Making the most of the African Continental Free Trade Area in Zim

The countries agreed that once some of the critical parts of the agreement (such as schedules of tariff concessions and services commitments, and policies around investment, intellectual property, and competition) were finalised, countries would commence trading under the AfCFTA.

THE African Continental Free Trade Area (AfCFTA) was officially launched at the 12th Extraordinary Summit of the African Union (AU) in Niamey, Niger, on July 7, 2019. The launch included a number of instruments to facilitate the implementation of the agreement, focusing on the rules of origin, a trade-in-goods dashboard, a payments and settlements system, and a dashboard of the African Union (AU) Trade Observatory.

The countries agreed that once some of the critical parts of the agreement (such as schedules of tariff concessions and services commitments, and policies around investment, intellectual property, and competition) were finalised, countries would commence trading under the AfCFTA.

The AfCFTA aims to establish a single market for goods, services, facilitated by movement of persons to deepen the economic integration of the African continent.  The agreement is also designed to facilitate sustainable and inclusive socio-economic development, gender equality and structural transformation of the state parties.

Other objectives include eventually developing a customs union spanning the continent’s countries; slashing tariffs and removing non-tariff barriers; improving intra-country cooperation in investment, Intellectual Property Rights (IPR), customs and trade facilitation, competition policy and other trade-related areas.

The AfCFTA is the first agreement to bring together all African countries under a single free trade area to create a common market for goods and services, with free movement of business persons and investments and thus pave way for accelerating the establishment of the continental customs union.

It will also expand intra-African trade and enhance competitiveness at the industry and enterprise level.

Estimates show that the establishment of the AfCFTA will stimulate total African exports by 4% (US$25.3 billion) by 2022, and result in an estimated 52% increase in intra-African trade (US$34.6 billion) with expansion covering a wide range of sectors, including agriculture and agro-processing, industry and services.

The AfCFTA is expected to cover a market of 1.2 billion people with a gross domestic product (GDP) of US$2.5 trillion, making it the world’s largest free trade area since the formation of the World Trade Organisation (WTO).

Operationalisation of AfCFTA

Zimbabwe is one of the 54 countries that have signed (and one of the 27 countries that have ratified) the AfCFTA agreement to date. The benefits of the AfCFTA agreement are unarguably huge, but implementation of this agreement also poses some challenges that needs to be tackled to ensure that countries can ultimately benefit from this arrangement. Some of the issues include the involvement of the private sector, the readiness of the country and the availability of adequate capacities to ensure a successful implementation of the AfCFTA.

Private sector involvement

The lack of public participation and consultation is generally recognised as a recurring criticism of trade agreements, and the AfCFTA is no exception. Evidence suggests that consultations around the draft text for the AfCFTA were limited to a narrow group of already-involved actors.

The AfCFTA Draft Strategic Framework emphasises that the process must be inclusive and involve not only governments and regional economic communities but also other stakeholders such as the private sector, civil society, media, parliamentarians and development partners.

The key question is whether the private sector — the key implementation actor of the agreement — fully comprehends how the AfCFTA is to be operationalised. It is important to understand what is required from the private sector actors for this agreement to be operational and to maximise the benefits.

There are possible grey areas to be properly understood and to ensure that all stakeholders are fully on board so that the AfCFTA becomes a reality.

More active involvement of the private sector in terms of advocacy, awareness and sensitisation is vital to ensure direct input into the AfCFTA negotiating institutions so that AfCFTA is shaped to assist the business community to trade in Africa.

Country readiness

Given the prevailing economic conditions in Zimbabwe and the country’s level of industrialisation for example, to what extent is the country prepared to eliminate tariffs on 90% of its goods since it ratified the African Continental Free Trade Area (AfCFTA)?

The country is already liberalising at levels around 80% in COMESA and Sadc, so to what extent can the country increase the threshold to 90%, without affecting on their domestic resource mobilisation efforts? Over the period 2009-2017 customs revenue averaged 10% of total revenues whilst revenue to GDP ratio has averaged 22%. These amounts may initially go down once the phasing down of tariffs is implemented. What measures are being put in place to ensure that alternative sources of revenue are identified to fill the potential gap? Zimbabwe is a predominant exporter of raw materials, particularly minerals and agricultural products.

Major agricultural export is flue cured tobacco whilst semi manufactured gold, nickel and ferrochrome constitute the major mineral exports.

The country mainly imports fuel, electricity, crude soybean oil and wheat. Its exports are mainly absorbed in South Africa, United Arab Emirates and Mozambique, whilst its imports are from South Africa, Singapore, China and Japan.

Key issues of concern are the low levels of value addition in the exports, and the extent to which a country can benefit from the free trade agreement, given that other African countries have the same products.

What does Zimbabwe have to offer to other African trade partners?

What immediate actions are needed to ensure that the level of industrial production is optimum enough to benefit the country from the Free Trade Agreement?

These issues will need to be thoroughly discussed, with the private sector at the center of the discourse given that they are the source of all tradable goods and services.

Challenges in implementation

A key concern raised is that the AfCFTA may follow several other Agreements that have not been effectively implemented, if implementation capacities are not addressed. Indeed, African countries face challenges in terms of implementation, as there are many development policies in African countries still waiting for implementation due to capacity constraints. Africa’s development performance is often associated with the poor capacity for implementation.

Deliberate plans are required to build, develop and retain the capacities based on a needs assessment in Zimbabwe for the AfCFTA to become a reality in terms of implementation.

Private sector requires capacity to competitively develop bankable projects and understand the operationalisation of the AfCFTA while ensuring that trade integration benefits African economies.

In conclusion, most of the capacities needed for supporting the successful implementation of the AfCFTA rests at the country level — public and private sector. The private sector and partner institutions should join efforts to strengthening of the capacities in such areas as the domestication and development national AfCFTA strategies; the implementation of the Action Plan for Boosting Intra-African Trade and the Africa Mining Vision; development of the critical mass of technical skills as well as institutional and soft capacities.

  • Zvendiya is a Research & Innovation Analyst at Ipec who writes in his individual capacity. — [email protected]. These weekly New Perspectives articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.