By Mulima Nyambe Mubanga and Shimukunku Manchishi
The African Union (AU) is keen to accelerate regional economic, political and social integration through the establishment of an African Continental Free Trade Area (AfCFTA) aimed at substantially removing all restrictions to trade and investment on the African continent.
Zambia signed the AfCFTA agreement on 10th February 2019 almost a year after the March 2018 launch of the trade agreement at an extraordinary summit of the AU held in Kigali, Rwanda.
Zambia is a member of COMESA, SADC and Tripartite FTAs. An FTA is a trading area where customs duties and quotas have been eliminated on goods and/or services from one country entering another. Despite belonging to the three FTAs, Zambia’s participation in intra-Africa trade leaves much to be desired. The country’s current export pattern is in raw and refined copper, a commodity that is not on demand in Africa accounting for 75 percent of exports.
Under the AfCFTA Agreement, Member States will commit to progressively remove tariffs on 90 percent of goods from all African countries with whom they do not yet have pre-existing FTAs. This will make it easier for businesses to trade within the continent and benefit from an envisaged wider market of 1.2 billion people.
In recent years, the services sector has become a key contributor to the GDP of various African countries, Zambia inclusive. The Agreement also seeks to see more member States open up their services sectors giving opportunity to providers of these services to trade within the continent. In the initial phase of the negotiations, five priority sectors considered among the most dynamic and fastest growing sectors in Africa have been identified to be liberalised. The sectors are business services, financial, transport, tourism and telecommunications.
While market access opportunities are being created, non-tariff barriers (NTBs) have been identified as a major impediment to intra-Africa trade. NTBs are restrictions to trade that do not involve duties or taxes. The Agreement will also work towards addressing challenges related to NTBs.
From an economic perspective, the AfCFTA will offer opportunities for Zambia to penetrate markets outside the COMESA/SADC bloc. According to International Trade Center Statistics, the COMESA/SADC bloc currently accounts for about 99 percent of Zambia’s intra-Africa trade while countries outside this bloc account for the remaining 1 percent. In particular, Central and West Africa as well as parts of North Africa present an opportunity for Zambia to export products once tariffs are eliminated under the AfCFTA.
In order for Zambia to meaningfully benefit from the AfCFTA and access these markets, the country needs to accelerate industrialisation and diversification agendas in line with the Seventh National Development Plan. Sectors such as agriculture and manufacturing are key in this regard as they will position Zambia to realise greater benefits. At present, the bulk of Zambia’s exports are raw mineral or agricultural products. These products are similar to products exported by other countries within the continent. This lack of complementarity and differentiation of export products explains, to a large extent, the low levels of intra-Africa trade. A move towards value addition through industrialisation will ensure that Zambia’s exports are diversified thereby creating an opportunity for export of value-added products to other African countries.
Beyond diversification and industrialisation, Zambia also needs to address challenges related to infrastructure and logistics which will make it easy for business persons to transport their products from the rural to urban areas. In fact, the development of infrastructure should be a concerted effort at continental level where we need to see the acceleration of the trans-Africa highway initiative, a road network connecting major cities in Africa with the aim of facilitating trade.
In addition to opportunities for the export of Zambia’s products to new markets, the AfCFTA will allow for importation of consumables and inputs for industry from countries outside COMESA/SADC into Zambia. Importation of products will be beneficial to consumers in Zambia as it will lead to increased competition resulting in better quality products at a lower price for end consumers. This will also provide consumers with a greater variety of goods, as they will gain access to products from different countries.
For producers, this will facilitate cheaper importation of inputs in the production process and also spur innovation owing to entry of competition. Therefore, the Government needs to accelerate the industrialisation agenda and also improve the business environment in order to make local firms more competitive and ready for the ensuing competition from the AfCFTA.
Free trade offers great benefits for Zambia to diversify and grow the economy, creating jobs and raising incomes. However, to realize the potential gains, we have to go beyond simply signing and eventually ratifying agreements such as the AfCFTA to implementing them and promoting growth sectors.