Unlocking export potential in African markets
Zhas a vision of becoming a“prosperous and empowered upper-middle income society by 2030.” To attain this vision, President Mnangagwa’s Second Republic prioritises production, value addition, and export led economic growth, leveraging on areas where the country enjoys competitive and comparative advantages.
Looking at exports, there are vast opportunities to exploit if local companies ride on bilateral and multi-lateral trade agreements where Zimbabwe is a signatory.
Undoubtedly exports are in their very nature complex and require proper planning and coordination for them to be a success.
This is because, exports involve trade across borders where each territory has its own identity and trade regulations.
However, having agreements in place to facilitate trade and smoothen the whole process gives the appeal that companies are looking for.
In Africa, trade agreements under the Southern African Development Community ( SADC), Common Market for Eastern and Southern Africa (Comesa) East African Community ( EAC) and Economic Community of West African States (Ecowas) have been instrumental in promoting trade amongst Africa nations.
But even with these agreements in place, trade amongst African countries has traditionally been known to be lower, in some cases at less than three percent compared to trade with the rest of the world.
According to the United Nations Conference on Trade and Development, intra-African exports stood at just 16, 6 percent in 2017, compared to 68 percent intra-continental trade in Europe, 59 percent in Asia and 55 percent in the Americas.
From these figures, it is clear that Africa is the only continent that is not trading more with itself.
This is because commodities and natural resources still dominate Africa’s export basket and the continent’s participation in the global value chain has remained minimal.
Over the years, this has encouraged Africa’s trade dependence on markets such as America, Europe and Asia.
To overcome these challenges and promote intra-African trade, 55 African Governments established the Africa Continental Free Trade Area (AfCFTA) which came into operation in January this year.
The formation of the AfCFTA is an attempt to reverse this trend by progressively eliminating 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.
About AfCFTA
The AfCFTA was established in 2018 to create a single market for goods and services, facilitated by movement of persons to deepen the economic integration of the African continent.
The agreement has the potential to become a game changer as it has created the largest free trade area in the world measured by the number of countries participating.
The agreement connects 1, 3 billion consumers across 55 countries with a combined gross domestic product ( GDP) valued at US$ 3, 4 trillion.
The United Nations Economic Commission for Africa estimates that the AfCFTA will expand the size of Africa’s economy to US$ 29 trillion by 2050.
Africa currently has quite a low manufacturing and processing capacity, with limited integration in global value chains.
Furthermore, the continent’s main exports are oil and minerals, which are often processed outside of their country of origin, as many African states have not yet established the necessary industries to process them.
If well implemented, the AfCFTA will help progress Africa’s efforts to deepen industry development and create stronger regional value chains and beneficiation and improve livelihoods of people living on the continent.
According to a report by the World Bank, AfCFTA has the potential to lift 30 million people out of extreme poverty by 2030 and bring some great opportunities for Africa, such as: improving the intra-African trade landscape and export structure; creating a sound global economic impact; developing better policy frameworks; and fostering specialisation; and boosting industrialisation.
Other opportunities are: strengthening regional and inter-state cooperation; increasing employment and investment opportunities; as well as promoting technological development.
Policy adjustments to unlock full potential
So, as the global economy is in turmoil due to the Covid19 pandemic, creation of the vast AfCFTA regional market is a major opportunity to help African countries diversify their exports, accelerate growth and attract foreign direct investment.
Achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures.
For example, the implementation is complex and poses significant adjustment costs f or member countries.
Moreover, countries with weak infrastructure, low technological uptake or those hurdled with conflict, will threaten the implementation and success of the agreement.
Creating a continent-wide market will require a determined effort to reduce all trade costs.
This requires Governments to put in place legislation and regulations to enable the free flow of goods, capital and information across borders.
This also requires competitive business environments that can boost productivity and investment, promote increased foreign competition and foreign direct investment that can raise productivity and innovation by domestic firms.
They will need to design policies to increase the readiness of their industry and workforces to take advantage of new opportunities arising from the AfCFTA.
If all these aspects are prioritised by Government and well addressed, then Africa will be more self-sustainable and create value addition systems that will equally benefit companies across the continent.
By increasing regional trade, lowering trade costs and streamlining border procedures, full implementation of AfCFTA would help African countries increase their resilience in the face of future economic shocks and help usher in the kinds of deep reforms that are necessary to enhance long-term growth.
Some opportunities for local exporters
The continent-wide free trade area presents immense opportunities for local businesses to diversify their exports as well as open better access to raw materials from the rest of Africa.
With access to more raw materials, technologies, and a larger market, the AfCFTA will allow Zimbabwe to improve its export basket, currently dominated by commodities and low-value-added products, to include higher-value-added products that yield higher returns.
The obvious question of cause is: what opportunities are there in African markets?
Horticulture remains one of the key foreign currency earners for Zimbabwe and is a low hanging fruit that can be used by local businesses to establish and increase market share.
In addition, from 2000 to 2017, intra-African trade was dominated by food and manufactured goods and this is an area that Zimbabwe already enjoys some comparative advantage.
From the trade figures last year, one of the sectors that had a major boost in exports is processed foods, which is fed by the re-emerging agriculture sector.
With the industrial infrastructure in place, coupled with re-tooling exercise, the country can be a hub for processed foods exports.
Zimbabwe has some of the leading value-added products such as cordials and other soft drinks that are in demand across the globe.
These could be used as key products to support growth of export earnings.
In addition, a look at statistics from the ITC’s Trade Map shows that major import products in Africa in 2019 comprised mineral oils, pharmaceutical products, plastic products, machinery and machinery spares, vehicles, chemicals and chemical products, products of iron and steel, products from the printing industry (books, magazines), cereals, rubber products, as well as clothing and textile products.
There are areas within this import structure that local companies can exploit.
For example, the quality of Zimbabwe’s cotton is among the best in the world as the country previously used to produce and export fabric across the globe.
Support to the cotton value chain, which promotes beneficiation of our cotton, is one of the interventions that can prepare Zimbabwe to benefit from this continental trade agreement.
Further to this, Zimbabwe currently has abundant raw hides that can be value-added through processing into various leather products.
Currently, there are eight tanneries in Zimbabwe, and these can produce leather products for exporting into the region, whilst setting up pace to supply the rest of the continent.
Going forward, the potential to grow exports of these products is high and with increased capacity utilisation and lowered trade barriers, the country will be able to tap into this ‘new’ continent-wide market.
As outlined in the current Zimbabwe National Industrial Development Policy and National Export Strategy, the country aims to grow its exports of value-added products and several policy interventions have been outlined that will promote innovation and capacitate industry growth and ultimately exports, ensuring Zimbabwe’s successful participation in the AfCFTA.