Micro, small, and medium enterprises (MSMEs) risk being by the integration of economies through policy advancements such as the African Continental Free Trade Area (AfCFTA) if the necessary efforts to support them are not implemented.
Combined with the low intra-East Africa and intra-African trade, the provision that markets need to remove tariffs on the majority of their goods to trade under the AfCFTA is expected to offer more competition to these businesses.
It is for this reason that the government is working on a platform that would boost their visibility through e-commerce to have them form partnerships to facilitate access to new markets.
MSMEs have long been touted as the most preferred vehicles to advance AfCFTA, considering they are seen as agile and hence easy to adapt to the prevailing challenges using technology.
However, other challenges such as lack of expertise, volume due to their small-scale nature and the difficulties in accessing funding still hold these businesses back.
AfCFTA is the largest trade pact in the world as it provides businesses with access to a market of 1.3 billion people.
Intra-EAC trade, however, stands at 16 per cent which indicates that MSMEs have not yet fully maximised this trade bloc yet they form the largest pack of enterprises in the region.
The acting Executive Director of the East African Business Council (EABC) Adrian Njau says members are initially required to remove tariffs from 90 per cent of goods per AfCFTA tariff modalities to implement this continental agreement.
This will eventually allow free access to at least 97 per cent of goods and most of the services across the African continent.
“While this is an opportunity for traders to move products across the continent, it should be a wake-up call to traders and investors from the EAC region to prepare for stiff competition and start devising means to confront any possible challenges,” he said during a sensitisation meeting with small businesses in Nairobi.
He urged businesses to embrace digitalisation, integrate digital trade, enhance their compliance levels to standards as well increase their capacity to forge meaningful partnerships.
“We must ensure that all actors such as corporations, SMEs, women, youth, and cross-border traders are well-equipped to take advantage of the growing opportunities in regional and continental value chains. By doing so, we will not only boost trade but also create jobs, enhance entrepreneurship, and foster sustainable development,” he said.
AfCFTA is made up of markets with a combined gross domestic product of Sh442 trillion ($3.4 trillion).
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Cooperatives and MSMEs Cabinet Secretary Wycliffe Oparanya, while speaking during the Kenya Day celebrations at the 24th EAC MSMEs Trade Fair, noted how important trade integration is to the growth of intra-Africa trade.
Employment rate
He said the internal EAC market before the admission of Somalia had over 174 million consumers, a combined gross domestic product of $305 billion (Sh39.65 trillion) and total trade was $78.75 billion (Sh10.24 trillion) in 2022.
“With the admission of the Federal Republic of Somalia this year, the EAC region now stretches from the Indian Ocean to the Atlantic Ocean, making it competitive and easy to access the larger AfCFTA,” he said.
He positioned MSMEs as critical drivers of this growth in East Africa, stating that they account for over 90 per cent share of total employment rates in the region and 30 per cent of exports.
Additionally, these enterprises currently constitute over 90 per cent of traders, contribute 29 per cent to the gross domestic product (GDP) of the EAC’s market of 312 million people and by 2030, will be generating the bulk of the close to 470 million new jobs that will be required for the workforce by that time.
“Despite their significant role in developing East African economies, most MSMEs have yet to be fully integrated into the regional value chain system and the continental trading system,” he said.
“For many of these MSMEs, their potential is often not fully realised due to a number of factors related to their small scale such as increased competition, the ability to adapt to rapidly changing market demand, technological change, and capacity constraints relating to knowledge, innovation, and creativity making it essential for MSMEs to adapt and innovate.”
These challenges are also highlighted by the acting head of Policy Research and Advocacy Kenya Association of Manufacturers Miriam Bomett. She noted that SME competitiveness is one of the key strategic issues the association working on.
“Financing for AfCFTA is one of the key challenges we keep on seeing companies go through, especially around the manufacturing sector that requires a lot of investment and the SMEs who require a lot of money to produce at the domestic level and have surplus for exporting,” she said during the sensitisation session.
Principal Secretary of the State Department for MSMEs Development Susan Mang’eni noted that events such as the EAC MSMEs Trade Fair held in South Sudan are meant to facilitate these businesses to build partnerships in order to take advantage of the available markets provided through EAC and AfCFTA.
Ms Mang’eni said the State Department is working to develop a one-stop digital marketing platform to support the marketing of MSME products.
“The online platform will provide a link between producers, aggregators or off-takers and the final consumers in both the domestic market and international markets. This is especially true in light of the reality that e-commerce is a major instrument for overcoming the trade barriers faced by MSMEs,” said the PS.
