential trade relations between the US and Sub-Saharan Africa. Expecting its expiration by early 2025, the US has therefore launched negotiations with Kenya on a FTA that is perceived by US trade representative Robert Lighthizer as being a prototype for other African countries to emulate.

While the stated goal of the US is to improve opportunities, diversify trade with Africa, and support investment in Kenya and access through it to landlocked countries, many have emphasised instead that the main motive for these negotiations is the US administration’s unwillingness to stand idly by and watch the increasing Chinese encroachment in Africa. The re-election campaign of US President Donald Trump will be able to pride itself on these negotiations as one practical achievement on the African continent since the passage of the Growth and Opportunities Act in Africa in 2000.

The negotiations are also a calculated step on the part of the Kenyan government to push for Kenyan leadership of the Common Market for Eastern and Southern Africa (COMESA) and also to support the Kenyan candidate for the presidency of the World Trade Organisation (WTO) out of eight competing candidates, including an Egyptian one.

The negotiations focus on access to the Kenyan market and those of neighbouring countries, as well as the regulatory coordination of rules and regulations, the liberalisation of the trade in services, including communications and banking services, and a commitment by Kenya not to impose domestic discriminatory taxes. E-commerce and cross-border data flows are a significant part of the negotiations, with the US demanding that Kenya not impose tariffs on digital products such as music, e-books, video, and other items.

The negotiations also include provisions on the environment, competition policies, investment, employment, commercial remedies, government procurement, and a dispute-settlement mechanism, all of which are topics that Egypt is also negotiating in phases within the framework of the African Continental Free Trade Area (AfCFTA). It will be the responsibility of Egypt and other African countries to study the Kenyan agreement carefully upon its completion and assess whether they are in a position to emulate, resist, or reject it altogether as it may have a negative impact on the AfCFTA.

It appears, however, that Kenyan president Kenyatta senses the African concerns and that he has been seeking on every occasion to dispel them by stressing that the trade agreement between Kenya and the US will help the countries of the continent and contribute to the establishment of a model agreement. He has stressed that Kenya will not compromise in its obligations towards the continent and as a member of the East African Customs Union and COMESA.

Without a doubt, Africa has become an important investment destination for many countries and international companies after the entry into force of the AfCFTA on 30 May 2019. At the Tokyo Conference on African Development in August 2019, the Japanese private sector committed to investing $20 billion in Africa over three years. At the first Russian-African Summit last October, the Kremlin announced reaching deals worth $12.5 billion in Africa.

Even as the European Union grapples with the exit of the UK from the Union in the so-called Brexit, the EU held the Fifth African Trade Forum in Morocco last November to push European-African relations back to the fore. The US has also sought to renew its engagement in Africa through the establishment of the US Development Finance Corporation, worth $60 billion, and a more active African diplomatic strategy on trade. Africa receives about $16 billion in aid annually from the United States, including long-term development aid and security assistance.

Thus, and despite the change in the implementation date of the agreement to after 1 July 2020 due to the disruptions caused by the Covid-19 pandemic, the fundamentals of it are strong. The AfCFTA maintains the largest free-trade area on the continent with 54 member states, and it has a market size of more than $3.4 trillion, with estimated annual income gains for Africa in excess of $1 billion annually. There is no doubt that the AfCFTA has provided the opportunity for the African countries to discover their own paths of economic development in line with their own circumstances, requiring the preservation and revival of these new trajectories based on independence and self-reliance.

Among the objectives of the AfCFTA is the encouragement of regional value chains and the building of manufacturing capabilities, after the failure of the African countries to integrate into global value chains and their long-term contentedness with supplying raw materials to the global economy.

The coronavirus pandemic is expected to nurture an increased dependence on regional production and value chains, especially after the decline in trade and the contraction of demand in European markets, both of which had a negative multiplier effect on the African continent. More successful integration will make the African continent the primary beneficiary of its industrial development, and policy-makers must now implement policies that benefit domestic production and provide attractive opportunities for foreign investment.

The time has come for the AfCFTA to be the great enabler of the transformation of the African continent, and it must not be weakened from within. This does not mean that we should oppose the free-trade agreement between Kenya and the US. Rather, it means that we should call on Kenya during its negotiations with the US to keep an eye on what the AfCFTA has achieved, with the same thing being true for any other African country or regional grouping when negotiating separate FTAs. The absolute priority must remain the fullest possible implementation of the African Continental Free Trade Area.

*A version of this article appears in print in the 27 August, 2020 edition of Al-Ahram Weekly.

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