Industry not ready for AfCFTA: CZI
THE country’s manufacturing sector is currently seriously constrained to take full advantage of the opportunities to be created by Africa Continental Free Trade Area (AfCFTA) trading block, according to industry representative body the Confederation of Zimbabwe Industries (CZI).
The business membership organisations said the local industry has gone through several years of deindustrialisation, decline in local value chains and limited retooling and this puts it on the backfoot when it comes to its readiness to participate fully under AfCFTA.
AfCFTA is flagship project of the African Union’s Agenda 2063, which aims to boost intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states, covering trade in goods and services, investment, intellectual property rights and competition policy.
It brings together 55-member states, a 1,3 billion people market with a combined Gross Domestic Product (GDP) of more than US$3,4 trillion.
Estimates from the Economic Commission for Africa (UNECA) suggest that the AfCFTA has the potential to boost intra-African trade by 52,3 percent through elimination of import duties.
It is estimated, for instance, that the removal of tariffs on intra-African trade could raise their share in total African trade from about 10,2 percent to 15,5 percent from 2010–2022.
According to CZI, in its latest Quarterly Business and Economic Intelligence Report, the removal of tariffs on intra-African trade could raise their share in total African trade from about 10,2 percent to 15,5 percent from 2010–2022. With enhanced trade facilitation measures, the gains would double to reach 21,9 percent. AfCFTA means Zimbabwe will have access to other African markets and is expected to open its markets to African competitors.
But as things stand now, Zimbabwe, and the industry, in particular, are not ready to take advantage of the AfCFTA.
“Given years of deindustrialisation, decline in local value chains and limited retooling, the local industry is constrained to take full advantage of the AfCFTA,” reads part of CZI’s 2021 first-quarter business survey.
CZI said capacity utilisation, which was recorded at 47 percent in 2020 is significantly low hence firms would not be able to “enjoy economies of scale that reduce per unit cost of production to render exports price competitive”.
Further, CZI said, the high cost of doing business environment emanating from over regulation, heavy taxation, complex import and export procedures, utility and infrastructure deficiencies further constrain AfCFTA readiness for business. Industry needs to come up with long term export strategies that take the AfCFTA into consideration such as growing export markets and retooling /upgrading production processes to become efficient and be able to competitively compete with the rest of the continent, the industry representative body said.
It said steps will have to be taken at national level to develop local value chains if local industry is to be competitive under AfCFTA.
“The country also needs to develop its local value chains to ensure that most of the raw materials needed for industry are sourced locally and not rely on importation from countries that would also be competitors.”
The local industry is heavily dependent on imported raw materials ranging from agriculture commodities, industrial and home chemicals, iron and steel products and packaging material. According to the Reserve Bank of Zimbabwe, 69,3 percent or US$639,2 million of the funds allotted through the Foreign Exchange Auction System, for the period January to June 2021, were towards procurement of raw materials. The imported raw materials include maize, crude soyabean, and wheat, products that potentially, can be manufactured locally.
“There is need to create mutually reinforcing value chain linkages between agricultural and non-agricultural sectors of the economy.
Agriculture production must be strengthened while policies aimed at incentivising mineral beneficiation are critical.
Industry must “undertake enhanced value addition and beneficiation to produce high-end goods from gold,platinum and other commodities that are currently exported in semi-finished form,” said CZI.
The business lobby group called for robust implementation of strategies and policies by both the Government and the industry to ensure that the country is ready to take advantage of the AfCFTA.
It said there is need to expedite “ease of doing business reforms to attract both foreign and domestic investment.
“These include streamlining domestic taxes, and simpler import and export procedures for trade.
“The Government must tax for growth not for revenue collection to allow business to compete on the international market.”
CZI said the Government must negotiate for more time in AfCFTA for liberalisation to allow for domestic industry to retool and upgrade production processes.
On its part, industry must leverage on the NDS1, which prioritise soyabean, fertilisers, cotton, sugar cane, dairy sector and leather, under the agro-value chains.
The private sector is expected to pursue initiatives to develop local value chains and integrate them into existing regional value chains in SADC.
Industry must invest in export market research and development outside the SADC region, CZI suggested.