Take Bold Actions on AfCFTA, African Nations Urged

Abimbola Akosile

African nations have been urged to take bold actions to realise the promise of the African Continental Free Trade Area (AfCFTA).

The call was made by the United Nations Under-Secretary-General and Executive Secretary of the UN Economic Commission for Africa (ECA) Dr. Vera Songwe, who said this was necessary to achieve Africa’s development goals.

She made the remark in Addis Ababa, the Ethiopian capital, at the meeting of the Committee of Experts, preceding the 51st Session of the Conference of African Ministers of Finance, Planning and Economic Development. The meeting begins on Monday.

The 2018 edition is themed: ‘African Continental Free Trade Area and Fiscal Space for Jobs and Economic Diversification’. The ECA envisages this agreement as an instrument to reposition the African continent as a competitive player in the global economic arena.

According to Songwe, the most important and urgent action is to create the fiscal space needed to foster both public and private investment, while ensuring economic diversification with the view to creating jobs.

“Now we must seize the momentum at hand to focus on how to operationalise the AfCFTA agreement, in a manner that realises its potential to the benefit of the average African. Our collective market potential cannot be under-estimated, as incomes rise and the middle-class continues to grow.
“Household spending is expected to grow at 3.9 per cent per annum to reach $2.1 trillion and corporate spending is expected to reach $3.5 trillion by 2025.

“Taking the opportunities created by AfCFTA, this is an opportunity for corporate Africa to leverage these expansions and boost its economic growth. Through implementation of the agreement, we can generate the kind of growth that can support economic diversification, industrialisation and development,” she said.

The ECA boss disclosed that manufactured products make up 46 per cent of intra-African trade and only 22 per cent of Africa’s trade with the rest of the world.

“So, boosting intra-African trade through the AfCFTA is likely to support the continent’s industrialisation. Indeed, according to our estimates, the AfCFTA would increase Africa’s industrial exports by over 50 per cent by 2022,” she said.

Dismissing the fears that the AfCFTA would lead to losses of tariff revenues to individual countries, Songwe contended that the impact of the Agreement on fiscal revenues is likely to be minimal.

“Intra-African trade is only a small share of Africa’s total trade. Most of the trade is already liberalised under Regional Economic Communities Free Trade Agreements (REC-FTAs).

“Countries will be allowed to exclude a certain number of tariff lines from liberalisation as intra-African trade tends to be highly concentrated in a small number of tariff lines.

“It may be possible for countries to exclude a large share of the tariff lines that are important for raising tariff revenue if they need to do so. As a result, tariff revenue losses will be limited.

“Tariff revenues are not even the largest source of government revenue for African countries –they account for only around 15 per cent of total tax revenue in Africa.

“Tariff reductions in AfCFTA are to be phased in gradually, over a period of 5 years for developing countries and 10 years for least developed countries, or 10 years and 13 years respectively for sensitive products,” she said.

The ECA boss nevertheless, stressed that these tariff revenue losses may be outweighed by the additional revenues from growth to be generated by AfCFTA.

As outlined in the ‘Issues Paper’ for the Conference, AfCFTA is expected to increase GDP by between 1 to 6 per cent, which is expected to broaden the tax base and boost revenue collection from other sources.

According to Songwe, however, these estimates are likely to substantially under-estimate the economic benefits of the AfCFTA as they do not take into account the impact of liberalisation in services and investment.

“Initial modelling of the impacts of services liberalisation under AfCFTA, for example, suggests that it will produce significant additional economic gains,” she said.

NAN reports that the AfCFTA agreement was signed on March 21 at the 10th extraordinary Summit of the African Union Heads of State and Government by 44 African countries. Nigeria is yet to sign onto the agreement.

Additional six countries later signed the Kigali Declaration and committed to signing the African Continental Free Trade Area, following the finalisation of domestic review processes.