How continental free trade deal benefits Ethiopia

By Andualem Sisay Gessesse _ For the past decades much has been said about the need for African countries to be integrated economically and unite to advance development and face challenges collectively. Sub regional economic blocs such as, Economic Community of West African states, South African Development Community, East African Community, Economic Community of Central African States and Common Market for Eastern and Southern Africa, have been achieving good results though some still are facing challenges.

Learning from the successes and challenges of these sub regional economic blocks, member states of the African Union have been pushing for the establishment of African Continental Free Market Area (AfCFTA) led by the African Union Commission (AUC) and supported by the UN Economic Commission for Africa (ECA), among others.

After many years of discussions 44 African countries have signed the AfCFTA agreement in Kigali, Rwanda in March 2018. For the agreement to be implemented at least half of the signatory countries have to ratify it by their national legislative bodies within one-year period.

Countries like Rwanda, Ghana and Kenya were among the first to get the agreement approved by their national parliaments. Today including Ethiopia and the Gambia, whose parliament passed the bill at the 11th hour, AfCFTA is now ready for implementation securing approval of 22 countries parliaments.

More countries are expected to ratify the AFCFTA in the coming months according to the United Nations Economic Commission Executive Secretary whose organization has been instrumental in calculating the benefits and challenges the AfCFTA brings to African countries and the people of the continent in both short and long term.

Trading in goods
In simple terms the AfCFTA is just opening the borders of African countries for African businesses and allowing the free movement of goods and services from one country to another. In another terms as one aspect of easing trading goods, the AfCFTA allows an Ethiopian trader with goods as small as 1,000 can transport and sell in Kenya or South Sudan and easily repatriate his money legally and with ought hassle.

One may say such cross border has been always there what makes the AfCFTA special? Yes, the trade volume is small. But the AfCFTA allows such trading to go beyond immediate neighboring country and will be official, transparent and governed by laws with clear taxations and most of all focuses on manufactured goods of Africa. That is why the AfCFTA is expected to create more jobs in the manufacturing sector of Africa and boost the trade volume of Africa with itself.

Because the AfCFTA guarantees primarily agreed up on low tax on African goods, it is expected to encourage African entrepreneurs to venture into the manufacturing sector to produce products for the biggest free trade bloc in the world with over 1.2 billion populations.

What does the AfCFTA means for African small or big businesses and consumers. Accessing big market easily means for the manufacturers using their 100 percent production capacity to meet the demands or even expand their capacity. For the consumer it means more options for goods such as consumer products etc.

Imagine what this means for hundreds of small leather shoes or bags manufacturing companies in Ethiopia if they can easily transport their products to Kampala, Nairobi or Dar es Selam? Likewise imagine Kenyan or Congolese traders and entrepreneurs coming to Addis Ababa to buy Ethiopian leather shoes and bags from these manufacturers to distribute in Kisumu or Kinshasa. The AfCFTA makes the lives of African businessmen and businesswomen just like one Ethiopian trader from Welega can easily come to Addis Ababa to buy truck full of goods.

And imagine what that means for tens of thousands of Ethiopian university graduates in marketing, business administration, accounting, etc…This is an opportunity for these youth to search for buyers in Africa on online for different products of Ethiopia, from roasted coffee, honey, peanut butter, fruits, vegetables, wine, enjera, spices, to cosmetics, and minerals like opal, gemstones, goods such as leather shoes, bags jackets, textiles, garments, to furniture, cooking oil, sugar, salt, construction materials such as, cement, marbles, aluminum profiles, as well as beer and wine…

Most of these youth can be productive citizens instead spending their time online instigating ethnic conflicts by spreading hate speeches using social media. The graduates can use those platforms to generate income in hard currency for themselves, the companies and Ethiopia, which has always been hit by forex drought.

That is why financial sector liberalization is one of the five mandatories under the AfCFTA. After trading in local currency in Ethiopia a Kenyan or Egyptian trader can easily convert the money in forex bureaus and repatriate, then what is the purpose of AfCFTA and all those investments on infrastructure.

That is why experts who studied the pros and cons of AfCFTA advice African countries to see the big picture and have individual country specific AfCFTA implementation strategy. Stephen Karingi of the UN Economic Commission for Africa, who is in charge of the AfCFTA studies, suggest that even though at initial stage countries tax income may decline by implementing the AfCFTA, countries should focus on the multiple opportunities that comes with it. From boosting productivity small businesses and farmers and preprocessors, to creating jobs, the AfCFTA is a big deal for African countries.

Trading in Services
The other component of the AfCFTA trading in services. Here also the same principle applies. A Kenyan ICT professional can easily come to Ethiopia or Ghana and to do business and repatriate his money easily.

Well, in this era of eroded multinationalism where every country tries to protect itself from the influences of globalization, it may not be easy to implement such free movement of professionals in Africa. Especially at a time where unemployment is a major headache for many African countries leading often to political unrests in many countries.

But still there are ways where African countries can agree upon. By the way such trading has been already happening. For instance, Ethiopian health professionals have been working in other African countries like Botswana. Likewise, Ethiopia may need tourism or conservation professionals from Botswana or Mauritius to come and serve or invest.

Below are key benefits and figures related to AfCFTA
• The AfCFTA will cover a market of 1.2 billion people and a gross domestic product (GDP) of $2.5 trillion, across all 55 member States of the African Union. In terms of numbers of participating countries, AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organization.

• It is also a highly dynamic market. The population of Africa is projected to reach 2.5 billion by 2050, at which point it will comprise 26 per cent of what is projected to be the world’s working age population, with an economy that is estimated to grow twice as rapidly as that of the developed world.

• With average tariffs of 6.1 per cent, businesses currently face higher tariffs when they export within Africa than when they export outside it. AfCFTA will progressively eliminate tariffs on intra-African trade, making it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.

• Consolidating this continent into one trade area provides great opportunities for trading enterprises, businesses and consumers across Africa and the chance to support sustainable development in the world’s least developed region. ECA estimates that AfCFTA has the potential both to boost intra-African trade by 52.3 per cent by eliminating import duties, and to double this trade if non-tariff barriers are also reduced.

In my opinion the good thing about the AfCFTA is the implementation process will take gradual steps and needs several years till it is fully implemented. The creation of a continental African market union over several years among others needs proper infrastructures that link African countries. Roads, railway and air connectivity are believed to play critical role in speeding the full realization of the AfCFTA.

In today’s Africa where a Senegalese donot have access to direct flight to the neighboring Casablanca, Morocco and has to go out of the continent to Istanbul first, the opening of African skies for all African airlines will definitely play key role in the implementation of AfCFTA.

But when we look at the bigger picture, the AfCFTA is in need a big deal for all African countries small or large economy. All it requires from each country is to have its own unique implementation strategy taking into account its comparative advantages.