Monday, May 20, 2024

Ethiopia and Kenya forge closer ties to bolster trade


By Tadesse Yimamu and Ahmed Farah

This week, the governments of Kenya and Ethiopia commenced operations of the Moyale-Moyale OneStop Border Post (OSBP) which is the first of its kind in Ethiopia and the fifth for Kenya and is expected to set a new tone in the trade relations between the two countries. Moyale is the only gazetted border crossing point between Kenya and Ethiopia.Bilateral trade between the 2 countries stands at USD 119 million in 2019 with Kenya taking the bigger share of exports to Ethiopia valued at US$ 67 million, while Ethiopia’s exports to Kenya were valued at US$ 52 million. This is expected to increase significantly with the operationalisation of the Moyale OSBP. This confidence in growthis bolstered by other infrastructure projects such as the Lamu Port South Sudan Transport (LAPSSET) corridor that will collectively accelerate socio-economic transformation in the respective countries.
A OneStop Border Post (OSBP) refers to the simplified and harmonised legal and institutional framework, facilities, and associated coordinated procedures and processes that enable goods, people, and vehicles crossing a border, to stop only once in the country of entry. They undergo necessary regulatory controls in line with applicable regional and national laws to exit the adjoining state and enter the host state. As a result, the clearance time at border crossing points is shortened. Kenya which has implemented several OSBPs has been able to demonstrate examples of this time reduction at Busia and Malaba where time to enter and exit the borders reduced by over 70%. OSBPs promote a coordinated and integrated approach to facilitating trade, the movement of people, and improving security. A baseline survey by TradeMark East Africa (TMEA) in 2017 indicates that it takes on average, 21 hrs. and 52 minutes (Kenya-Ethiopia) and 12.5 hrs. (Ethiopia-Kenya) for a cargo truck to cross the border.
To appreciate the potential ofthese new milestonesbetter, we probably need to understand the economic dispensation of both countries. According to the World Bank, Ethiopia’s economy has been experiencing growth averaging 9.4 percent annuallybetween 2010 to 2019 with real gross domestic product (GDP) growth having just slowed down to 6.1% in 2019/20 due to COVID-19.
Kenya on the other hand has a population of around 50 million people with its economic growth averaging 5.7 percent between 2015-2019, making it also one of the fastest-growing economies in Sub-Saharan Africa. Kenya’s economic growth potential is boosted by a stable macro-economic environment, positive investor confidence, and a resilient services sector.Looking at the macro-level economic performance of these two countries,Kenya and Ethiopia provide a market of 170 million people with a combined GDP of over US$190 billion.So, what do the comparative advantages for both countries look like?
Ethiopia has a nascent but growing manufacturing sector that contributes just around four (4) percent to the GDP. On the other hand, its agro-sector industry that includes leather products, coffee, forestry, natural gum, and floricultureare the country’s key exports.With this in mind, Ethiopia already exports cereals, minerals, tyres, concentrates, textile yarns and spices to Kenya.
The real opportunity here is how Ethiopia can use the new trade corridor in Lamu to reach new globalexport markets. Ethiopia also has the potential to establish and grow sectors such as transport and logistics, trade finance, and services sector to support its ambitions. Already, Safaricom has acquired a license to operate in Ethiopia’s telecommunications sector paving way for what could enhance synergy and infrastructure in mobile money payments that has been proven to enhance trade and financial inclusion.
Comparatively, Kenya’s manufacturing sector is much bigger contributing just about ten (10) percent to the GDP according to the Kenya National Bureau of Statistics. This offers Ethiopia an advantage to import some products directly from Kenya. For example, Ethiopia imports majority of processed beverages from South Africa, and now it can do so affordably and conveniently from Kenya.
Both Kenyans and Ethiopians can be proud of what the Moyale OSBP has in store. For adventurers and businesses alike, Moyale will be a busy hub of activities that will bring socio-economic development to both countries while also enhancing diplomatic relations and cooperation like it has never been seen before.

Tadesse Yimamu is TMEA Ethiopia’s Country Directorand Ahmed Farah is TMEA’s Kenya Country Director

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