During the just concluded 52nd session of the Economic Commission for Africa’s (ECA) Conference of African Ministers of Finance, Planning and Economic Development, in Marrakech, Morocco, delegates every so often mentioned the African Continental Free Trade Area (AfCFTA) agreement initialled in Kigali, on March 21, 2018.
Stephen Karingi, ECA’s Director for Regional Integration and Trade spoke to The New Times’ James Karuhanga, shedding light on what is expected between now and the next African leaders’ summit in Niamey, Niger in July.
March 21, 2019, marks the anniversary of the signing of the AfCFTA. Is there cause for celebration now?
There is definitely good reason for celebration and, why do I say so? When we were in Kigali, one of the things we hoped and committed to as African people, through our leaders, was that within the shortest time possible the African Continental Free Trade Area agreement will come into force. Now, 21 countries have ratified the CFTA. When we left Kigali there were a number of things that were outstanding. Some countries had reservations on the agreement. Countries like Ethiopia, Zimbabwe, and Djibouti. As we go into the first year of the CFTA signing, those countries have not only signed but they have also ratified the agreement. Why have they done so? It is because they have actually been able to talk to their people, talked to their private sector, and considered everything contained in the agreement and seen that there are benefits for their people and economy. So, really, there is cause for celebration because the agreement is almost coming into force. And, secondly, countries that were not sure then [last year] whether they were ready to sign and ratify have actually already ratified.
What do you say is holding others back from ratifying since we need only one more country’s ratification to enforce the agreement?
I don’t think that they are being held back. You have to remember that very few agreements, even globally, even international agreements that get the requisite number of ratifications, within the timeframe which the African Continental Free Trade Area has got its ratification numbers, the speed at which Africa has done the ratification is far much more superior than what we witnessed in the past. Now, if there are countries that are yet to ratify, I believe it is not because they have any reservations on the agreement, because since Kigali, now we have 52 countries that have signed and only three are yet to sign. That in itself is an indication that they are getting ready to ratify, not that they don’t believe in the agreement.
So, we can optimistically look at, what next; and talk about what is currently being done to ensure smooth implementation of the ratification then?
In fact that is a good question. Now, it is not just a question of what next, the way you have put it, but once we get the 22 ratifications, and the agreement comes into force, will our private sector start trading the next day? I think that is the question and that is what you are asking by the implementation. Now, for them [private sector] to be able to do that [start trading], we have between now and the Summit in Niamey, in July, for countries to offer each other schedules. You know, countries have to decide, say, out of 100 tariff lines, these are the 90 we are going to open up, or these are the seven that we are going to take a little bit more time on, and these are the three that we are not going to open up. That is one thing. We believe that between now and Niamey, countries will have made progress in that. The second thing is the rules of origin. Since this is a free trade area, countries need to be able to, say, what Morocco wants to trade has been produced in Morocco or it meets the criteria for it to be able to get what we call the same treatment as any other good that is produced in another country. And, we hope between now and Niamey, those issues of what we call rules of origin will have been resolved whereby countries will be able to tell the private sector that the agreement has come into force and for you to be able to trade, you need a certificate of origin and these are the tariff lines you can trade in.
Let’s look at the theme of this 52nd session of the Economic Commission for Africa’s (ECA) Conference of African Ministers of Finance. This being: Fiscal policy, trade and the private sector in the digital era: A strategy for Africa. Do we have an active fiscal policy anywhere in Africa, anyway?
I don’t believe we have. We can say that we have an active monetary policy but, at least in my assessment, in my understanding, I don’t think we have an active fiscal policy in many countries. But having said that, I also believe that why we are having this theme is because Africa needs rates of growth that are way beyond two to three times what we are getting now. We need double digit growth for us to be able to achieve the sustainable development goals. Now, for that to happen, fiscal policy is very critical.
What should countries do about getting it right on fiscal policy?
We are living in an era where digitalization is taking place. And so, the theme is actually looking at, how can you have a fiscal policy that gives you the resources you need in this digitalized world; first, in terms of helping you to mobilize tax revenues, but at the same time, helping you as government on better management of your budgets. Now, why do we bring the private sector in the mix?
You tell me. Why do we?
It is because the digitilisation is affecting the way the private sector operates. At the same time it is the private sector that pays the taxes and so, you can see the link between the fiscal policy question, digitilisation, and the private sector and, of course, we are in an era of the CFTA, which is also for the private sector. The African Continental Free Trade Area is going to have implications on the fiscal policy. So, that is why we have this theme and the ECA will actually be launching a report whereby we are able to demonstrate the link of all these.
What then are the opportunities and challenges for improving fiscal policy in Africa to finance the 2030 Agenda, or, and Agenda 2063?
The opportunities are enormous. If you were to break down the fiscal policy, on the one side; let’s take the case of tax policy, in this digitalised era, it is possible for the cost of compliance by tax payers to be really minimized so that they don’t have to run away from paying taxes. Secondly, there is a huge opportunity for the broadening of the tax base so that those people who are supposed to pay taxes come into the tax net through digitilisation. Of course the challenges remain because if you do not have the right infrastructure that allows you to take advantage of the digitalization or the opportunities that it offers then you have a challenge. And then of course there was also the issue of data security. You want to make sure that in this era of digitilisation, tax payers are trusting you with their data. They want to know that their data is secure and is not going to be misused; either to be sold or used to penalize them.
What are the challenges of digitilisation for domestic and cross-border trade, and the private sector?
In fact, digitilisation is not even a challenge for cross border trade. In my mind, digitalisation offers opportunity for the cross-border trade. It will give opportunities for digital payment platforms that operate across borders. The only way there can be a challenge is if governments say that the digitilisation is making it difficult for them to tax because of the businesses operating in the digital space. But this is where the issue of digital identity becomes critical. You cannot be able to do digital trade or electronic commerce unless you allow African citizens to have an identity that will allow them to take advantage of the African Continental Free Trade Area. And they can do that as proprietors of MSMEs, as entrepreneurs, as founders of big companies or as consumers or providers of services that will be across borders.