KABERUKA: African citizens to gain the most from trade deal

Donald Kaberuka is currently a member of nine eminent Africans tasked with reforming the African Union. PHOTO | NMG

What you need to know:

BIO

  • Background: Donald Kaberuka is currently a member of nine eminent Africans tasked with reforming the African Union.
  • Education: He has a PhD in Economics from the University of Glasgow, Scotland.
  • Experience: He served as the president and chairman of African Development Bank from September 2005- 2015 and also served as its chairman of the Board.
  • Works: He serves as the senior advisor at TPG Capital, L.P and as the chairman and non-executive director of Centum Investment Company Ltd.

More than 40 countries signed the protocol to the treaty establishing the African Continental Free Trade Area (AfCFTA) in Kigali.

The AfCFTA faces hurdles, but the eminent African tasked with reforming the African Union, Donald Kaberuka, remains optimistic. He spoke to Berna Namata.

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Do you see the AfCFTA enhancing regional integration?

Before the AfCFTA, there were advanced talks on a tripartite area to bring together the EAC, SADC and Comesa, which could have covered about half of Africa. This trade deal is an acceleration of that process.

Second, what we have learnt in this region is that it is possible to increase trade once you bring down tariffs as we have done in East Africa, because the level of trade within the region has almost reached the Association of Southeast Asian Nations levels — just under 30 per cent. This is very significant. We now know that tariffs were not the most difficult thing to overcome: It is non-tariff restrictions.

I hope and expect that as we launch the AfCFTA, we will bring these lessons to bare. There are gains to opening up, but we need to work hard on logistics, non-tariff restrictions and freedom of movement of people.

There are several issues that need to be settled to make the AfCFTA agreement effective, but they require stronger political commitment. How much of a concern is this?

I wouldn’t say political will as such; it is how you address the fears of those who think that when you come together, it is a zero-sum game. There will of course be winners and losers.

But once we address those fears, business leaders will then be the champions for it because some countries are not signing because firms want protection against competition.

At the end of the day, it is the population that will gain in terms of more jobs, more investments and lower costs of doing business as well as lower prices.

To what extent are the fears justified?

The most important issue is the rules of origin and it has always been controversial. When you open up your market, you do not want non-members of the AfCFTA coming to invest in one country and exporting goods to your market. The rules of origin and the level of the content that is needed to qualify a good as emanating from the AfCFTA is extremely important. We need to work on this.

Second, we need to provide for temporary measures where a country feels that a particular sector or industry may be at risk.

Third, suppose there is a dispute resolution, how can it be resolved without causing a tariff war?

If these issues are addressed, we could be in a good space.

The AfCFTA comes at a time when the continent is facing uncertainty over a multilateral trading system, which could undermine the effectiveness of the agreement. How best can Africa forge ahead?

Let me begin with the failure of the World Trade Organisation since Seattle in 1999. Attempts to have a global rule-based system have not succeeded.

The WTO negotiations known as the DOHA development round, meant to front-load development and interests of low-income countries has not happened. Instead we are seeing renegotiations of different regional pacts such as the Trans-Pacific Partnership.

This is the right time for Africa to come together; not locking ourselves from the rest of the world — because we need capital and technology.

I think to create a large market such that investors know — that for instance by setting up a manufacturing plant in Ethiopia or Rwanda — they have access to a bigger market.

This way, we will provide an answer to the failure of multilateral solutions.

How do we get Africa to speak in one voice in this process of reform because it is increasingly facing resistance from some of its traditional partners?

Economic integration is never a one-bullet solution; it takes time, there are lots of pressures and fears. I think the most important thing is for Africans to give priority to the CFTA and use it as the basis for negotiating with other parts of the world for agreements that work for both sides.

The time is now to say we have our free trade area. It is not a customs union yet, which means that each country can have its own external tariffs vis-a-vis the external partners, but the more we give priority to the CFTA as opposed to agreements with external partners, the faster the CFTA will move.

The proposed new financing mechanism for the African Union is facing resistance, which might undermine its effectiveness. How will this issue be addressed?

The main issue wasn’t the financing — it was about sharing the burden because the current AU formula means that about 60 per cent of the budget is funded by five countries. This has been addressed by putting caps on how much each country can pay. In fact, the share of top countries contributing to the AU’s budget is now limited to 40 per cent. Before it was about 60 per cent.

The second issue, which has been addressed, was will the trade deal raise revenue for AU? Under the leadership of President Paul Kagame, the process is under way to reform the expenditure side of the organisation. There are countries who can raise the money, but they want to know how it is spent, which I agree with.

Would an independent self-financing AU be in the interest of everyone in the world? In theory yes.

In recent months we have seen a lot of backlash and caution about African countries accumulating debt from China. What is your view?

We should separate the two; first of all there is the issue of debt sustainability and number two, bilateral relationships.

Debt — irrespective of where you get it from — has to be well managed. You have to borrow carefully, invest wisely and ensure that you have adequate debt management capabilities; these are the golden rules of borrowing.

I don’t buy the view that majority of the countries are at risk levels; yes one or two countries have to be careful, but I think the majority are in what I consider tolerable limits of debt management.

And the end of the day, Africa has to build its infrastructure, and access to capital markets is a very good thing especially right now when the markets are favourable. The concern for me is more about how we are investing that money and whether we have capacity to manage this debt.

What is your assessment of the debt management capabilities in the region?

We need to increase capacities in central banks. In my view, some countries need to step up independent debt management offices. But I do believe that at least in East Africa the debt levels are still manageable as long as we invest well and grow the economies.

For me the issue is what we use the money for. If you build railways, dams, invest in manufacturing that’s the right thing to do.