The Sunday Mail
Martin Kadzere
FOLLOWING years of negotiations, African leaders last Sunday launched the African Continental Free Trade Area (AfCFTA) in a significant milestone expected to boost intra-regional trade, strengthening supply chains and spurring investments.
A landmark agreement to create a 55-nation trade bloc was signed in March, culminating in the launch of the world’s largest free trade zone at the African Union summit in Niger.
The AfCFTA will have a market of about 1,3 billion consumers with a total gross domestic product (GDP) of US$3,4 trillion. The AfCFTA received a boost after Nigeria, Africa’s largest economy, agreed to sign. Eritrea is the only country not participating.
Nigeria had indicated its reluctance to be part of the continental trade pact, which would have taken some steam off hype about the potential impact of AfCTA.
Nigeria’s reservations, according to analysts emanated from the fact that while its economy is relatively developed, it is largely undiversified and heavily depends on oil exports.
As such, membership benefits were likely not be much.
According to the Economic Commission for Africa (ECA), the AfCFTA is projected to increase the value of intra-African exports from around 17 percent in 2017 through the elimination of tariffs on 90 percent of goods to 40 percent in the next two decades, starting from next year when implementation of the agreement takes effect.
However, even at such growth levels, the value of intra-Africa trade will remain behind Asia’s (at 59 percent) and Europe’s (at 69 percent).
Zimbabwe, emerging from the effects of several years of economic stagnation, signed the agreement but secured derogation on the non-application of the rules for 15 years.
Also to be granted the relief were Zambia, Madagascar and Ethiopia.
This is because chances are high that weaker or smaller economies sustained by little manufacturing risk being steam-rolled by larger economies like South Africa.
In the absence of the dispensation, Zimbabwe could have witnessed a flood of imports from other African markets and this could have seriously suppressed revival of local firms and caused job losses.
Nonetheless, Zimbabwe will still be eligible to export into the continental free trade zone. Economists say Zimbabwe needs to take advantage of the “grace” period and quickly expand its export base and have a competitive edge over other countries.
“If we want to be relevant, we need to move away from selling raw materials,” international trade expert Dr Gift Mugano told The Sunday Mail Business in an interview.
“We need (to venture into) areas where we have a competitive edge. We have an opportunity to drive (inbound) investments. We can tell people to come and invest because we have a market of 1,3 billion consumers,” he added citing the free trade agreement signed between Mexico and United States of America in the 80s, which saw German car makers setting up plants in th South American country.
A study done by ECA shows that most traded goods among African countries are manufactured and processed commodities.
The manufactured goods constitute a much higher proportion of regional exports than those leaving the continent — 41,9 percent compared to 14,8 percent in 2014.
“The real test of the AfCFTA, however, will be how quickly African countries can accelerate export diversification and product sophistication and make trade more inclusive,” said Vera Songwe, non-resident senior fellow at Global Economy and Development, Africa Growth Initiative.
“Diversification should also lead to increased sophistication of export products. Increased value addition and sophistication increases productivity and the overall value of exports.”
About 93 percent of Zimbabwe’s exports have been to the Southern African Development Community, according to the Competition and Tariff Commission (CTC).
Top 10 exports to the SADC countries show that Zimbabwe substantially exported natural resources and cash crops, which include tobacco, natural pearls, precious stones, metals, ores, iron, steel, sugars, confectioneries, cotton, tea and spices.
“Zimbabwe is not exporting much. We need to be a country that is export-oriented,” Dr Mugano said.
While the International Monetary Fund (IMF) and other observers described the AfCFTA as a potential “game-changer” of the kind that has boosted growth in Europe and North America, it warned that “reducing tariffs alone is not sufficient”.
Dr Mugano concurred, highlighting trade infrastructure, lack of productive capacity and weak regulations as potential impediments to regional trade integration.
Transportation is probably the most important infrastructure barrier to trade in most African countries.
Transport costs are a key determinant of the competitiveness of firms on export markets. All forms of transportation — road, rail, sea, and air — are generally costly in Africa including feeder roads that will link farmers to markets.
According to the Economic Commission for Africa, transport costs in Africa are the highest in the world. For instance, moving a freight container from Tokyo to the Ivorian capital of Abidjan costs about US$1470, while intra-African transport from Addis Ababa in Ethiopia to Abidjan costs US$5 100 — more than three times higher.
“High transport costs can isolate markets, reduce economies of scale and directly raise import and export costs. Low-quality transport services also reduce profit margins and competitiveness,” said Dr Mugano.
“We need a game plan as a country because we are already in it. We should come up with a clear strategy and capitalise on areas where we are competitive.”
Abuse of rules of origin
African countries, including Zimbabwe, must also be worried over abuse of rules of origin by powerful economies which can come through the back-door of existing regional trade agreements and export their products to AfCTA member states duty-free.
For example, chickens from Brazil were coming into Zimbabwe via SADC rules of origin certificates facilitated by regional firms.
In this case, the chickens were purported to have been produced in the SADC region and were awarded duty-free status in line with the free trade arrangements yet they were coming from South America. This is a possible threat for Zimbabwe, which if no safety measures are put in place, the derogation secured will be rendered ineffective through the abuse of rules of origin.
