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AfCFTA: Big hurdles lie ahead

Opinion & Analysis
BUSINESS leaders and trade analysts have called for a complete overhaul of systems and procedures that may militate against Zimbabwe’s efforts to benefit from the recently launched African Continental Free Trade Area (AfCFTA).


BUSINESS leaders and trade analysts have called for a complete overhaul of systems and procedures that may militate against Zimbabwe’s efforts to benefit from the recently launched African Continental Free Trade Area (AfCFTA).

In a bid to boost trade with African peers, Zimbabwe joined AfCFTA at inception on January 1, marking an important step towards a broad commitment by governments to create a single market for goods and services.

The trade pact also seeks to facilitate flawless movement of the region’s citizens, promote industrial development and sustainable, inclusive socio-economic growth.

AfCFTA brings together 54 of Africa’s 55 member states, covering a market of 1,3 billion people with a growing middle class.

Its combined gross domestic product (GDP) — the total amount of goods and services produced in the region — is more than US$3,4 trillion, making it the world’s largest free trade area by number of participating countries, according to experts.

Estimates from the Economic Commission for Africa suggest that AfCFTA has the potential to boost intra-African trade by 52,3% by eliminating import duties, and to double this trade if non-tariff barriers are reduced.

The World Bank estimates that the trade pact could boost regional income by 7% or US$450 billion, speed up wage growth and lift over 30 million people out of extreme poverty by 2035.

But many experts still feel that Zimbabwe is not yet ready, and here is how; the country’s export basket is dominated by primary commodities such as minerals and domestic firms are ill-equipped to take on the big producers in a liberalised Africa.

Zimbabwe’s exports have averaged US$4 billion annually against an import bill of US$6 billion in the past decade.

The country has been saddled with a trade deficit of US$2 billion annually — which is unsustainable.

The manufacturing contribution to total exports, according to official figures, has gone down from 40% in the 1980s to less than 15% currently.

Exports of services have also stagnated at an average of US$500 million annually — contributing around 10% to total export earnings.

In terms of markets, exports continue to be limited to a few traditional markets, mainly South Africa and a few Sadc countries.

Exports to Europe, China and the Americas remain well below potential, according to Foreign Affairs and International Trade minister Frederick Shava.

Zimbabwe National Chamber of Commerce (ZNCC) vice-president Golden Muoni says the exportation of primary commodities means Zimbabwe may struggle to benefit from the bigger market.

“The AfCFTA is a market of 1,3 billion people but Zimbabwe is importing a lot of goods which are finished and at the same time we  celebrate saying we have done US$4 billion of exports,” Muoni said during a meeting to review the AfCFTA deal recently.

“What are we exporting? We are exporting primary goods like tobacco, gold, platinum, coal. Are we doing ourselves any favour? We are dealing with non-renewable resources which can be depleted in the next 50 to 100 years. What are we going to do for other generations which are going to come after us?” he asked.

“If you are exporting raw chrome to China or wherever in Europe and the same things are coming back in the form of jewellery, cars, etc, how are we benefitting?” he asked.

“To those markets where we are exporting, they are depositing, they are not using everything. They might be using about 5% of what they are importing from Africa, from Zimbabwe and the remainder is deposited to use for the next generations. But Zimbabwe is saying we have exported US$4 billion. We need to export US$4 billion of finished products.”

Industry officials who spoke to Weekly Digest cited foreign currency shortages, obsolete equipment, power constraints, lack of cheap funding, expensive utilities, shortage of raw materials among others as major impediments to AfCFTA.

Confederation of Zimbabwe Industries (CZI) Matabeleland chapter president Shepherd Chawira agreed with his ZNCC counterpart, warning that unless several setbacks are addressed, AfCFTA might not work in Zimbabwe’s favour.

“The same challenges which have dogged us for many years are the ones which are causing a challenge for us to be competitive. The biggest challenge is retooling. We have antiquated machinery and the financing model in the economy at the moment is not promoting any retooling. We are not competitive. The other problem is we are a high cost producing nation,” he said.

“We are just talking about fuel which has gone up; we are the most expensive in the region in terms of fuel. All these costs do not make us competitive at all. We are likely going to be overtaken by other economies. Some of our products will disappear because we won’t be able to sell them to the market. We must put our house in order. We need to work on our capacity utilisation.”

The CZI says capacity utilisation increased to 47% last year, from 36,4% in 2019.

Zimbabwe’s low manufacturing capacity utilisation means that local industries cannot compete with regional peers such as those from Zambia, South Africa, Angola and Namibia that have enjoyed longer periods of economic and currency stability, and policy consistency.

“There are a number of areas where we need to work on. Government needs to take care of our utilities because they are very expensive. Our fuel is very expensive; hence our cost of production is very high compared to the region. That has an impact on our competitiveness,” Chawira says.

Experts say Zimbabwe’s competitiveness and productivity gap is huge, which renders the country incapable of competing with the rest of Africa.

They also opine that the country must address challenges in the agricultural sector.

In addition, other major setbacks for Zimbabwe to benefit from the trade pact include complex taxation procedures, policy inconsistency—especially on monetary reforms—inefficient foreign exchange policies and porous borders that make it hard to prevent smuggling.

Shava says in addition to several hurdles already being faced by exporters, he will be championing a strategy to diversify exports.

“The private sector needs to play its part while the government does its part to facilitate production of goods and services for export. Due to the small size of our internal market, it is important that our companies employ aggressive marketing strategies,” he says.

AfCFTA secretary-general Wamkele Mene acknowledges that not all countries will benefit immediately, but promises to work hard to get everyone on the same page.

“We want to work hard to make sure we prevent this divide from being entrenched, this divide between African countries that have a relative industrial base and those that do not have an industrial base ,” he says.

“One way of doing that is establishing value chains so that we allow countries to advance their own value chains. But more importantly, we are working with Afreximbank to ensure that we establish an adjustment fund which will be aimed at assisting countries who will experience short-term revenue losses,” he says.

The AfCFTA boss says an adjustment fund was critical for industrial development for productive sector investment.

To help AfCFTA member countries better adjust to the fiscal and other impacts of the trade agreement, Afreximbank is working with the African Union to introduce a US$5 billion AfCFTA adjustment facility, a compensation mechanism.

The facility would cover the short-term fiscal losses and support medium-to-long term adjustments of production activities in African countries to enable them to take advantage of the opportunities arising from the AfCFTA.

In its latest report, ZimTrade — the country’s export promotion body — says for Zimbabwean businesses, successful harnessing of the benefits will require local businesses to leverage on areas where the country enjoys comparative advantage.

These include horticulture, processed foods, leather and leather products, farm inputs and implements, construction and engineering.

“Horticulture remains one of the key foreign currency earners for Zimbabwe and is a low hanging fruit that can be used by local businesses to establish and increase market share in other African countries.  Value addition for horticulture producers would also ensure that local enterprises earn more, whilst creating jobs for the nation’s youths,” it says.

“Local companies will also need to use regional markets as a gateway to the rest of the continent.  For example, Zambia is one of the largest trading partners for Zimbabwe and can serve as a gateway to the Democratic Republic of Congo, Tanzania, and Eastern Angola,” ZimTrade says.