|Written by:||Meshack Masibo|
The relationship between Kenya and Ethiopia has always been like that of children in a competitive where one always tries to outshine each other. The two nations have been steadily battling for the role of a regional economic powerhouse with Ethiopia recently overtaking Kenya as East Africa’s biggest manufacturing hub.
Trade between Kenya and Ethiopia is expected to increase significantly to $175 million this year due to the 895-kilometre highway corridor linking the two countries. The Mombasa-Nairobi-Addis Ababa road, conceptualised in 2006, has been a major push for economic integration within Africa, resulting in jobs and improved livelihoods across the Horn region.
The corridor consists of a 504-kilometre road linking the Kenyan towns of Merille and Turbi, through Marsabit, and an additional 391-kilometre stretch running through Ethiopia linking Ageremariam, Yabelo and Mega. African Development Bank co-funded the project to the tune of $670 million, amounting to 64 per cent of total project costs.
The development has reduced average transport costs between Isiolo and Merille to 0.28 cents/km from 0.49 cents/km, while extra volume of goods transported to and from Mombasa has reached 900,000 tonnes per year. This makes Mombasa a major economic hub with direct and indirect benefits for more than two million people.Also, it now takes less a day to travel from Nairobi to Moyale, compared to three days before the project was realised, while transport fare between the two towns has reduced to Ksh1,500 from Ksh2,500 in 2013. In 2017, Kenyan customs generated about $70 million revenues from $16 million earned in 2014 along the corridor.
“The future of our continent is looking very promising indeed,” AfDB’s Group President Akinwumi Adesina declared in the opening words of his address to diplomats at a lunch organised on 5 February 2019, in Abidjan. The Kenya-Ethiopia corridor is part of the infrastructure built with AfDB’s financing under one of its key High 5 priorities. While the Kenyan section of the corridor was completed in 2016, the last part of the road in Ethiopia will be finished during the first half of 2019.
A Kenyan Economic Update by the World bank once termed Kenya as a ‘solid performer among its peer groups’ owing to a consistent growth rate of 6per cent between 2006-2014. However, in the same breath the study shows that our country cannot keep pace with East African peers such as Ethiopia and Rwanda whose annual growth rate is way above 6 per cent and with the case of Ethiopia it even goes to 10 per cent per annum.
This comes as no surprise given our steadily declining exports and a shortage of productive jobs. Yet we know that intercontinental trade has always played a key role in our economy. According to statistics, Kenya’s top markets for export are in Africa, which takes a market share of Kshs 231.4billion (46.1%), followed by Europe 123.2bn (24.5%) and Asia Kshs 107.5bn (21.4%). These numbers tell us that our best bet for turning this tide around is to trade these same neighbours.
For instance, Ethiopia, is the fourth largest economy in Sub-Saharan Africa and will predictably be the third largest by 2025, overtaking Angola; meaning that, jointly Kenya and Ethiopia provide a market of 125 million people with a combined GDP of USD 67 billion.Ethiopia is known for its agro based industries in leather, coffee, bamboo products, natural gum and flowers but has a young manufacturing sector which contributes only 4% to its GDP. In comparison Kenya’s manufacturing sector is much bigger. Despite this drawback, the country is a force to reckon with when it comes to energy and forests. The Gire dam network and the Millennium dam have an installed capacity of over 2000 MW, giving Ethiopia the capacity to become a major supplier of energy in the region. It is no secret that manufacturers there pay six times less than Kenyan manufacturers for electricity.
Kenya has, in the past, worked with Ethiopia to transfer Know-how to develop their agro processing sector. However, trends in recent years indicate that where livestock movements used to be southern (into Kenya) now they are heading north mainly, and this can be attributed to the fact that Ethiopia is increasingly developing its leather sector to meet global standards. It’s not all smooth sailing however, because despite having the largest livestock population in all of Africa, Ethiopia’s milk deficiency is at nearly 90%. Meanwhile, Kenya’s dairy sector is currently doing very well comparatively and this presents a great opportunity for an economic partnership that will benefit both countries.
Opportunities exist for Kenyans to invest in Ethiopia especially in the food and beverages, financial and dairy sectors. Ironically, Ethiopia imports beverages from South Africa yet Kenya could easily meet this demand. It is also a key exporter of cereals, vegetables, copper, ores, tyres and concentrates, textile yarns, spices to Kenya, and has an effective Ethiopian Commodity Exchange – a trading platform for agricultural commodities from which we can learn a lot.
Ethiopia also has various opportunities in trading with Kenya, especially if we look at our mobile sector and more specifically niche products such as MPESA. The country’s ICT sector is not yet liberalized as demonstrated by their one and only state owned service provider, Ethio Telkom. In comparison, our robust ICT sector has received global recognition with newer innovations emerging to transform various aspects of our economy, hence raising our profile as a competitive business environment,
Moreover our economy has indeed grown from an industrious banking sector, which can benefit Ethiopian businesses. Despite recent shocks in the sector ours still remains sturdy thanks, in part, to policies instituted by the Central bank; which is also know-how that the Ethiopia can master in their quest to make their sector more liberal.
Indeed there are some few hurdles to our free trading and exchange of knowledge with Ethiopia for instance, the yet to be signed Free Trade Agreement that will see them become a member of COMESA. Nonetheless we are hoping that these and other obstacles can be resolved as we continue to explore possible areas of mutual benefit through various avenues for example trade missions, trade fairs, expos and business forums. The LAPSSET project is a harbinger of great development and partnership with both our countries having commissioned the 800km railway line to Addis Ababa from Lamu. These projects will pave the way for joint investments and will serve as a catalyst to activate some of the activities proposed in the signed Special Status Agreement.