What AfCFTA’s launch means for Zimbabwe

Ceteris Paribus:eben mabunda

The African Continental Free Trade Area (AfCFTA) took-off in early January 2021, a move perceived as a giant leap toward unlocking economic value for a continent whose combined GDP is estimated at US$3 trillion. The AfCFTA seeks to boost intra-African trade by 52% from the current 18% by 2022; through reducing cross-border tariffs on 90% of goods, enabling the movement of people and capital, as well as paving the way for a continent-wide customs union.

While there are countless possibilities in this endeavour, what does the AfCFTA mean for Zimbabwe; a low-income country with a per capita GDP of below US$500 and a national income that has dwindled at double digit rates over the last two years?

Revenue collection
Collections by the national revenue collection agency Zimra have shrunk by more than 50% over the last three years and the proposed 90% reduction on tariffs on all imported goods would translate to further revenue losses for Zimbabwe. Government has tabled a tariffs plan for submission to the AfCFTA, wherein the government will obviously be pursuing flexible tariff terms, bearing in mind Zimbabwe had initially been opposed to participating in the AfCFTA.

Notably, the reduction in tariffs will be gradual, and won’t be complete until 2033 at the earliest. So there will be no sudden fiscal shock caused by the slow reduction of tariffs on intra-African trade. In addition, revenue losses will be compensated by the increased economic activity under the AfCFTA, through higher internal taxes such as Value Added Tax and Excise Duty in the medium term.

Infrastructure
The Zimbabwe-RSA Beitbridge border is the busiest in the region as it links South Africa, the continent’s most industrialised economy, with other countries in the region. However, pitiable management systems, immigration inefficiencies, corruption and a poorly maintained road network have encroached on the convenience of the route. At the same time, the Kazungula border post has now offered a new route from South Africa through Botswana into the rest of the region. Without a recalibration of our infrastructure and a revamp of our border controls, Zimbabwe will likely lose revenue to Botswana in the foreseeable future as intra-continental trade surges through tariff reviews facilitated by the AfCFTA.

Meanwhile the “Afro-Champions” Initiative led by Aliko Dangote is raising US$1 trillion toward infrastructure development in Africa — to support the AfCFTA.

The framework has listed vital projects such as a railway line connecting Djibouti to Dakar to enhance transport and connectivity networks. As such, the revitalisation of the National Railways of Zimbabwe is key, serious road-network revamping and a touch-up of our airports is mandatory in order to maximise the potential of the trade era ahead.

Manufacturing
Since 2009, industry capacity surpassed 50% once — in 2011 — hitting a trough of 27% in 2020 weighed on by the pandemic. Meanwhile Africa’s manufacturing sector represents only about 10% of total GDP for Africa offering growth prospects in the sector. Value addition will need to be inculcated into our industry.

In the recently launched National Development Strategy (NDS 1:2021-2025), the government aims to “rebalance the economy through increasing the contribution of value-added exports to total exports from 9% in 2020 to 20% in 2025.” Noble as it sounds, the execution thereof will be vital to economic growth.

Exports/Imports

Plagued by an ailing health system, Zimbabwe is the third largest importer of pharmaceutical goods from other African countries. An easier flow of merchandise under the AfCFTA is expected to boost medical supplies in the short-medium term ceteris paribus. Zimbabwe imports the bulk of its food supplies; maize, soya bean, wheat etc from neighbouring countries South Africa and Zambia, among others. Logistical easing across regional borders would prove a user-friendly development in solving Zimbabwe food insecurity.

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.