Africa’s 32 Least Developed Countries (LDCs) have secured a 13-year reprieve to protect their sensitive economic sectors from duty-free imports under the African Continental Free Trade Area (AfCFTA) agreement, in a major concession aimed at securing their ratification of the deal.
The matter of tariff concessions has been a sticky issue for the LDCs, which have expressed fears that implementation of the AfCFTA agreement beginning July 1 next year will lead to heavy revenue losses.
The LDCs, which constitute over 50 per cent of Africa’s 55 countries, are still heavily dependent on the trade taxes to fund their national budgets.
Only about 15 per cent of trade by African countries takes place within the continent, with most commodity-dependent countries shipping out their goods to global partners.
“Despite low levels of intra-Africa trade, tariff revenue is still an important source of government revenue, and remains an important measure to reduce import competition and so protect domestic industry,” said Benedict Musengele, the acting director in-charge of Trade, Customs and Monetary Affairs Department at the Comesa Secretariat in an interview with The EastAfrican.
Tariff liberalisation is however only expected to lead to a limited expansion in intra-Africa trade.
Exchange of goods and services on the continent is still highly concentrated within the regional economic communities (RECs), with more than half of the total trade taking place in the Southern African Customs Union (SACU), and more than 65 per cent in the Southern African Development Community (SADC).
The 13-year reprieve comes at a time when the Africa Export Import Bank (Afreximbank) has announced a $1 billion financing facility to support countries to adjust in an orderly manner to the sudden revenue losses as a result of the implementation of the AfCFTA agreement.
The AfCFTA member-countries have agreed to liberalise 90 per cent of their tariff lines with the remaining 10 per cent divided into two categories, where seven per cent are classified as sensitive products while three per cent is to be totally excluded from the requirement to liberalise.
The EastAfrican has however learnt that a distinction has been drawn between LDCs and non-LDCs when it comes to tariff negotiations.
According to the Comesa Secretariat, LDCs have 10 years to achieve 90 per cent tariff liberalisation, while non-LDCs have five years. On the other hand, LDCs have 13 years to eliminate tariffs on sensitive products and may maintain their current tariffs for the first five years, and progressively eliminate import duty during the remaining eight years.
Non-LDCs have 10 years to eliminate tariffs on sensitive products and may also retain the status quo, and start liberalisation in the sixth year.
Both LDCs and non-LDCs may exclude three of tariff lines from tariff liberalisation although the excluded products should not account for more than 10 per cent of their total trade.
It is argued that although the AfCFTA, which was officially launched at the 12th Extraordinary Summit of the African Union in Niamey, Niger July 7, enjoys considerable political support, individual member states still face difficult choices.
Africa’s economies vary considerably in size, levels of economic development and diversification and without exception they face challenges to create jobs, develop their industrial sectors and diversify their production capacity.
A study carried out by the United Nations Conference on Trade and Development (Unctad) in 2016 shows that boosting intra-African trade will require tariff liberalisation of tradable goods to be accompanied by the removal of non-tariff barriers, reform of the services sector and improvement of trade facilitation measures.
“With holistic reform of market access and entry conditions among African countries through the continental free trade area, the continent can expect to see the share of intra-Africa trade on the total continent trade to rise significantly, and doubling within 10 years,” said Unctad.
According to Mr Musengele, there is still a lot of work to be done before goods or services can be traded under the AfCFTA regime next July.
The AfCFTA agreement is being negotiated in two phases with Phase 1 covering trade in goods, and services as well as dispute settlement. However, tariff concessions are still to be negotiated among the member states while negotiations on the rules of origin are yet to be finalised. When it comes to trade in services, the specific commitments are yet to be negotiated.
Phase 2 of the negotiations will focus on co-operation on investment, competition and intellectual property rights.
The launch of the AfCFTA seeks to create a single market of over 1.2 billion people and open up markets with a combined $3 trillion in GDP, which is currently dominated (at least 50 per cent of it) by South Africa, Egypt and Nigeria. All the countries, except Eritrea, have signed the agreement while 27 have ratified it.
The idea to launch the AfCFTA was mooted in 2012 to promoting country to country trade, boost economic growth, increase the competitiveness of the continent’s economies and create employment. Negotiations were launched in Johannesburg, South Africa in 2015, where the heads of states and governments issued a timeline of two years to complete the negotiations.
The negotiations were completed in December 2017 in Niamey Niger and the report presented to the heads of states and governments in January 2018, leading to a signing ceremony on March 21, 2018 in Kigali Rwanda, where 44 countries immediately signed up.
On April 29, the agreement received the minimum threshold of 22 ratifications for it to come into effect. However, the pact legally came into force on May 30 in line with the provisions of the agreement which binds member countries to put into operation the free trade area 30 days from the day the 22nd country ratified the agreement.
The 32 LDCs benefitting from the reprieve are: Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, South Sudan, Sudan, Togo, Uganda, Tanzania and Zambia.
There is also a further group of countries referred to as the G6 which have argued that they face specific development challenges and they have managed to secure a 15-year phase down period to progressively eliminate import duties on 90 per cent of their tariff lines.
These countries are Ethiopia, Madagascar, Malawi, Sudan, Zambia and Zimbabwe.