Free trade treaty: Is Zim ready? 

Source: Free trade treaty: Is Zim ready? – The Zimbabwe Independent April 6, 2018

The recent signing of the African Continental Free Trade Area treaty (AfCFTA) by 44 African countries, including Zimbabwe, is a culmination of persistent and determined efforts by the African Union member states to aid the growth of the continent’s economies.

The CFTA will bring together all African countries with a combined population of more than one billion people and a combined gross domestic product of more than US$3,4 trillion.

With the CFTA, the aim is to, among other outcomes, create a single continental market for goods and services, free movement of business persons and investments and expand intra-African trade.

The CFTA is also expected to enhance competitiveness at the industry and enterprise levels. However, we are told, 11 of the African Union members are yet to sign the pact. This includes three economic superpowers in Africa, namely Nigeria, Egypt and South Africa.

Nigeria is said to have pulled out of the signing ceremony at the last minute “to allow time for broader consultations”. The Nigeria Labour Congress (NLC) had warned Buhari against signing the agreement, calling it a “renewed, extremely dangerous and radioactive neo-liberal policy initiative”.

South Africa and Egypt are said to want strict rules of origin. Rules of origin is a stipulation in the AfCFTA that states that in order for African nations to be able to trade freely at duty free, 35% of a product has to be manufactured in the African country intending to export the product.

In addition, South Africa has also clarified that it needs to get its domestic rules in order. These latest developments by continental economic powerhouses Nigeria, Egypt and South Africa obviously prompt further analysis as to the readiness of Africa in general, and Zimbabwe in particular, to such an arrangement, as well as the implementation matrix that ensures all participating countries will benefit on even terms.

The AfCFTA is certainly a massive market which, if well implemented, can bring forth significant gains to member states. However, it is important to note that the envisaged improvements do not come automatically by the mere signing of this pact.

This is only the beginning. There are certain fundamental variants which must be proactively put in place for a country to effectively benefit from this historic arrangement. In fact, one question that is overarching is whether Zimbabwe is ready for such an arrangement especially considering the hesitancy by countries like Nigeria and South Africa.

In this piece I will enumerate and enunciate some of the bottlenecks that may scupper Zimbabwe from benefitting from this treaty and the some crucial initiatives that the country should implement as preconditions to ratification of the accord. Before that it is important to clarify what this new creation (AfCFTA) is all about.

The (CFTA) is an Africa-wide free trade agreement (FTA) designed to boost intra-African trade and pave the way for the future establishment of a continental customs union.
The builds on existing Tripartite FTA negotiations among three African regional economic communities (RECs): the Southern African Development Community (Sadc), the Common Market for Eastern and Southern Africa (Comesa) and the East African Community (EAC).

The decision to establish the CFTA was adopted as early as 2012 by the heads of state at the 18th ordinary session of the African Union (AU), and negotiations officially begun in June 2015.
The CFTA stems, in part, from the realisation that regional integration is not equitably pursued among all African regional economic communities (RECs), and that intra-African trade is at critically low levels compared to African trade with outside partners.

The CFTA will address seven priority areas related to trade: policy, infrastructure, finance, information, market integration, boosting productivity and trade facilitation. The UN Economic Commission for Africa (Uneca) has estimated the agreement’s implementation could increase intra-African trade by 52% by 2022, compared with trade levels in 2010.

First and foremost infrastructure development, especially the transport network system, which includes roads, rails and air transport is a compelling need. It is a basic fact that any meaningful trade can only take place where there is an efficient and effective transport network system. Zimbabwe needs to invest significantly in its infrastructure, particularly roads and rails. The mere removal of visas and the reduction or scrapping of trade tariffs is not adequate for free trade. Such actions must be accompanied by easy access to the markets.

Our roads require a complete overhaul which necessitates significant investment. Obviously our fiscus cannot support the immediate rehabilitation of the country’s roads.

The only feasible plan for us is the “build, operate and transfer model”. We need to engage private partners who have the resources to construct our roads within the next five years. These agreements must be solid with prescribed quality levels. The deplorable state of most of our highways will only serve to scare trade partners. Our main airports must be upgraded to international standards including efficient automated clearing systems.

Efforts on the Victoria Falls international airport must be commented in that regard, though a lot more still needs to be done. The railway lines need complete overhaul. Rail transport is suitable for bulk merchandise. The current sorry state of our rail system will not help us in any way. This is an urgent matter within the context of the CFTA agreement.

Government of Zimbabwe must seek “genuine” private partnerships for the development of the railway network. The massive investment outlays required for this area may be too much for the government to bear alone.
In its engagement of the private partners the government needs to be sincere and transparent.

The characteristic partisan and crooked manner of private partnership engagements must be discarded outrightly.

The next most important thing is ease of doing business. This has been a common mantra by the government of Zimbabwe. I think what is simply wanted on this is a serious commitment to do things differently. This one is a matter of behavioural change to a larger extent. The government must just ensure its employees toe the line.

Continuous spending on useless “ease of doing business” conferences must stop. It is time to implement what has been discussed so far. One area though that can aid ease of doing business is technology. The government need to seriously invest in automating its systems. Rwanda is a perfect example that harnessed technology in facilitating ease of doing business.

It is good that President Emmerson Mnangagwa had the opportunity to meet the chief executive of the Rwanda Development Board during the summit. One hopes he had clear lessons of how to go about it. All institutions involved in business set up must be connected online. Thoughtful engagement with technical partners like telecommunications firms may be imperative in this regard. Without ease of doing business we may as well defer ratification of the AfCFTA because the country will just not benefit much.

One area that is contentious in this CFTA agreement is the perceived impact on national revenues given the proposal that trade tariffs will be reduced. Mesut Saygili, Ralf Peters and Christian Knebel from the Division on International Trade in Goods and Services, and Commodities, UNCTAD noted that, “Countries with large productive capacities in manufacturing may experience significant economic growth and welfare gains while small economies and LDCs may face substantial fiscal revenue losses and threats to local industries”.

Zimbabwe gets about US$300 million of its revenues from customs duty. This represents about 8% of the total revenue collections. With a tight revenue base this may represent a significant loss which may have some negative impact on a number of macroeconomic fundamentals. It therefore becomes compelling that the country takes an intimate analysis of this move before ratifying the CFTA pact.

The modelling of the AfCFTA points to large volumes of trade obviously. Looking at our industries one wonders whether we have the capacity to push the prospected volumes. There is an obvious need to ensure our industries are well capacitated to cope and compete equitably. It is however gratifying to note that the current budget has come up with measures to improve industrial capacity.

Last but not least, Zimbabwe has to come up with trade policies that promote international trade. ZimTrade must up its game to ensure an increase in exports. More information must be made available with regards the potential markets, certain restrictive trade policies or requirements must be phased out and export support must be provided to potential and deserving businesses.

All said and done it is in order to comment the AfCFTA initiative and all its good intentions. However, the taste of the pudding is always in the eating. The country now has to work on readying itself to harness the perceived benefits through attending to the issues raised above.

I conclude by quoting Stephen Karingi, the Acting Director of the Regional Integration and Trade Division (RITD) at the Economic Commission for Africa (ECA) who said, “While recognising that CFTA is not a silver bullet whose implementation would work out Africa’s developmental challenges, CFTA adoption and implementation is certainly a right step at the right time towards advancing Africa’s development agenda, Agenda 2063 at the helmet.”

Chatsama is the leading organisational development and training and leadership development consultant with ProSource Global Consultants. He is an expert in strategy and policy design. These New Perspectives articles are co-ordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society. — or +263 772 382 852.