Last week, 44 African Heads of State and senior government officials signed what was termed as a historic agreement which will enable the creation of the African Continental Free Trade Area (CFTA). Following the signing, countries will now move to ratify the agreement in readiness for implementation, The New Times’ Collins Mwai spoke to Stephen Karingi, the Director for Capacity Development at United Nations Economic Commission for Africa who shed more light on the journey ahead before Africans can start to benefit from the instrument.
Below are excerpts;
Prior to the CFTA, agreements among the various Regional Economic Communities (RECs) have been said to have done very little to increase intra-Africa trade. Why should we have hope that it will be different with the CFTA?
The CFTA should not be seen in isolation; you have to remember that we had the Lagos Plan of Action and African Union Economic Community Treaty whereby the role of the regional economic communities was highlighted.
The Regional Economic Communities have been a step on which we have been able to learn and experiment some of the issues that we are looking at during the CFTA negotiations.
The kind of ability to negotiate among 55 member states within two and a half years, which has probably not been done elsewhere, was partly because our negotiators had a chance of learning during the negotiations they had at RECs.
Among the lessons we have learnt from RECs is that, often, we may not all be ready to commence implementation of an agreement at the same time.
We have come to agree that those who are ready to move can move and when others get ready, they join in. It has not been optimal implementation of our treaties and agreements but we have not been moving backwards.
We have been able to address many of the contentious issues in the CFTA partly because of the experience from agreements at the Regional Economic Community level.
Even when ratified, the CFTA is less likely to have immediate maximum impact across the continent given long standing challenges such as infrastructure, inadequate trade finance, among others. Where should the continent begin to address this?
We have to trust the wisdom of our leaders. When they decided that they were going to negotiate the CFTA, there is something that most do not talk about which addresses this.
They agreed on boosting Intra-African Trade Action Plan which has seven pillars. The first one addresses trade policy, the second is on trade facilitation.
Other pillars include infrastructure development for trade, productive capacity for trade, trade finance, trade information and market factors.
Essentially, there is already an action plan being implemented by a lot of countries.
In terms of infrastructure development, there is a programme which is trans-boundary in nature, part of which is being implemented. There are efforts to liberalise movement of people across the continent.
It is estimated that up to $4 billion in import revenue will be lost when the implementation kicks off, what is the return on the foregone income?
In terms of the losses in regards to import revenue, that happens immediately you commence implementation.
In terms of the benefits, there are interim periods within which the growth in new sectors could take time.
We see the implementation of CFTA as an opportunity to address some of our public finance issues.
If you as Rwanda are going to lose some tariff revenue because you are opening up to other African countries, it gives you an opportunity to look at the architecture of your tax administration.
At the end of the day you want to continue providing the same services to the citizens. Some countries may want to maximise tax avenues without necessarily introducing new taxes.
There is a bit of ‘pain’ due to import duties reduction, but there is an opportunity to look at revenue architecture and we also expect that there will be new businesses that will stem from this, hence more tax receipts for governments.
How did UNECA come to the projections that CFTA would increase intra-Africa trade by 52.3 per cent?
The estimate is based on the baseline of 2010. The initial ministerial discussion took place in 2010, then the presidents agreed in January 2012 to negotiate a CFTA.
In the lead up to those discussions, that is how we came up with the 52.3 per cent increase. That is if you only reduce the trade barriers.
If you did something about trade facilitation like what the EAC have been doing, we estimated that by 2022, you could double intra-Africa trade.
The CFTA is not coming into a vacuum, countries have been working together through sub-regional and multilateral agreements to increase trade. The most important thing is that growth of intra-Africa trade is that two thirds of the growth is on manufactured goods.
The fact is that within the continent, we tend to trade more on value added goods. Any increase in intra-Africa trade is actually growth in value added goods.
What are other projected impacts in regards to aspects like job creation capacities and in what sectors?
When you have growth in trade and when the trade is in value added goods by majority, there is always rapid growth of quality jobs when you have the manufacturing sector doing well.
The CFTA has both trade in goods and trade in services. It is opening up the market both for goods and services. In most economies in Africa, more than 50 per cent comprise of the service sector.
By opening up trade of services, you are creating opportunities for a lot of young people and SMEs, some of which are led by women. Some of the SMEs are into service provision.
The private sector will have opportunities to expand and create more jobs.
The manufacturing sector is commodity driven, which means adding value to our agricultural products, minerals, among others, which would in turn mean more jobs and income.
There is somewhat fear in certain quarters of what the implementation of CFTA could mean for Africa’s external partners. Are the fears justified?
Globalisation has continued and in the process, depending on where you sit, one would say that African has been marginalised if you consider it to be that we are not cooperating at the most lucrative part of the global value chain.
If you are selling raw coffee and raw tea, even though you are part of the international chain, you are not getting as much as you should.
The CFTA may be seen as a zero-sum game, it is not, it is a win-win situation for the international community.
A thriving Africa in terms of trade offers an opportunity and friendly environment for any Foreign Direct Investment, whether African or foreign to come invest here and be able to access a larger market.
It is a win-win situation as Africa will also be a better partner globally. Instead of depending on overseas development assistance, most governments will be able to mobilise resources and through trade finance development.
Non-tariff barriers probably have much more effect on trade in the continent compared to tariff barriers which the agreement is seeking to address. Any approaches you can recommend to address them?
The regional economic communities have done much in addressing Non-tariff barriers. As tariffs have go down, some countries tend to use non-tariff barriers to protect their economies.
What we have learnt from the RECs is that you need to have a very robust reporting mechanism of non-tariff barriers.
The CFTA is already taking this lesson and putting it in the annex on trade in goods.