Latest assessments show that the African Continental Free Trade Area (AfCFTA) can assist with Covid-19 recovery but expected benefits from the agreement will not be automatic as countries must first put in place relevant customs procedures, a trade expert noted on Monday, October 4.
While presenting and discussing current trends of commodity prices and their implications for African economies during a United Nations Economic Commission for Africa (ECA) webinar for the media, Stephen Karingi, ECA’s Director for Regional Integration and Trade, among others, shed light on supporting Africa’s transformative agenda through effective AfCFTA implementation.
He explained that member states must first pursue the ratification of the agreement as well as implement the agreement effectively.
Cross border cargo trucks transport goods from Tanzania to Rwanda. Both the process and the substance of the AfCFTA are based on best practices of Regional Economic Communities. Photo: Craish Bahizi.
As a top priority, Karingi said, relevant custom procedures have to be in place, for example, revision of tariff books, to ensure the AfCFTA is operational.
A few countries such as South Africa, Ghana, Cameroon, Egypt, and Rwanda have, so far, complied with the AfCFTA custom procedures.
"Ratification of the AfCFTA is not sufficient for trade to take place between two African countries. Take the case of Rwanda that has excellent value added tea, which is exported to Ethiopia,” Karingi told The New Times.
But at the customs office in Bole International Airport, Karingi said, the customs officer will look at her tariff book and upon doing so, she will ask for the certificate of origin and the rules governing the import.
"If the Ethiopian Minister of Finance has not effected changes through the Finance Bill to domesticate the AfCFTA, the tea from Rwanda will be subjected to other tariffs other than the expected zero rate in AfCFTA despite both countries having ratified the agreement.”
"In this case, it gets more interesting since Ethiopia is not a member of the WTO whereas Rwanda is. AfCFTA is meant to resolve such at the regional level as Ethiopia accedes to WTO. What I mean is that the AfCFTA provides common rules between the two. Remember that Ethiopia is not using COMESA FTA, which could have been the fallback position.”
Rwanda and Ethiopia ratified the AfCFTA.
The AfCFTA agreement was initialed in Kigali, on March 21, 2018.
To date, out of 55 AU member states, 54 signed and 42 ratified it.
Asked why it is taking long for countries to comply with customs procedures, Prudence Sebahizi, Chief Technical Advisor on the AfCFTA at the AU Commission, told The New Times that it depends on each country’s national process.
He said: "For example, changing a national tariff book means passing the law in parliament. This process can take time depending on capacity and, or, national priorities.”
Commodity dependence
As noted, African economies remain largely dependent on primary commodities exports. High dependence on the sector means high vulnerability to the vagaries of international markets or volatile prices passed on to local markets.
As noted, recent improvements in global economic outlook in the context of Covid-19 are putting upward pressure on commodities prices in global markets.
The policy implications, Karingi noted, are optimization of resources allocation, including supporting economic recovery and fighting the pandemic; saving surplus revenue – for example, sovereign wealth funds – in support of national budgets later when prices drop; and monitoring of price shocks on poverty and food insecurity in net food and fuel import economies.
Short-term volatility is likely to remain a key feature of the markets in the months to come and, he added, there is need to be more cautious with the outlook of commodities prices when preparing budgets.
Another key message is that limited diversification and reliance on commodities sector are detrimental to long-term development in resource-rich countries. As noted, this calls for an overhaul of policies including fiscal, trade, and human capital, to reduce strong dependence to global commodity markets.
Asked about what policy options and strategies can help strengthen an economy like Rwanda’s, in the context of their recent analysis and findings, Karingi said: "First, the oil prices are something to worry about.”
"The recovery on agro-food prices should be a positive for Rwanda. But the inflation sentiments in developed economies should be a concern as they hit budgets of consumers of Rwanda coffee, tea. So an important issue here for Rwanda is to be active in opening up opportunities for trade in Africa. The AfCFTA anchored value chains in East and Central Africa are key for Rwanda. Finally, services exports are a great opening for Rwanda under the AfCFTA.”