Africa must consider fiscal space opportunities in AfCFTA, not falling tax revenues

WINDHOEK The first concrete steps towards the implementation of the African Continental Free Trade Area (AfCFTA) took place this week in Addis Ababa, Ethiopia.

African trade and finance ministers are therefore discussing how to address the specific concerns of falling tax revenues arising from the free movement of goods that would come with the continental trade agreement.

During the dialogue, in Addis Ababa, ministers were asked to consider how the agreement would be able to create fiscal space for jobs and economic diversification, with the United Nations (UN) Economic Commission for Africa (ECA) pointing out that looking at falling tax revenues is short sighted since Africa already have low tax revenues.

According to the ECA, the ratio of tax revenue to gross domestic product is already low in African countries. The ratio for many of them falls below 15 per cent, widely considered the minimum threshold for a state to function efficiently, said a statement issued by the ECA who organised the meeting.

A large export base provides stability, the diversification of markets and economic transformation through free trade, noted Philip Lane, Ireland's Central Bank Governor, who drew upon his country's experience within the European Union trading bloc to explain how such structures can offer economies sustained growth. Lane said the resulting growth in prosperity leads to the tax base broadening, especially for small states whose home market grows as cross-border trade expands to embrace other countries.

African leaders agreed in March that the AfCFTA takes effect within 18 months, but first at least 22 countries must formally ratify the agreement. Moulded in the form of the European Union's version of free trade, the AfCFTA presents immense opportunities for African countries to trade among themselves in a market valued at nearly US$4 trillion (about N$50.6 trillion) without trade restrictions such as tariffs.

Speaking at the meeting the African Union Deputy Chairperson Kwesi Quartey said the AfCFTA will also raise intra-Africa trade by as much as US$35 billion (N$437,8 billion) a year.

By signing up to, the AfCFTA individual African countries agree to remove tariffs on 90 per cent of goods, with only 10 per cent of tariffs applicable on specially defined goods when trading with one another.

There is already a problem with the period, with Africa's biggest economies saying it is unrealistic as it is too short a notice to wrap up negotiations among the African countries that already signed up to the agreement. Currently not all African countries have the same quality standards and the regulation and enforcement of these standards vary. This is to the extent that multi-national companies trading in consumer goods package goods differently, according to markets where the goods go, to ensure, and pass the inspection of, the varying quality standards in each of the countries they export to.

It also asks African countries to give preference to 'Made in Africa' goods, which, while it is good news, poses a challenge when it comes to ensuring quality standards on goods.

Dr. Abiyi Ahmed, the Prime Minister of Ethiopia, who opened the high level meeting asked the ministers to use their 'collective vision' to create the right conditions and commit the necessary resources for the creation of the world's largest trading bloc.

The importance of infrastructure and logistics for the AfCFTA was a major focus for the meeting. Vera Songwe, Executive Secretary of the ECA, emphasised the importance of ensuring trading happens in a seamless way along the vital road corridors of the continent. If we provide the infrastructure and border reforms necessary through the AfCFTA we can create jobs and growth, she said.

Source: New Era Newspaper Namibia