Economists cautious as US$3,2 trillion bloc starts
WHEN South African President Cyril Ramaphosa delivered his New Year message at the beginning of this month, he described the establishment of the African Continental Free Trade Area (AfCFTA) as “the start of a new era on trade between African countries”.
Ramaphosa, who is also chairman of the African Union, was bullish about the prospects for Africa, as trade kicked off quietly in a region where trade between peers accounts for only 15 to 18%.
With an estimated 1,2 billion population the AfCFTA pact created a US$1,3 trillion single Africa market that members hope will scale up trade beyond the 18% and lift a range of struggling economies.
But achieving this important goal will require member States to follow through AfCFTA’s roleout by eliminating barriers.
This can be achieved by following a defined road map that will level the playing field and address inequalities between Africa’s economies.
The Institute for Security Studies in South Africa says addressing such inequalities may pile pressure on big economies to reduce their tariffs.
However, the effects of this will take time to be felt.
The new bloc projects that by 2034, 90% of tariffs will have been eliminated.
But last week, Zimbabwean economists said while the big bloc presents opportunities for growth, weak economies like Harare will still require some levels of protection to avoid the collapse of fragile industries.
That may be an outright diversion from the tenets of free market economics being pursued worldwide.
But the worry is, an avalanche of cheaper, even higher quality goods expected to flow into the domestic markets as the bloc takes shape and this will present the biggest threat to domestic industries.
These have been manufacturing goods at high costs using the stronger United States dollar.
Economists predicted that these firms will struggle to ship goods to the market at competitive prices.
Besides, the quality of domestic products has been compromised by lack of capital and old industrial machinery, all of which may force the market to rely on imported products.
“To some extent this (AfCFTA) is a timely initiative to the economy as it forces local industries to innovate with speed in matching up with regional competition,” said investment analyst Enock Rukarwa.
“On the downside, Zimbabwe as a whole is still an infant industry requiring some level of protectionism for it to survive. More so the country is using a strong currency, the United States dollar. This situation makes our exports relatively expensive compared to other African countries. Devaluation of (a) currency is usually encouraged to promote exports,” said Rukarwa.
He said for AfCFTA to benefit Zimbabwe, the country must explore sectors where it has a competitive advantage over its peers and work towards improving capacities among producers in those industries.
“As a country, we need to be clear on commodities which have a comparative advantage and sufficiently capacitate such areas for maximum benefits,” he said.
Economic analyst Tawanda Purazeni said Zimbabwe’s high inflation rate and a weak currency would also be important factors in determining how it would fare in intra-Africa trade.
At about 350%, Zimbabwe has the highest year-on-year inflation rate in Africa and its economy is one of the most brittle, under pressure from exchange rate volatilities and low exports that have hit the balance of trade.
“The state of our economy cannot see us reap maximum benefits from this grouping,” Purazeni said.
“Since there will be few or no trade barriers in the form of tariffs or quotas, the volume of international trade in real terms is bound to increase. The challenge with our country is that there is under-production in the primary and manufacturing sectors. The high production costs also make Zimbabwe uncompetitive in such a bloc. Our net importer status is inevitably going to be exacerbated since the locals will be opting for the cheaper imports. The balance of payment for the country will plunge further into deficits,” he said.