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 54 countries, are still heavily dependent on the trade taxes to fund their national budgets.
READ: Africa Continental Free Trade Area (AfCFTA) launched
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,” says Benedict Musengele, the acting Director-in-Charge of Trade, Customs and Monetary Affairs Department at the Comesa Secretariat.
Tariffs –
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).
READ: African leaders set to sign landmark trade deal at AU Summit
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 7 per cent are classified as sensitive products, while three per cent is to be totally excluded from the requirement to liberalise.
Tariff liberalisation –
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.
READ: Africa’s continental free trade deal: Single market on the horizon?
Trade agreements –
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 by Nigeria, South Africa and Egypt. 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.
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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.
READ: Nigeria and Benin sign landmark AfCFTA deal at AU Summit in Niamey (Updated)