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Intra-African trade key to continent’s economic growth, says Mauritian Minister

Intra-African trade key to continent’s economic growth, says Mauritian Minister
Photo credit: UNECA

18 Sep 2018

The 24th Session of the Inter-Governmental Committee of Experts (ICE) of Southern Africa opened in Mauritius today with an impassioned plea from Foreign Affairs, Regional Integration and International Trade Minister of Mauritius, Mr. Seetanah Lutchmeenaraido, for Africa to unite and work together as one if it is to bring inclusive development to its people.

Mr. Lutchmeenaraido said Africa must first believe in itself with political leaders giving the right message that; “We can do it. We can stand on our own feet; that South-South cooperation is a reality; that we can work together in a win-win situation with mutual respect for each other”.

Most importantly, he said, African nations need to trade more with each other if the continent is to emerge as a powerful continent in the next century.

“We have been ignored and colonized for so long that we have come to the conclusion that probably Africa is not for tomorrow and that the continent will have to wait for the millennium to emerge. This is not true,” the minister said, adding that Africa will not move ahead if its people continue to ‘stay in this mentality of being victims of colonization; victims of economic rape’.

“If we want to emerge as a powerful continent then we have to stop behaving like victims but as builders of tomorrow. If we develop this attitude that we can do it; that we have the resources to do it and that the learning process will not be that longest time, then we can emerge. We have to trade more with each other than what is currently obtaining.”

He shared with the more than 80 participants, including senior Southern African government officials, how Mauritius as a country moved from being a poor country when it gained its independence in 1968 from Great Britain to being a successful country that provides universal education and health to all her citizens.

“We have learned to move from an island which was condemned to be a failed state to what we are now today. We survived because there was no-one on whom to rely on. We had to learn the hard way of discipline and hard work. We moved from being a one-crop economy (sugarcane) into tourism, export processing zones for industrial production, then became a financial center. We diversified in a big way and in 2014 we reinvented the whole economy,” said Mr. Lutchmeenaraido.

Mauritius is the new chair of the ICE of Southern Africa. Zimbabwe was the immediate former Chair that handed over to Mauritius.

For his part, Zimbabwe’s representative at the meeting, Mr. Zvinechimwe Ruvinga Churu, a Principal Director in the Finance and Economic Development Ministry, said industrialization and strengthening regional integration remain rallying points in Southern Africa as the region endeavors to extricate itself from poverty and under-development.

He said the adoption of the African Continental Free Trade Area (AfCFTA) in February in Kigali this year buttresses and accelerates the integration agenda through boosting industrialization and trade by complementing efforts under the Tripartite Free Trade Area.

“Front loading industrialization as a platform for value addition and beneficiation, the development of domestic linkages and the creation of jobs is imperative and the blue economy can anchor such endeavors through its various development levers many of which we will interrogate during this ICA,” said Mr. Churu.


Implementation of Regional and International Agendas and Other Special Initiatives in the Sub-region:

Progress and Status of the Continental Free Trade Area (AfCFTA)

The AfCFTA presents an opportunity to leverage trade for structural transformation, economic growth and job creation in Africa. This is because intra-African trade, which is promoted by the AfCFTA, has a stronger impact on development than other types of trade. Intra-African trade comprises a far larger share of industrial, value-added and processed agricultural products than does Africa’s exports to outside the continent, around 75 per cent of which are extractives like petroleum oils and minerals. It is more labour intensive, helping to generate jobs for Africa’s bulging youth population, and relies less on the fluctuations of global commodity prices, enabling it to better fuel sustainable economic growth.

On the face of it, the AfCFTA may imply adjustments to lower import tariffs on intra-African trade, but it in fact offers a pathway to medium to longer-term fiscal sustainability. This is because, as a stimulant of economic growth, the AfCFTA helps to generate economic activities in other revenue generating areas. Moreover, the quality of economic growth that is generated by the AfCFTA marks a diversification away from fiscal reliance on volatile commodity prices. As diversification engenders structural transformation, the importance of trade taxes among sources of revenue generation declines. However, even in the short term, the revenues currently collected from tariffs on intraAfrican trade account for only a small share of total trade taxes in Africa, and can be partially offset by other taxes, such as VAT, which tends to be more efficiently levied on imports.

The AfCFTA as a Platform for African Trade Policy Coherence

The AfCFTA is being negotiated in a changing world trade environment. The multilateral trading system is in crisis after the failure of the Doha Round and populist anti-globalization sentiments in several large trading nations have sparked concern of “trade wars”. The rapid rise of emerging market economies has caused a fundamental shift in the trade patterns of many African countries. Controversies surrounding the Economic Partnership Agreements (EPAs) and Brexit require new thinking on restructuring trade relations with Europe. Africa’s trading relationship with the United States, having developed under the African Growth and Opportunity Act (AGOA), is likely to transform into reciprocal arrangements by 2025 in a post-AGOA agenda. The so-called “mega-regional” trade agreements that once threatened Africa’s preferential trade with established partners, now have evolved into a different threat of protectionism. Finally, new modes of trade such as ecommerce are putting pressure on demands for new trade rules.

What’s at stake is that future external negotiations risk unravelling regional integration in Africa. This has already posed a challenge to African regional economic communities that are nascent customs unions, such as ECOWAS and CEMAC. These comprise free trade areas and a common external tariff, and are working towards single market status with the free circulation of goods. Individual FTAs unravel this progress by 'breaking' the common external tariff; those countries with external FTAs would have a different tariffs with such external countries than others within such customs unions. Without a functioning common external tariff it is impossible for these regions to move forwards towards free circulation of goods.

Amongst these changes there has never been a greater urgency for Africa to consolidate its trade policy. Doing so provides Africa with the strengthened voice of 1.2 billion people in future negotiations, provides for a common position on evolving trade policy issues, and ensures that individual bilateral arrangements do not unravel the objectives and benefits of continental integration. The AfCFTA provides a strengthened platform for exactly such trade policy coherence in Africa.

What must countries do next for the effective implementation of the AfCFTA?

Ensure prompt ratification and conclusion of the implementation roadmap

Riding on the momentum of an historic 10th Extraordinary African Union Summit and AfCFTA signing ceremony, in Kigali, on 21st March 2018, 49 African Union member states have now signed the AfCFTA with 6 having further ratified the agreement. African businesses have had their interests piqued, political leadership at the highest level is committed, and the world is watching.

In addition to the 6 countries that have already ratified, it is understood that the ratification process is at an advanced stage in 7 more countries including South Africa. The African Union Commission is confident that the 22 ratifications required for the agreement to enter into force will be achieved by the first anniversary of the signing of the AfCFTA in March 2019.

A further three African Union member states signed instead the Kigali Declaration, declaring their intention to sign the Agreement after concluding domestic legal processes. Three member states are yet to signal commitment to the AfCFTA.

This impetus must be seized. There is a real risk that, without firm ministerial guidance, the process could derail and delays set in, as is what happened with the Tripartite Free Trade Area negotiations which have yet to be concluded despite their “launch” in June, 2015.

To bring the AfCFTA into effect, countries must first ratify the agreement through their respective domestic legislative processes. The agreement will then enter into force once 22 African Union member states have deposited their instrument of ratification with the African Union Commission.

To operationalize the AfCFTA, State Parties to the agreement must also conclude the implementation roadmap. This involves developing and submitting schedules of concessions for trade in goods. These detail, for each State Party or – as the case may be – customs union – the particular 90 per cent of products that are to be liberalized for each State Party, as well as the sensitive products that are to be liberalized over a longer time period and the excluded products that are to be temporarily exempted from liberalization.

A related complement to the schedules of concessions for trade in goods is the list of product-specific rules of origin which, alongside the general rules of origin, will enable the application of preferences under the AfCFTA.

For trade in services, negotiators have agreed that five sectors are to be prioritized: communications, financial services, transport, business services, and tourism. Negotiators are now working to similarly develop and submit schedules of concessions for these sectors, identifying how barriers to entry, such as local presence regulations, can be eased to allow the local operation of service suppliers from other African countries.

Source UNECA
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Date 18 Sep 2018
  13 minute read
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