Zimbabwe has assented to the African Continental Free Trade Area (AfCFTA), but full implementation of the agenda could see the country taking a significant hit in terms of trade, revenue and capital gains losses.
This is due to the fact that Zimbabwe has some of the highest tariffs in the region.
Full implementation of the AfCFTA will ultimately culminate into duty free quota free trade among African economies
What will probably hurt Zimbabwe more is that the country is experiencing limited levels of industrialisation and is also currently implementing an importation management programme, raising questions on its ability to compete in a free trade area.
According to a 2016 study done by Zimbabwe’s trade advisor to the African Union (AU) Commission Brian Mureverwi, the full implementation of the AfCFTA, will have differing impacts of the various economies.
“Major gainers from the tariff liberalisation through the CFTA are South Africa, Nigeria and Angola (the latter two did not sign the agreement two weeks ago) in terms of capital, terms of trade and allocative efficiency, in absolute terms,” says Mureverwi in the report titled “Welfare Decomposition of the Continental Free Trade Area”.
The paper was presented at the 19th Conference on Global Economic Analysis at Washington DC in June 2016.
This study made use of the Dynamic GTAP (Global Trade Analysis Project) model to simulate the welfare effects of a 100 percent tariff liberalisation.
The GTAP is a global network of researchers (mostly from universities, international organizations, or the economic ministries of governments) who conduct quantitative analysis of international economic policy issues, especially trade policy.
“However, many countries experience huge revenue losses from tariff liberalisation, and this tends to water down gains from other variables. African countries are vulnerable to tariff revenue losses from trade liberalisation, and hence must identify alternative sources of income ahead of 2017.
“Countries that are more integrated in terms of tariff liberalisation within RECs (regional economic communities) incur modest tariff revenue losses. Small and vulnerable economies have modest gains mainly coming from terms of trade, and capital accumulation.
“Huge loses are registered in Zimbabwe from terms of trade, revenue and capital gains losses. This is partly due to the fact that Zimbabwe has the highest regional tariffs, and tariff revenue coupled with surcharges contribute over 10 percent to the fiscus.”
Mureverwi says there is therefore a need — especially for countries like Zimbabwe — to come up with innovative alternative sources of income ahead of the launch of the AfCFTA.
The AfCFTA is aimed at eventually bringing together 54 African countries with a combined population of more than one billion people, and a combined gross domestic product (GDP) of more than $1,2 trillion.
The creation of a single continental market for goods and services, with free movement of business people and investments, would help bring closer the Continental Customs Union and the African Common Market envisaged in phases 4 and 5 of the Abuja Treaty, and turn the 54 single African economies into a more coherent, larger market.
Experts say that larger, more viable economic space would allow African markets to function better and promote competition, as well as resolve the challenge of multiple and overlapping Regional Economic Communities (RECs), helping thereby to boost inter-REC trade.
But there are still significant hurdles in the way of this almost-utopic vision.
“Increased trade between African countries holds promise for shared growth and development in the continent. However, before African countries can fully exploit the benefits associated with increased trade with each other, they must first address the barriers to the movement of goods and people within their countries.
“It is difficult to imagine how Africa will be able to move goods from Cape Town to Cairo when it is unable to move goods from one city to another within the same country,” said the trade advisor.