‘Don’t rush to ratify trade pact’

Christopher Takunda Mugaga
That Zimbabwe is yet to embrace a local currency, coupled with dominance of only three products on our export list might signify that as a nation, we must put our house in order before ratifying the free trade agreement.

Sporting his trademark scarf with Zimbabwe flag colours, President Emmerson Mnangagwa took his rightful place at the dignitaries’ table.

As he signed the Africa Continental Free Trade Area (AfCFTA) agreement, he was carrying the hopes of a Southern African nation whose expectations of economic recovery have reached a crescendo.

President Mnangagwa, a former Vice-President who headlined a number of business conferences as a special guest at the time, is definitely aware of expectations that come with joining such an FTA.

The business community is excited about the prospects of joining such an important grouping.

Regarding what took place in the tiny east African country of Rwanda, it is pertinent to appreciate that this is the biggest trade agreement signed since the World Trade Organisation was established.

Two of Africa’s biggest economies, South Africa and Nigeria, postponed joining the AfCFTA due to reasons mainly related to their domestic policies and procedures.

The latter had to use “ear buds” to clear the way for private sector voices. The former’s absence from the arrangement is worrisome given the leadership mantle it holds among emerging economies as symbolised by its Brics membership.

With South African opposition parties clamouring for radical economic empowerment, it will certainly take a month of Sundays for their Cabinet to approve the AfCFTA.

It is a cabinet that will face fierce opposition not only from the Democratic Alliance and Economic Freedom Fighters, but from ANC moderates as well.

This is so given South Africa’s desire to promote an inward approach to wealth redistribution as opposed to attracting foreign capital.

That eliminating intra-Africa tariffs will prejudice states of a potential US$4,1 trillion is rattling some Heads of State regardless of the expected annual welfare gain beyond US$16 billion whose impact can start being felt around 2022.

Most African countries run fiscal deficits that have seen them either introduce peculiar tax heads, or raise tax levels, thus equally negatively impacting on the annual welfare.

Zimbabwe, a country running trade deficits averaging eight percent of GDP, cannot ignore the implications of a borderless society given its current account deficit which might have declined from around 18 percent of GDP to roughly four percent in 2017.

We are still reeling from the effects of economic sanctions, and that gives our African peers comparative advantage.

The Africa Growth and Opportunity Act is a case in point.

Countries like Ethiopia have benefited from Agoa and have seen their leather industry grow to unprecedented heights as market access to the United States improves.

The same cannot apply to Zimbabwean companies given the structural bottlenecks precipitated by the period of conflict between Harare and the West.

Indeed, we have appended our signature to the AfCFTA.

However, wider consultation is definitely required before ratification given that several of our sectors have become sensitive and need protection.

The target is for AfCTA to come into force in 2018.

The draft agreement commits countries to removing tariffs on 90 percent of goods, with 10 percent of “sensitive items” being phased later.

It will also liberalise services and tackle non-tariff barriers, including unnecessary delays at border posts.

Beitbridge Border Post, being the busiest port in Southern Africa, and with South Africa not committing to the agreement, might mean Zimbabwe not affording to expedite ratification as vulnerability to foreign economies will become unsustainable.

We already have contentious issues with Pretoria regarding the citizenship status of Zimbabweans in South Africa.

The matter can only take a bilateral arrangement to solve, with the AfCFTA not helping matters in the short to medium-term.

South Africa is no stranger to the cautious approach as was witnessed with the Tripartite FTA agreement.

Pretoria said it would only sign when it had a clear picture of the rules of origin, especially list rules due to their preference for product-specific rules.

The Yamassoukro Declaration on opening air space is yet to be fully implemented.

It is more expensive in relative terms to travel from Harare to Cape Town than making a trip to Dubai. That is a serious barrier to intra-Africa trade.

We still have arguments against opening up the skies, dominantly around security concerns.

To achieve a borderless society with the DRC, which is still unsafe to travel through, is a tall order.

Lack of infrastructure investment can be solved by entering the AfCFTA given the urgent need to allow efficient movement of goods and services.

One shudders at the thought that the DRC, which is four times bigger than France, has a smaller network of tarred roads than tiny Luxembourg.

The UN Economic Commission for Africa estimates the agreement’s implementation could increase intra-Africa trade by 52 percent by 2022, using 2010 as the base year.

Evidence elsewhere must also be factored in before one concludes on the likely impact of signing the AfCFTA.

It is a crazy era in which the developed world is becoming more protectionist while Africa is lectured on why it shouldn’t have closed economies.

Britain is in the process of exiting the European Union.

Trump is preoccupied with fighting Beijing and Moscow. South Africa is promoting Buy South African. China avoided joining the WTO at its inception as it was unprepared.

Intra-Africa trade owes its current modesty to lack of diversification and competitiveness; not underplaying the chronic infrastructure deficit playing out daily.

That Zimbabwe is yet to embrace a local currency, coupled with dominance of only three products on our export list might signify that as a nation, we must put our house in order before ratifying the free trade agreement.

We have already suffered competitiveness challenges, and opening our borders overnight can only help to grow the service sectors at the expense of sectors where Zimbabwe has potential comparative advantage such as mining, agriculture and manufacturing.

The greatest winner, if we rush our decision to ratify the AfCFTA, will be multinational corporations. Domestic enterprise development will be suffocated.

Further, it is important for stakeholders to appreciate that the signing which took place in Kigali last Wednesday will not change anything in principle.

So, if you are a trader or businessman, it’s not a case of short-term planning for new trade developments or changes.

Changes can only ensue once the agreement comes into force.

At the same time, goods will not be traded duty-free until the ACFTA rules of origin are agreed upon.

Remember, rules of origin are yet to be concluded at Tripartite Free Trade Area level following more than 72 months of negotiation.

The next meeting of thematic working groups on ACFTA rules of origin is scheduled for May.

One hopes the ambition displayed by Heads of State in Kigali will be transported to technical committee organs.

Zimbabwe is on the verge of coming up with both a National Trade Policy and National Export Strategy.

Therefore, Government, the private sector and labour should caucus on the trajectory to pursue.

 

Mr Christopher Takunda Mugaga is an economist and the CEO of the Zimbabwe National Chamber of Commerce. He wrote this article for The Sunday Mail