Rwanda-based experts in different areas including; trade, economics, policy, and taxation, have welcomed the signing of the African Continental Free Trade Area Agreement (AFCFTA), describing the deal as a step in the right direction.
The Continental Free Trade Area agreement was signed in Kigali on Wednesday by 44 African countries at the 10th Extraordinary African Union Summit.
At least 44 countries signed the free trade area agreement, 27 signed the Protocol on Free Movement of Persons, Right to Residence and 43 accepted the idea of creating Africa’s one market through signing Kigali Declaration.
Leonard Mungarurire, a consultant with the International Trade Centre, said the trade deal will help accelerate continental integration because it will open up borders and help create a conducive environment for trade and investment.
“It will allow for the private sector to increase their investments because it opens up new opportunities for the private sector across the continent to collaborate and partner with counterparts,” he said.
Mungarurire said free movement of people and goods, the Continental Free Trade Area will bring about opportunities for tourism across the continent, education for young people, as well as jobs.
“Opening up our market to Africa and the world is beneficial in the long-run,” he told Saturday Times in an interview on Thursday.
The expert in international trade said that for the trade deal to work, African governments will need to follow through with ratification, and reforming different business laws at the national level.
The African Continental Free Trade Area is expected to create a single market covering all of the 55 African countries, which currently boast a population of 1.2 billion.
With that population set to reach 2.5 billion by 2050 and representing 26 per cent of the global working age population according to estimates by the United Nations Economic Commission for Africa, the African Continental Free Trade will lead to the world’s largest free trade area.
Some experts say that, despite expected losses in terms of tariff revenues for African countries, the benefits from the AfCFTA will be several times higher, especially through lower prices for consumer goods.
Angello Musinguzi, a Senior Manager for Tax Services at KPMG Rwanda, said that governments across Africa shouldn’t worry about losing tariff revenues when the agreement comes into effect because they will still make money from increased volumes of trade.
“Because of increased volumes of trade and investment, domestic taxes shall increase. Customs duty shall decrease but the decrease shall be compensated by the increase in domestic taxes such as VAT, income tax, and excise taxes,” he said.
Paul Mugambwa, an Associate Tax Director with PriceWaterHouseCoopers (PwC) Rwanda, said that African governments shouldn’t worry about losing tariff revenues at the moment.
That’s because they already make little in tax revenue due to low level of trade with each other and with most of the goods produced in Africa being agricultural based, he said.
“If we stay the way we are we will not collectmore taxes, anyway. We have been closed for the last 50 years and it’s time to open up,” Mugambwa said.
Trade and tax experts in Kigali are not the only ones upbeat about the CFTA, but policy analysts and economic experts as well.
The Executive Director of Institute of Policy Analysis and Research (IPAR-Rwanda), Eugenia Kayitesi, described CFTA as a “wonderful stride in Africa’s economic growth and development”.
“Hopefully, this will raise Africa to another level because it’s bringing together all African countries and it should facilitate business. I believe that African leaders will have the political will to implement the agreement,” she said in an interview.
For Charles Ruhara, a lecturer at the University of Rwanda’s College of Business and Economics, the CFTA will improve people’s lives because it will increase trade and relationships among Africans.
“It’s very good that African Heads of State have agreed to open borders and decided to reduce barriers to trade,” he said.
Challenges to the implementation of the CFTA
Meanwhile, Mugambwa said that one of the challenges for the trade deal is that all countries on the continent that signed on to it might not move at the same pace.
According to him, countries with large productive capacities in manufacturing may experience significant economic growth while small economies may face substantial revenue losses in the short-run and this is likely to threaten local industries.
“This uneven distribution of benefits and costs among countries may prolong the implementation of the Continental Free Trade Area,” he said.
The analyst also said that, during the transition period, there is likely to be temporary raise in unemployment and slow down of economic activities in some sectors due to reallocation of resources, which might tempt some governments to react.
“Some countries may introduce policies to cushion these challenges and this could undermine CFTA. We have seen this in a number of regional blocs on the continent,” he said.
He added: “Trade liberalisation is also likely to promote competition in local markets as some companies that will take advantage of economies of scale will grow faster than others and end up being monopolies. Governments may be tempted to implement complementary policies, such as competition policies or consumer protection policies, and if not implemented properly it may undermine the objectives of the CFTA.”
A total of nineteen presidents were present at the signing of the CFTA in Kigali, while other nations sent top government officials.