THE Africa Continental Free Trade Area (AfCTA) came into effect on May 30, 2019, launching the first phase of its implementation roadmap.
The Brett Chulu Column
The AfCTA is a continental trade liberalisation agenda that envisages the removal of all trade barriers in the form of both economic and non-tariff barriers. Economic trade barriers would include trade restrictions such tariffs and quotas. Non-tariff barriers would include infrastructure (physical and digital), corruption at the borders, inefficient border operations and lack of support for vulnerable trade groups such as women and the youth.
The first phase focuses on agreements on trade in goods and services. The second phase is expected to go into operation on January 1, 2021. The second phase is about putting in place national investment plans, competition policy and intellectual property rights.
The bigger picture underlying the AfCTA is the establishment of an African Single Market, African Monetary Union and an African Political Union. This bigger picture is often lost in the discussions on the AfCTA.
The African Union’s Agenda 2063 sets 2023 as the timeframe for the establishment of an African Monetary Union. It is not yet clear if that 2023 target will be met. However, it should be clear in our minds that the AfCTA agenda is the first step in a broader agenda that seeks to establish a supranational economic and political authority.
Zimbabwe has ratified the AfCTA phase I. It negotiated for a special dispensation in terms of implementing the first phase. It was placed in a group of seven countries that include Djibouti, Ethiopia, Mozambique, Malawi, Saharawi and Zambia and labelled the Demmszz. The countries asked for a phased reduction of economic tariffs across a range of goods and services.
The Demmszz were granted permission to fully liberalise trade (complete removal of tariffs) on non-sensitive goods and services in two steps; 85% liberalisation over 10 years and the remaining 15% over 15 years. On sensitive goods and services, the Demmszz are expected to fully liberalise in 13 years. The rate of liberalisation will be linear, meaning tariffs will be reduced in equal quantum over the timeframe until tariffs are zero
By ratifying the AfCTA, Zimbabwe has participated in the creation of a significant economic institution. The question is: Has Zimbabwe helped create a Frankeinstein monster that will one day turn on its creator?
In attempting to answer this question, the AfCTA will be assessed against Zimbabwe’s development agenda expressed as the National Development Plans (1&2), the two national development strategies underpinning Vision 2030 , seeking to transform Zimbabwe into an upper-middle-income country.
There are several salient points that surface. This article will focus on four.
First, the recently launched National Development Plan One (NDS1, 2021-2025) that starts on the same date as the phase II of AfCTA, hardly speaks to the AfCTA. This is extremely concerning to learn that our national development strategy seems to have not deliberately factored in an extremely consequential economic development. Treasury had ample time to study the implications of phase I of AfCTA that came into effect in May 2019 in readiness for the NDS1 and its supporting national budgets.
The 2021 National Budget is completely silent on the trade liberalisation commitments — we expected a clear statement on how as a country we were planning to meet our yearly commitments to reduce tariffs. Could this strategic miss reflect that AfCTA is just a mere talk show or is a reflection of our own national incompetence? Is Zimbabwe adopting a wait-and-see attitude, waiting for other countries to make the first announcements?
However, it is inexcusable for Treasury to at least make a statement on its assessment of the likely impact of AfCTA in terms of both opportunities and down risks. Are we afraid that we could have sheepishly agreed to create a Frankenstein monster? We cannot act as if we are in denial — AfCTA is here.
Second, AfCTA , in the immediate, presents a serious threat to the NDS1 and in the long-term the attainment of Vision 2030. South Africa, with the continent’s most advanced and competitive manufacturing sector is poised to benefit in a skewed manner. With tariffs present, South Africa accounts for 30% of Africa’s intra-continental exports. South Africa is Zimbabwe’s single largest trading partner, accounting for about 60% of Zimbabwe’s trade.
Our phased linear tariff reduction will stifle our own re-industrialisation agenda as more competitive goods and services will flood Zimbabwe before our own manufacturing industry recovers.
With Zimbabwe still facing a drought of foreign investment and other capital flows due to the huge debt overhang owed the Bretton Woods Institutions, the African Development Bank, the European Investment Bank and the Paris Club, the country will not get enough money to modernise our secondary industry and replace inefficient machinery.
Our secondary industry will be outcompeted, not only by South Africa but by other countries. A major threat outside South Africa is Nigeria, specifically in terms of fertiliser and cement. Dangote’s new fertiliser factory is going into operation in March 2021. Dangote Fertiliser will be Africa’s largest fertiliser manufacturer. Zimbabwe’s fertiliser value-chain strategy outlined in the NDS1 does not factor in the Dangote factor — Dangote enterprises ruthlessly deploy economies of scale to achieve competitiveness.
Dangote is ready — we are still planning to start – if we drop tariffs we open up the country to ruthless competitors such as Dangote. The story of Dangote Cement in Zambia is instructive; its entry caused cement prices to fall. Dangote Cement from its Zambian manufacturing plant will likely find its way into Zimbabwe aided by an existing good transport infrastructure links between Zimbabwe and Zambia.
Third, if Zimbabwe decides to delay implementing the tariff reduction commitments as per AfCTA, the country will lose out on its strategic investment to facilitate movement of goods from the South African seaport and its manufacturing hubs to countries to the north of Zimbabwe.
The new bridge linking Botswana, Namibia and Zambia would divert transit traffic away from Zimbabwe through Botswana.
Fourth, since Africa’s current trade is overwhelmingly dominated by agricultural produce, Zimbabwe stands very little chance of competing in that space as several countries farm more efficiently. This is the reason this writer has been advocating for our agriculture strategy to go beyond food self-sufficiency goals but to aim towards achieving leaps in productivity to ensure we produce surpluses that can compete in the export market.
If we do not address the agriculture productivity imperative, AfCTA will open the way for cheaper agriculture imports to flood Zimbabwe. The barriers to agricultural productivity such as insecure land tenure, if not removed expeditiously, will birth an existential crisis for Zimbabwe as AfCTA unleashes the forces of liberalisation.
If as a nation we do not get our strategy ducks in a row, the AfCTA we co-created with other African nations will turn into a Frankenstein monster that will devour us. With further analysis, our NDS1 is not robust enough to reduce the threats brought about by AfCTA. Forewarned is forearmed.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — firstname.lastname@example.org.