East meets West as Kenya and Nigeria plan to take African trade to new heights

President Uhuru Kenyatta with his Nigerian counterpart Muhammadu Buhari when he visited Kenya recently.

Nigerian President Muhammadu Buhari’s first state visit to Kenya last week sparked the interest Africa’s business community.

Speculation was rife as to what the outcome of trade and political talks with his Kenyan counterpart Uhuru Kenyatta would be.

This is the fourth time in under three years that presidents of the two countries have held bilateral talks, whose ideal goal is the integration of the East and West African trading blocs.

The plan would create a 450 million-strong consumer base expected to propel the two countries to new economic heights.

The political and economic weight Kenya and Nigeria hold in their respective regions further means that the benefits of a free-trade zone between the two would go a long way toward boosting intra-African trade, which has consistently been dismally low.

According to the 2014 edition of the Africa Integration Index, conducted by payments company Visa, trade across the three sub-Saharan Africa clusters (South, West and East) — both between themselves and with the rest of the world — is very low. This has hindered the continent’s socio-economic progress.

The key sub-Saharan Africa economies barely managed to score half of the global median of 100 points, with South Africa, Kenya and Ghana leading the continent in global trade networks, scoring 63, 53 and 52 points, respectively. Nigeria scored 40 points.

Urgent needs

Economic developments in both economies, and the rest of the global economy, have prompted Kenya and Nigeria to take another stab at bringing East and West Africa together.

In the case of Nigeria, a 70 per cent drop in oil prices over the last 18 months has severed a major artery of the economy, which derives more than 90 per cent of export earnings from fuels.

Petro-dollars make up 70 per cent of government revenue.

Last year, it was revealed that 23 out of Nigeria’s 36 states had not paid wages for state workers for months over a biting cash crunch that has also slowed down development spending.

Kenya, on the other hand, has an urgent need for new markets for manufacturing exports outside its East African Community (EAC) stronghold. However, it is facing increasing competition from Asian imports.

Data from the World Bank indicates that it is virtually impossible for Kenya to achieve upper middle income status in the next 12 years as envisioned unless the country creates a competitive manufacturing sector.

The Government is, therefore, under pressure to not only grow the country’s manufacturing capacity and create jobs, but also find markets. The East African region that once absorbed 40 per cent of Kenya’s exports has been encroached on by Chinese and Indian products.

According to economist Adrian Saville from Johannesburg’s Gordon Institute of Business Science, cross-border openness drives economic growth and socio-economic advancement.

“A good example of the impact of integration is the differences in economic growth between South and North Korea,” he said.

“In 1960, South and North Korea had the same GDP per capita, but South Korea has seen its wealth grow several times over because of opening its borders.”

Kenya’s depth of global integration is far greater than its depth of regional integration. This means a foothold in Kenya would provide Nigeria with a trade pipeline to not only the rest of East Africa, but also the international trade route.

This window has been made more apparent with the anticipated completion of the standard gauge railway line, and the Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset), which will drastically reduce costs of moving goods and services throughout Eastern Africa.

This is not the first time Kenya and Nigeria are trying to bridge the trade rift between East and West.

In his book, A Modern Economic History of Africa: The Nineteenth Century, Malawian historian Tiyambe Zeleza says the origins of intra-African trade date back to the days of colonialisation. Then, colonialists were interested in trade and finance in West and North Africa, and mining and speculative capital in South and East Africa.

Grand African plan

The result of this was the establishment of trade routes that moved resources from African countries to colonial authorities, with little or no interaction within the continent.

In 1958, African leaders met in newly independent Ghana and discussed, among other things, the establishment of the All Peoples’ Conference.

Its objectives included removal of customs and other trade restrictions to intra-African trade, setting up an African transport company, an African common market, an African investment bank and an African institute for research and training.

In the decades that followed, however, mistrust and selfish interests between African leaders, as well as country-specific political weaknesses, derailed the plan.

Today, Kenyan and Nigerian governments are slowly picking up from where the continent left off 58 years ago, with a focus on transformation of their economies and the regions they hold influence in.

“Our economy is moving away from oil, and we are promoting non-oil revenue-generating activities because of the oil crash. We are hoping to do what Kenya has been able to do,” said Ladi Katagum, the director of the Nigerian Investment Promotion Commission.

She added that her government is particularly interested in agriculture, specifically the dairy and horticulture sub-sectors. A visit to a flower firm was part of President Buhari’s itinerary.

“These sectors can provide more jobs through the value addition chain. We are also keen on borrowing from Kenya’s tourism. I come from Bauchi State, and there we have a big game reserve with such a rich history, but I do not think it has