Ratification of the AfCFTA agreement by Tanzania

A win to the private sector

Trading under the African Continental Free Trade Area (AfCFTA) Agreement began on 1 January 2021, following the launch of the operational phase during the 12th Extraordinary Session of the African Union Assembly on 7 July 2019 in Niamey, Niger. As at 7 July 2021, 37 countries had deposited their instruments of ratification with the Chairperson of the African Union Commission who is the designated depositary.

Of the 55 AU member states all bar one has signed the agreement, Eritrea being the exception. However, more progress is required on ratification as approximately one third of the signatory member states have not yet deposited their instruments of ratification. Although Tanzania has not yet ratified, the Tanzanian government recently publicly confirmed that it is in the process of completing the ratification of the agreement, and parliamentary approval is anticipated either in the September or November 2021 parliamentary sessions.

But what are the implications of the agreement?  Well, to start with, it requires members to remove tariffs from 90% of goods and to allow free access to goods and services across the continent. On the imperative for the free trade concept across Africa, Paul Kagame, Rwanda's president and the host of the AU summit in 2018, had no time for sceptics and did not mince his words in saying “some horses decided to drink the water, others have excuses and they end up dying of thirst.” As Tanzanians, I am certain that we do not intend to be that horse that ends up dying of thirst, and so we certainly should be embracing AfCFTA! 

Simply put, the AfCFTA Agreement provides an opportunity to face the current trade and economic development challenges in Africa in a manner that will greatly assist to grow the continent's trade volumes and consequently respective countries' economies. 

But of course, there are a number of challenges that exist to effective implementation and that need to be resolved. These include: high regulatory and tariff barriers to intra-Africa trade; market fragmentation; reliance on the export of primary commodities; smallness of national economies; lack of export specialisation; restricted export base caused by shallow manufacturing capacity and under-developed industrial regional value chains. It is because of these challenges that there is such a low percentage of intra-Africa trade - approximately 16.6% in 2019, as compared with 68.1% in Europe, 59.4% in Asia, and 55.0% in America (UNCTAD Economic Development in Africa Report 2019). More engagement by each country in Africa (including Tanzania) will assist in resolving most of these challenges and with that provide scope for growth for businesses based in Africa. 

So ratification is something that the Tanzanian private sector should look forward to given the potential benefits from this agreement. However, there are also various challenges that have been raised by the private sector for the government and AfCFTA’s secretariat to look into, some of which were highlighted in a recent meeting with the private sector with the current secretary general to the AfCFTA (Mr Wamkele Mene). 

One challenge highlighted was as to how to reconcile the differing interests in AfCFTA, which has a range of countries from those with large and more developed economies to those with small and less developed economies; the question then becomes how will infant sectors be protected to ensure continued growth once a respective country starts trading in AfCFTA? One measure that was highlighted was AfCFTA’s collaboration with the Afreximbank to institute a $1 billion AfCFTA adjustment facility.  Amongst other things, this is expected to enable businesses in the affected sectors to secure funding for expanding capacity, promotion of export and support for small and medium-sized enterprises to increase competitiveness.  In addition, it will assist countries to adjust in a systematic manner for any unexpected significant tariff revenue losses.

A further challenge is as to why AfCFTA should be more successful than other regional economic communities (RECs) which have generally failed to achieve their full aspirations: and yet Africa now wants to adopt a wider REC involving most (if not all) African countries? Is this not seeking to run before you can walk? And, by the way, what will happen to the existing RECs? In addressing this Mr Mene intimated that he sees the other RECs remaining, as they are important implementing partners and should be represented in an AfCFTA Committee of Senior Trade Officials. Their role could include coordinating implementation and measures for resolving non-tariff barriers, harmonizing standards and monitoring implementation.

A final challenge to highlight is the risk that the small and less developed countries become a dumping ground on the implementation of the AfCFTA.  So as to address this concern AfCFTA has put in place extensive rules of origin that regulate the criteria needed to determine the national source of a product which will ensure that goods traded with preferential rates are truly of AfCFTA origin. To ensure inclusivity in this, most signatories have submitted their proposed rules of origin.

From our domestic perspective, all these challenges require forward thinking and intellectual diligence including analysis of how the future Tanzania will be in terms of trade and investment. Tanzania is not a standalone island, it depends on other African countries in terms of trade and investment. Given the natural location benefits that Tanzania has, whether several ports and access to various countries, the ratification of this agreement is likely to mean a boost in trade and investment and so something we should all support.

Godluck Mushi is a Manager - Indirect Tax Services at PwC Tanzania. He has recently returned from a two years secondment with PwC South Africa.