Opinion / Columnist
How Zimbabwe can benefit from the Africa Continental Free Trade Area (AFCFTA)
18 May 2018 at 17:42hrs | Views
The Africa Continental Free Trade Area (AfCFTA) was launched on 21 March 2018 in Kigali, the capital of Rwanda. The trade agreement was signed by 44 heads of state and government, save for 10 countries which are yet to sign it including Nigeria and partly South Africa. Other countries that did not sign are Botswana, Lesotho, Namibia, Zambia, Burundi, Eritrea, Benin, Sierra Leone and Guinea Bissau.
The AfCFTA pact will come into effect 30 days after ratification by the parliaments of at least 22 countries (half of the original signatories). Each country has 120 days after signing the framework to ratify, if need be. The agreement is expected to come to life in mid-2019. This agreement will give birth to one of the world's largest free-trade areas in terms of the number of participants, market size with more than 1.2 billion consumers and over $3 trillion in combined consumer and business spending if all 55 countries sign it. If implemented well, this agreement can be a game changer for African trade.
As with other trade agreements such as the EU or SADC, AfCFTA aims to create a single continental market for goods, services and free movement of labour and capital. Its goals include boosting intra-African trade which currently stands at a meagre $63 billion as of 2017, contributing to sustainable economic development and facilitating industrialisation through the development of value chains. Key benefits that can be realized for this trade agreement include improved investment flows across the continent, business innovation, growth in capacity utilization and enhanced economic competitiveness.
AfCFTA however faces the herculean task of fostering cooperation among a host of national and regional actors with diverse trade interests with outsiders. The existence of numerous bilateral trade agreements negotiated with sensitive clauses, overlapping memberships, different levels of economic development and varying degrees of openness also pose challenges to the implementation of this pact. The downside with AfCFTA is that trade agreements naturally crowd out emerging domestic industries, increase outsourcing which creates jobs elsewhere, open chances of intellectual property theft and reduce tax revenue as a result of relaxed tariff structures.
Zimbabwe exported goods worth $2.6 billion to the African continent in 2017. Our exports are mainly biased towards minerals such as gold, diamonds, nickel, iron and steel. Other popular commodities in the African market include tobacco, cotton, sugar, cement and wood. For Zimbabwe to benefit from AfCFTA, there is need for clear policy framework towards the following aspects:
Manufacturing Sector Stimuli
Zimbabwe has a diverse manufacturing sector from textiles, agriculture and minerals processing, iron and steel engineering, food and beverages, chemicals and electrical machinery. This sector will be the core of free trade once the agreement comes into fruition. A SMART policy of simulating growth through subsidies and financial packages to the sector can boost production capacity. Imports of production equipment should be a government priority.
Value addition of exports
Our exports are predominantly raw, as such they fetch low prices on the regional market. A value addition policy has been tabled for long with meaningful progress in Platinum mining only. This policy should be taken across to other minerals (such as Chrome, Nickel and Diamond) and agriculture commodities that are being processed in neighboring countries. The government should by all means dangle the tax cut carrot to producers as an incentive, among other notable initiatives such as national project pronouncements.
Infrastructure development
Inevitably, our rail and road network into the SADC region should be upgraded. Otherwise access to the African market will be costly and difficult for local producers. Public Private Partnerships (PPPs) are the best model for this initiative in terms of cost, quality and turnaround time.
Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or Skype: victor.bhoroma1.
The AfCFTA pact will come into effect 30 days after ratification by the parliaments of at least 22 countries (half of the original signatories). Each country has 120 days after signing the framework to ratify, if need be. The agreement is expected to come to life in mid-2019. This agreement will give birth to one of the world's largest free-trade areas in terms of the number of participants, market size with more than 1.2 billion consumers and over $3 trillion in combined consumer and business spending if all 55 countries sign it. If implemented well, this agreement can be a game changer for African trade.
As with other trade agreements such as the EU or SADC, AfCFTA aims to create a single continental market for goods, services and free movement of labour and capital. Its goals include boosting intra-African trade which currently stands at a meagre $63 billion as of 2017, contributing to sustainable economic development and facilitating industrialisation through the development of value chains. Key benefits that can be realized for this trade agreement include improved investment flows across the continent, business innovation, growth in capacity utilization and enhanced economic competitiveness.
AfCFTA however faces the herculean task of fostering cooperation among a host of national and regional actors with diverse trade interests with outsiders. The existence of numerous bilateral trade agreements negotiated with sensitive clauses, overlapping memberships, different levels of economic development and varying degrees of openness also pose challenges to the implementation of this pact. The downside with AfCFTA is that trade agreements naturally crowd out emerging domestic industries, increase outsourcing which creates jobs elsewhere, open chances of intellectual property theft and reduce tax revenue as a result of relaxed tariff structures.
Manufacturing Sector Stimuli
Zimbabwe has a diverse manufacturing sector from textiles, agriculture and minerals processing, iron and steel engineering, food and beverages, chemicals and electrical machinery. This sector will be the core of free trade once the agreement comes into fruition. A SMART policy of simulating growth through subsidies and financial packages to the sector can boost production capacity. Imports of production equipment should be a government priority.
Value addition of exports
Our exports are predominantly raw, as such they fetch low prices on the regional market. A value addition policy has been tabled for long with meaningful progress in Platinum mining only. This policy should be taken across to other minerals (such as Chrome, Nickel and Diamond) and agriculture commodities that are being processed in neighboring countries. The government should by all means dangle the tax cut carrot to producers as an incentive, among other notable initiatives such as national project pronouncements.
Infrastructure development
Inevitably, our rail and road network into the SADC region should be upgraded. Otherwise access to the African market will be costly and difficult for local producers. Public Private Partnerships (PPPs) are the best model for this initiative in terms of cost, quality and turnaround time.
Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or Skype: victor.bhoroma1.
Source - Victor Bhoroma
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