Kenya is pushing Ethiopia to fast-track the ratification of a key trade deal that is expected to give companies from either country preferential market access.

The ratification of the Special Status Agreement signed between the two countries in November 2012 was top of the agenda of President Uhuru Kenyatta’s recent three-day state visit to Addis Ababa.

The deal gives Kenyan companies the highest level of market access into Africa’s second most populous country. It also covers the joint development of the proposed Lamu Port-South Sudan-Ethiopia Transport (Lapsset) Corridor project.

During the visit, President Kenyatta said Kenya was ready to begin consultations on regulations and guidelines that would allow Ethiopian companies to raise investment capital and trade at the Nairobi Securities Exchange.

“The quicker business organisations identify hindrances to the smooth flow of investment between the countries, the quicker both governments will be able to remove them,” President Kenyatta said.

The SSA covers trade, investment, infrastructure and food security. The two countries had agreed to establish a one-stop border post to facilitate movement of people, goods and services, permit free movement of commercial vehicles and transit cargo, and work towards progressive tariff concession.

The deal also provides for easing of the issuance of work permits to encourage joint partnership between locally owned and established commercial entities; establishment of trading facilities, such as warehouses and inland container depots, and facilitation of investment in the tourism and hospitality industry.

Ratification of the SSA could see Ethiopia lift some of the restrictions it has in place for foreign investors.

While the country is aggressively seeking to attract foreign investors to help propel it to a middle-income economy by 2025, several areas are a no-go for foreign investors. These include trading, financial services, telecommunications and transport sectors.

READ: Ethiopia to now open up for Kenyan investors

Instead, Addis has identified priority industries in which it is seeking investors. These are manufacturing, the leather and apparel industry, the textile industry and the food processing and beverage industry.

The EastAfrican has learnt that President Kenyatta’s talks with Prime Minister Hailemariam Desalegn focused on the possibility of Ethiopia allowing Kenyan banks and telecommunications companies to do business in the country.

The discussions are reported to have touched on how Kenya’s leading mobile telecommunications service provider Safaricom could penetrate the Ethiopian market through its M-Pesa money transfer service.

It is instructive that, soon after the President’s visit, Kenya’s Co-operative Bank announced plans to enter the Ethiopian market as part of its expansion programme, by 2016.

“We pitched our intentions and the Ethiopians were not averse to our suggestions. It was a very strategic engagement that will soon see Kenyans produce for a large market that was hitherto closed to them. We have to first ease the way of doing business before we look at the bigger picture,” said Mr James Ndung’u Mureu, the chairman of the Kenya Chamber of Commerce and Industry, who was part of the delegation.

Diplomatic ties

An official of Ethiopia’s Chamber of Commerce told The EastAfrican in Addis Ababa that a delegation from their country would visit Kenya soon.

While Kenya enjoys strong diplomatic ties with its northern neighbour, trade between the two countries is currently low, averaging $60 million in 2012, compared with $904 million that Kenya does with Uganda.

The low trade between the two countries has been blamed on the closed nature of the Ethiopian economy and the poor road network linking the two countries.

Thus, the signing of the SSA as well as the on-going efforts to connect the two countries through a series of roads, pipelines and a railway is expected to open trade opportunities between them, with Kenya seeking to secure a market for its goods and services while landlocked Ethiopia gets a second entry port for its goods.

Kenya has already ratified the agreement, but Ethiopia needs parliamentary approval before it can sign it – the first with an African country.

READ: Kenya seeks to grow trade with Ethiopia

Kenya hopes to complete the road connecting Isiolo to Moyale and onwards to Ethiopia in the next one and a half years, said President Kenyatta.

Analysts said the courtship between the two countries is driven by their changing foreign policy focus, with infrastructure being key.

Kenya sees Ethiopia as key to its $23 billion Lapsset project — its most ambitious infrastructure plan since independence. On the other hand, Kenya is important for Ethiopia’s 1,800MW Gibe 3 dam power project.

This is for two reasons: One is that Kenya has signed a contract to buy 400MW, rising to 2,000MW in future. The second reason is that, with Egypt opposed to the dam’s construction, Kenya’s support as a member of the Nile basin initiative is important.

Both countries are also part of the Amisom force trying to stabilise Somalia. Ethiopia has been keen to cement ties with Kenya, its most trusted ally within the region mainly due to Addis geographic positioning: It is surrounded by either rivals or neighbours whom it views with suspicion. To the north, Eritrea is a sworn enemy, which blocked its access to the Massawa port.

Ethiopia uses the Djibouti port, but investors describe the process of clearing cargo and transporting it to Addis as a logistical nightmare.

The Djibouti port is strategically located at the crossroads of one of the busiest shipping routes in the world and linking Europe, the Far East, the Horn of Africa and the Persian Gulf.

To the west of the country, Sudan and South Sudan are unstable due to recurrent conflicts although Ethiopia gets most of its oil from Port Sudan, which is the capital of the Red Sea State in Sudan. To the east, Somalia has been unstable for a long time.

Kenya has also of late focused on growing its trade with its neighbours, seeing Ethiopia, with its 94 million people as offering a ready market for its goods. Ethiopia is quite isolated from the rest of the region as it is not a member of the East African Community.

Moved closer

Since coming to power in September 2012, the Prime Minister Desalegn, has been a frequent visitor to Kenya, with those close to the Kenyan presidency saying that the two leaders have struck a special chemistry since President Kenyatta took over in April last year.

The two have also moved closer due to the two countries leading role in the war against Al-Shabaab in Somalia and the current political crisis in South Sudan, given that security cooperation between Kenya and Ethiopia has historically been strong.

On the international stage, Ethiopia and Kenya have cooperated on Nairobi’s biggest headaches – the International Criminal Court (ICC) cases facing President Kenyatta and his deputy William Ruto. Prime Minister Desalegn, as chair of the African Union has been leading the charge against ICC activities in Africa.

President Kenyatta’s recent visit is expected to inject new vigour into the relationship between the two countries, increase mutual trust and deepen co-operation in regional and international issues.

— Additional Reporting by Peterson Thiong’o and Trevor Analo