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Competitiveness Key to AfCFTA’s Success

27 MAY, 2021 - 00:05 

The African Continental Free Trade Area (AfCFTA)

Tawanda Musarurwa

Senior Business Reporter

Africa this week commemorated Africa Day 2021 under the theme “Arts, Culture and Heritage: Levers for Building the Africa we Want”, but the lever that could make all the difference going forward is the African Continental Free Trade Area (AfCFTA), which became a reality on January 1 this year.

The Organisation of African Unity (OAU) was founded in May 1963 in Addis Ababa, Ethiopia, by 32 African states with the main aim of bringing the African nations together and resolve the issues within the continent. On September 9, 1999 the Heads of State and Government of OAU then issued the Sirte Declaration, calling for the establishment of an African Union (AU), with a view — inter alia, toward accelerating the process of unity among countries of the continent, enabling it to better participate in the global arena.

But as the continent celebrates Africa Day, the latest offering on the economic front, the AfCFTA, has created a market with a combined gross domestic product (GDP) of over US$3 trillion.

“The biggest benefit is that the free trade area will increase intra-regional trade, with benefits accruing to countries from a market that is quantified in terms of Africa’s total GDP,” said economist Persistence Gwanyanya.

“It also comes with other macroeconomic benefits, including employment creation as well as foreign currency retention within the continent, which help in economic rebalancing.

“For long, Africa has been a resource-based continent, so the AfCFTA will help its various economies to diversify by increasing and broadening manufacturing.”

Boosting Africa’s manufacturing sector will also ensure that it becomes a key player on the global economy, beyond being a supplier of raw materials.

China’s rise in recent decades to become a global economic powerhouse points to this fact; to the extent that China drives global manufacturing, it is also deterministic of global cycles.

Zimbabwe has already ratified the AfCFTA Agreement, whose operationalisation commenced in January this year, and is in the process of fine-tuning the tariff offer framework.

But the country’s industrial players in particular cannot afford to enter US$3 trillion marketplace willy-nilly.

Zimbabwe’s industrial firms have for a while now been bogged down by high cost of capital and a complex doing business environment, which makes their products expensive compared to those produced by their peers in the region.

It is vital that local manufacturers are competitive.

Government is putting in place measures to ensure that local players are competitive, including reviewing export incentives.

Said Industry and Commerce Minister Sekai Nzenza last week: “The recent promulgation of the export incentive schemes by the Ministry of Finance and Economic Development, provides an opportunity for the players to penetrate both the regional and the international markets.”

Earlier this month, Government through the Reserve Bank of Zimbabwe (RBZ) announced an incremental export incentive scheme to boost the country’s exports.

In terms of the new incremental export incentive scheme, all exporters currently retaining 60 percent of their foreign currency receipts will have their retention threshold increased to 80 percent.

And exporters licensed under the Special Economic Zones currently retaining 60 percent now have their threshold increased to 100 percent, the same as exporters listed on the Victoria Falls Stock Exchange (VFEX).

The Confederation of Zimbabwe Industries (CZI) has identified the current lack of affordable long-term financing as a major constraint among its members that has been inhibiting manufacturing output.

The unavailability of cheaper and long-term funding, needed for refurbishing run-down machines as well as for boosting production for expansion purposes has contributed to weakening capacity utilisation in the sector, which ranged at about 36,4 percent in 2019.

In 2020, industrial capacity rose to 47 percent.

But other factors need to be addressed is the country is to be competitive at AfCFTA level.

Zimbabwe’s manufacturing sector has also over the years seen a proliferation of new indigenous players coming in, however, these have struggled to access working capital as a result of their size.

But efforts are being made to boost the capacities of these budding enterprises. The central bank recently availed a $500 million facility for small-to-medium enterprises, that is being disbursed by banks.

Mr Gwanyanya says uncompetitive countries are unlikely to fare well in the wider market.

“AfCFTA will increase competition amongst African countries, so uncompetitive countries/firms are unlikely to see the benefits of the new Free Trade Area.”