Kenya: Trading blocs push costs of trade

Kenya: Trading blocs push costs of trade

by / 2 Comments / 43 View / 6th September 2010

Kenyan companies are recording losses as a result of their dash for regional profits from hurriedly launched Pan African economic blocs; a recently launched web based tracking device shows.

The tracking tool for non-tariff barriers (NTBs) across the continent also shows that the same roadblocks were increasingly becoming a hurdle to the elusive dream of a united Africa. Such restrictive trade practices are adding between five and twenty percent to the final cost of exporting Kenyan goods to other African markets. The rapid pace at which African countries are erecting NTBs to shield their industries after signing preferential trade treaties was exposed at an exporter’s forum held in Nairobi last week.

Firms engaged in any form of imports or exports incur at least Sh280, 000 (USD3500) in direct costs from NTBs and a further Sh11.6 million (USD145,000) per shipment in port delays, indicates the online device launched in early 2009. It is run by consultancy firm Trade Mark Southern Africa. “These figures are still conservative, because they exclude millions of shillings that firms pay to security agencies of countries involved in goods clearance,” Mr Geoffrey Osoro, a senior trade policy expert at the Common Market for Eastern and Southern Africa secretariat (COMESA) told traders in Nairobi last week.

Customs and administrative entry procedures top the list at 56 per cent of the reported NTBs, with illegal charges on imports coming second at 16 percent. Others forms of trade restriction common in the region are corruption, technical barriers like standards, permits and licensing and foreign exchange controls. “Our experience is that as the tariff falls, private sector players are influencing individual governments to erect new barriers to shield their industries from competition posed by outside firms,” said Mr Osoro. Countries engaged in preferential trading terms usually apply certain non tariff measures specified under the signed treated to control the pace of cross border commerce as their industries adjust to liberalisation. Such measures—which include import quotas and stringed quality standard —are usually evoked mainly to protect local industries and consumer welfare. 

Yet these measures have clear elimination timeframes, beyond which they evolve into NTBs —the illegal restrictions on products that are otherwise qualified to trade under preferential terms. In spite of being at an advanced stage of the ongoing regional integration process, exporters said they still spend an average of six days to cross a single national border point with time lost and accommodation costs rising to 11 per cent of freight cost.

The online device tracks NTBs hindering trade among countries in the East African Community (EAC), COMESA and the South African Development Community (SADC), which signed treaties to engage in preferential trade area. Among these regional groupings, EAC is in a common market which allows free movement of goods, persons and factors of production.  COMESA is currently implementing its custom union —the integration stage which gradually opens the national borders for free movement of services.

On the other hand, SADC is currently implementing a free trade area with COMESA and EAC which should allow free movement of specified goods among 26 member states into a combined market of close to 600 million people, commanding a combined wealth of more than USD700 billion. Within EAC, official figures indicate that the breakneck pace of regional integration has outpaced the growth in intra regional trade which has grown from five per cent in 2005 to only 13 per cent by the beginning of this year. Most of the 126 million citizens of the region still find it easier to transact trade with non EAC members (accounting for 87 per cent of all their dealings) than face the official barriers in the regional market. “All these barriers originate from the private sector in the region, because when an industry seeks protection in one country, there are bound to be similar reciprocal moves by other member states,” said Mr David Nalo, Kenya’s EAC Permanent Secretary.

Last week, former British Minister for Overseas Development Baroness Lynda Chalker extended the blame for low intra- regional trade to poor transport logistics especially on the borders of the EAC partner states.