A SUSTAINED diplomatic push over the past decade has resulted in Ethiopia opening its tightly state-controlled economy to Kenya, which is expected to increase trade between the two neighbours considerably.
The Ethiopian parliament approved the Special Status Agreement between the countries last month. This was two years after the deal was first signed, an indication of Ethiopia’s traditionally cautious approach to bilateral trade relations. Its parliament is expected to say by next month on what date the deal comes into effect.
At this stage the agreement allows Kenyan banks to open representative offices in Ethiopia. Their functions are limited to marketing, soliciting business and liaising with potential customers.
The agreement requires the two countries to ease the issuing of work permits, jointly promote and market tourism and establish warehouses and inland container depots. It requires them to set up one-stop border posts to ease the movement of goods and services across the frontier and permit the free movement of commercial vehicles.
They are also required to implement a double taxation agreement and establish a joint private investment council.
Despite relatively good diplomatic relations — except for the period when Ethiopia was under the Marxist rule of Mengistu Haile Mariam — trade relations between the countries have been dismal. Business picked up in the mid-2000s, when former Kenyan president Mwai Kibaki sought to improve matters with the late Ethiopian prime minister Meles Zenawi.
Current president Uhuru Kenyatta of Kenya and prime minister Hailemariam Desalegn of Ethiopia directed the formation of a high-level joint tripartite council and a joint technical committee in March to prepare for the implementation of the agreement. They challenged the private sector to take advantage of new trade relations to improve the economies of the two countries.
“It is time to deepen our public-private partnerships and to make the private sector’s efficiencies our own. The prizes are economic growth, new jobs and better public services,” said Kenyatta.
Kenya’s exports to Ethiopia are valued at US$54m but Ethiopian exports to Kenya are at a mere $4m, according to Central Bank of Kenya data .
The move by Ethiopia is seen as the first step in opening up its economy as a result of continuing regional business integration and comes weeks after Ethiopia’s decision, along with those of Uganda and the Democratic Republic of Congo, to sign the Common Market of Eastern & Southern Africa (Comesa) free trade area agreement by December. Ethiopia is a founding member of the 19-country Comesa, but has yet to sign the agreement, which requires members to eliminate tariffs, quotas and protectionism.
It has also said it intends to join the East Africa Community, which is gradually implementing a common market trade protocol.
The Kenyan business sector, which has good manufacturing potential, welcomes Ethiopia’s decision. “This is very good news. What we need to do is to [ put in place] the committee required by the agreement so that we can start its implementation,” says Kenya Association of Manufacturers CEO Betty Main.
She says Kenyan businesses are happy with the incentives offered by Ethiopia, such as soft terms to lease land, tax holidays of five to seven years, infrastructure and support services, very low-cost energy and noncollateral bank loans.
David Mwai, who imports shoes from Ethiopia, says: “We have been trading very well at an informal level and if the countries streamline the trade issues, it will be much better for us, as taxes could be reduced.”
A road connecting Nairobi to Addis Ababa is nearly completed. Flights between the two countries are regular and competition between Kenya Airways and Ethiopia Airlines has increased. “The good road network between Ethiopia and Kenya guarantees unhindered movement of goods,” says Sisay Gemenchu, Ethiopia’s industry minister.
Joe Kieyah, principal policy analyst at the Kenya Institute of Public Policy and Research, says the agreement allows Kenya to have access to one of Africa’s fastest-growing economies. “This is all good. It’s a win-win situation. Such trade relations would give Kenyan banks access to the second-most populated country in Africa,” he says.
Ethiopia has a population of 91m, compared with Kenya’s 41m. Ethiopia doubled its per capita GDP from $151 in 2004 to $421 in 2012, based on an average annual growth rate of 11%. Kenya’s growth averaged 4,5% in this period.
Progress has also been made with joint infrastructure projects. The construction of a 2 000MW 1 068km high-voltage transmission line is under way; and the planned Lamu Port Southern Sudan-Ethiopia Transport Corridor has a component linking Lamu Port in Kenya and Addis Ababa by rail.