AfCFTA to boost Zim’s real income

02 Aug, 2020 - 00:08 0 Views

The Sunday Mail

Martin Kadzere

Real income gains from full implementation of the Africa Continental Free Trade Area (AfCFTA) could increase by 7 percent — or US$450 billion — by 2035, with Zimbabwe and Ivory Coast (Côte d’Ivoire) expected to be major gainers, according to a World Bank report.

The landmark agreement to create a 55-nation trade bloc was signed in March last year, culminating in the launch of the world’s largest free trade zone at the African Union summit in Niamey, Niger, on July 7, 2019.

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 World Bank report on economic and distribution effects of AfCFTA said Zimbabwe, which is targeting to be an upper middle-income economy by 2030, would register a 14 percent increase in real income gains, largely driven by improved trade facilitation.

“At the very high end are Côte d’Ivoire and Zimbabwe with income gains of 14 percent each,” the report said.

“At the low end, a few countries would see real income gains of around 2 percent — including Madagascar, Malawi and Mozambique.”

International trade expert Professor Gift Mugano said latest estimates by the World Bank demonstrate significant scope for gains for Zimbabwe if reforms on trade facilitation were undertaken.

“If you look closely at World Bank statistics, you will note that if Zimbabwe undertakes reforms linked to trade facilitation, it stands to see its income increasing by 12 percent by 2035,” said Prof Mugano.

“This is rightly so because Zimbabwe, over the years, has consistently performed below its peers in the area of trade facilitation.”

For example, the World Bank Logistics Performance Index (LPI), which measures trade logistics efficiency and is considered a benchmark for trade facilitation, has shown that Zimbabwe was ranked between 105 and 110 out of 155 countries in the last ten years. Evidence from World Bank LPI also shows that it takes an average of 53 days and 71 days to export and import goods in Zimbabwe, compared to a regional average which is lower by 50 percent.

Central to trade facilitation challenges is excessive documentation required, especially with ministries such as Agriculture, and Industry and Commerce.

In the last 10 years, reports from World Bank LPI shows that Zimbabwe traders take about 33 and 42 days in preparing either export or import documentation.

“The net effect of this is that at the end of the day, it cost Zimbabwe in the range of US$3 000 and US$4 500 to export and import a similar container while regional counterparts are spending around US$2 000.

“This, therefore, demonstrates significant scope for gains for Zimbabwe if reforms on trade facilitation are undertaken specifically focusing on inland transportation, handling and documentation,” said Prof Mugano.

As the country works on trade facilitation reforms, it was critical to create export capacity to benefit on huge market access opportunities, which are coming on the back of a continental free trade agreement.

Zimbabwe is strategically located in the SADC region and, as such, could be used as a gateway to the African markets.

Prof Mugano said: “This, therefore, requires us to change our narrative on the way we market our country to foreign investors.

“We need to move from the status quo, where we produce investment promotion materials with demographic statistics which are inward looking — making reference of a 15 million population and a GDP of US$21 billion — to population of 1,3 billion and GDP of US$3,6 trillion since we are now part of a large market in Africa.

“In our approach, we must always know that inasmuch as Zimbabwe is down today, it is not going to stay in the ditch for long but will rise and shine. The National Development Plan, which is being formulated, must take into account this new thrust.”

Constraints to African trade are largely due to high costs of trade.

As a result, the AfCFTA provides an opportunity for countries in the region to competitively integrate into the global economy, reduce poverty and promote inclusion. While Africa has made substantial progress in recent decades in raising living standards and reducing poverty, increasing trade can provide the impetus for reforms that boost productivity and job creation, and thereby further reduce poverty.

AfCFTA could provide this spark.

By 2035, the World Bank estimate that implementing the agreement would contribute to lifting an additional 30 million people from extreme poverty and 68 million people from moderate poverty.

By 2035, the volume of total exports would increase by almost 29 percent.

Intra-continental exports would increase by more than 81 percent, while exports to non-African countries would rise by 19 percent.

This would create new opportunities for African manufacturers and workers.

These gains would come, in part, from reduced tariffs, which remain stubbornly high in many countries in the region.

Even greater gains would come from lowering trade costs by reducing non-tariff barriers and improving hard and soft infrastructure at the borders — the so-called trade facilitation measures.

These measures would reduce red tape, lower compliance costs for traders and ultimately make it easier for African businesses to integrate into global supply chains.

“These reforms would be difficult, but the rewards would be substantial,” said the World Bank. Freer intra-African trade would help women by lowering the gender wage gap, and it would help all workers by increasing decent employment opportunities.”

A growing manufacturing sector would provide new job opportunities, especially for women. The report estimates that compared with a business-as-usual scenario, implementing. AfCFTA would lead to an almost 10 percent increase in wages, with larger gains for unskilled workers and women.

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