African countries have formed the African Continental Free Trade Area (AfCFTA) an agreement that will see African countries open their markets for each other, remove tariffs, and boost trade. At least 30 countries, including Uganda, have signed and ratified the agreement.
The East African Community countries will continue to source their key products from outside Africa even when the free trade agreement for the continent finally comes into force, a new study has said.
African countries have formed the African Continental Free Trade Area (AfCFTA) an agreement that will see African countries open their markets for each other, remove tariffs, and boost trade. At least 30 countries, including Uganda, have signed and ratified the agreement.
Researchers Isaac Shinyekwa, Enock Bulime, and Aida Kibirige from the Economic Policy Research Centre- EPRC analysed key products that the EAC imported between 2001 and 2018 and their source.
They show that the rest of Africa, meaning countries outside the EAC, does not have the competitive edge in the production of these products that the EAC imports most.
This means that even upon free trade arrangement start, the rest of Africa will not be able to supply these products to the EAC, researchers argue.
“This will potentially result in a loss of welfare arising from the inability to competitively supply these key products,” they write in July 2020 paper.
The key products the EAC imports from outside Africa include mineral fuels and oils. These fuels include petroleum coke used in cement, power, glass, and steel factories. Others are petroleum bitumen and other residues of petroleum oils or oils obtained from bituminous minerals. These make up the biggest share of EAC imports from outside Africa.
Other products that will continue to come from outside Africa include machinery, vehicles, electrical machinery, pharmaceuticals, iron and steel, plastics, and cereals.
“It is worth noting that these large share imports are unlikely to be satisfactorily produced and supplied by the rest of Africa to the EAC,” the paper says. “Without conscious strategies and requisite investments at the continental level, the EAC region will continue to import from outside Africa rendering the AfCFTA ineffective and redundant,” the researchers note.
“Therefore signing agreements to liberalize trade is a necessary but not a sufficient condition to increase intra-African trade.”
China, India, United Arab Emirates, South Africa, Saudi Arabia and Japan are the sources of major imports to East Africa.
The African continental free trade area was expected to come into force in July this year. However, due to the pandemic, the start of the implementation has been pushed to January 2021.
To benefit from the free trade arrangements, the paper says, the continent has to build capacity in the production of these products and overcome supply-side constraints. This can’t be done in the medium-term, but the continent must develop long term strategies to achieve this.
On Tuesday 18 August 2020, the permanent secretariat of the ACFTA was opened in Accra, Ghana where it will be hosted.
Ghana’s President Nana Akufo-Addo said on Tuesday that “the economic integration of Africa will lay strong foundations for an Africa beyond aid.”
