Analysis: Why Tanzania stands to benefit from new intra-African trading bloc

On January 17, 2022 Tanzania deposited its instrument of ratification of the African Continental Free Trade Area (AfCFTA). This is the final stage of the ratification process through which a state member agrees to be bound by the Agreement establishing AfCFTA.

Tanzania, which is also a member state of EAC and SADC, signed it in Kigali on March 21, 2018 the same year the trading market was founded. It ratified it on September 19, 2019. Ratification is the action of giving a formal consent to a treaty or agreement, making it officially valid.

It is the National Assembly that ratifies regional or international treaties or agreements. The fact that it took almost four years since the signing and depositing of the instrument of AfCFTA ratification Tanzania had time to study the new trading market and weigh between its advantages and disadvantages to the country

As of May 3, 2022, 43 countries had deposited their instruments of ratification with the depositary (chairperson of the African Union Commission), according to Trade Law Centre (TRALAC), an independent capacity building think tank.

AfCFTA is an intra-trading market that forms the world’s largest free trade area since the formation of World Trade Organisation (WTO) on January 1, 1995. It connects about 1.3 billion people (expected to reach 2.5 billion by 2050) from 55 countries of the African Union (AU) and eight Regional Economic Communities (RECs) with a combined GDP of about $3.4 trillion.

According to data compiled by the African Trade Policy Centre (ATPC) of the Economic Commission for Africa (ECA) in collaboration with the African Union Commission (AUC), the 2.5 billion people will comprise 26 per cent of the world’s projected working age population, whose economy is estimated “to grow twice as rapidly as that of the developed world”.

The scope of the Agreement covers five areas: trade in goods, trade in services, investment, intellectual property rights and competition policy as stipulated in Article 6 of the Agreement. Its design, according to Economic Development in Africa Report (2021), reflects an explicit commitment among state members to ensuring deeper socioeconomic integration and improved cooperation in trade, investment and the mobility of people and supporting industrialisation and the development of dynamic services.

Expected outcomes include creating decent jobs, increasing revenue and contributing to inclusive growth. But for this to happen there is a need to adopt policies that enhance consistency between trade measures, diversification objectives and inclusivity.  

The eight RECs recognised by AU are the Arab Maghreb Union (UMA), the Common Market for Eastern and Southern Africa (COMESA), the Community of Sahel-Saharan States (CEN-SAD), the East African Community (EAC), the Economic Community of Central African States (ECCAS), the Economic Community of West African States (ECOWAS), the Intergovernmental Authority on Development (IGAD) and the Southern African Development Community (SADC).

Some modelling studies show Tanzania stands to benefit from AfCFTA in several key areas. This is according to Prachi Agarwal, Josaphat kweka and Dirk Willem te Velde, the authors of an ODI report (2022). The implementation of AfCFTA will increase Tanzania’s intra-African exports by between 17 per cent and 77 per cent depending on liberalisation strategies, increase its intra-African imports by between 1 per cent and 103 per cent and increase its national income by between 0.2 and 9.9 per cent.

This upward trend will mainly be realised in the agricultural and manufacturing sectors. At least 88 per cent of goods tariffs have been decided for the consolidated offer by EAC to the AfCFTA Secretariat. However, cotton, textiles, apparel, edible oil and automotives are excluded from this consolidated offer.

Products for which Tanzania has a comparative advantage in African markets include glass, wood, sisal, electrical equipment, vegetables, hides and skins, minerals and textiles. A comparative advantage is the country’s ability to produce goods and services at a lower opportunity cost than other trading partners, which makes it realise stronger sales margins and an increase in profits. 

Manufacturing production trends show that the country has the potential for exports of wheat, cereal, oilseeds, soap, paper, glass and petroleum products and will realise increased imports of sugar, dairy and chemical products, electronics, metals, vehicles and textiles, according to Agarwal et la (2022).

However, private sector stakeholders are worried about the high cost of doing business that could affect their competitiveness and a loss of market share. They see that high non-tariff barriers restrict intra-African trade by adding substantial costs. In light of this the authors’ study has identified seven key concerns related to AfCFTA.

These are a low level of awareness of AfCFTA, the high cost of doing business (cost of production) for Tanzanian producers and owing to the cost of shipping, unpredictable policy and regulatory measures, informality, cross-border constraints and low production capacity.

There is also low negotiation capacity both at national and regional (EAC) levels, addressing non-tariff barriers (including those related to Covid-19), compensation for the loss of tax revenue because of tariff reduction under AfCFTA and its impact on relative prices and poverty.

But a United Nations Economic Commission for Africa (UNECA, 2020) report sees AfCFTA as “a timely catalyst for the expansion of services trade in Eastern Africa”. While the first phase of AfCFTA negotiations focused on five priority sectors: business, communication, financial, transport and tourism services, in future phases the focus will be on the remaining seven priority sectors: construction, distribution, education, energy, environmental, health and social services (African Union, 2018).

This means that if well-utilised, AfCFTA presents great and unique opportunities for trading enterprises, businesses and consumers and supports sustainable development across the continent. Its boost of intra-African trade by over 50 per cent translates into making it easier for African businesses to trade within the continent and benefit from the growing intra-African trading market. Additional opportunities include adding value to natural resources and diversifying new business avenues.

AfCFTA raises new hopes of creating and transforming Pan-African markets to support trade liberalisation and industrial development for the benefit of member states and the African people. Besides broadening Africa’s economic and market space, other priority areas include addressing supply constraints, weak productive capacities and infrastructural challenges.

So, basing on modelling studies and UNECA Report (2020) there are prospects for Tanzania because of both new opportunities in trading in services and a high profitability of many service sector activities.

The author of this article is a seasoned journalist based in Dar es Salaam. For feedback, contact him via email: tmagobe@gmail.com