Can Zimbabwe take advantage of Africa’s new free trade zone?

Many African countries – including Zimbabwe – have pinned their hopes for economic renewal on the African Continental Free Trade Area (AfCFTA) agreement that came into force on 1 January 2021.

Zimbabwean President Emmerson Mnangagwa has his temperature taken as he arrives for the presentation of the 2021 National Budget at the parliament in Harare, Zimbabwe, November 26, 2020. REUTERS/Philimon Bulawayo

The AfCFTA – initially set to commence on 1 July 2020 but delayed due to the coronavirus – seeks to boost intra-Africa trade.

As of December 2020, 54 countries had signed the agreement while 34 countries have deposited their instruments of ratification, according to Wamkele Mene, the AfCFTA secretary general.

If implemented fully, the trade pact could boost regional income by 7% or $450bn, speed up wage growth for women, and lift 30m people out of extreme poverty by 2035, according to the World Bank.

Landlocked and expensive

Zimbabwe has signed and ratified the AfCFTA.

A report from the World bank shows that Zimbabwe and Côte d’Ivoire – where trade costs are among the continent’s highest – would see the biggest gains of the AfCFTA, with each increasing income by 14%.

But economists argue Zimbabwe needs to put its house in order first for it to benefit.

Zimbabwe used to have a robust manufacturing sector, which would have put it first in the queue of countries that could benefit from the AfCFTA.

Decades of mismanagement, however, have created an economy of importers rather than producers.

The Southern African country relies on imports of nearly everything from furniture, chemicals, clothing to even toothpicks from its neighbouring country South Africa and its ‘all-weather friend’, China.

Lack of productivity and competitiveness

Prosper Chitambara, an economist in Harare, tells The Africa Report that Zimbabwe will not immediately benefit from the trade pact.

“We have low capacity in all key sectors of the economy and in particular the agricultural and the manufacturing sectors. [Our] competitiveness and productivity gap is huge and this renders us incapable of competing with the rest of the African nations,” he says.

He adds that the country needs to strengthen the industrial sector and address challenges in the agricultural sector.

“We need to increase investment in critical productivity enhancement sectors like in infrastructure and in particular irrigation, as well as transport and energy infrastructure. These are the key enablers to unlock value within agriculture, industry and the rest of the economy,” Chitambara explains.

Breadbasket no more

The Southern African country, which was once the breadbasket of Africa, will import an estimated 1.1m tonnes of grain in the 2020/2021 marketing year, according to the UN Food and Agriculture Organisation.

Nearly 8 million people, about half of Zimbabwe’s population, are food insecure, according to the UN’s World Food Programme.

Economist Victor Bhoroma says Zimbabwe’s exports are mostly raw materials and that local industries are not competitive regionally.

Manufacturing’s discontents

“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,” he explains.

Bhoroma says the major setbacks for Zimbabwe to benefit from the trade pact include low industrial capacity utilisation, high cost of doing business and complex taxation procedures, policy inconsistency  –especially on monetary reforms – inefficient foreign exchange policies and porous borders that make it hard to prevent smuggling.

“[There is need to] implement a market determined managed float exchange rate to remove arbitrage opportunities that threaten primary production locally in favour of importing finished products,” he says. “Monetary policy consistency is key to stable production and export capacity.”

Zimbabwe National Chamber of Commerce (ZNCC) president Tinashe Manzungu says for liberalisation of trade to bear fruit, African states must overcome the trade constraints.

“These supply constraints include weak infrastructure [and] time consumed procedures at customs borders,” he explains.

Creating opportunity

The AfCFTA offers Zimbabwe an opportunity to recover from the economic turmoil caused by the coronavirus.

Zimbabwe’s economy shrank by more than 6% in 2019. In 2020, there was likely going to be a further contraction of 5-10%, according to the World Bank.

ZNCC president Manzungu says that while the global economy is in turmoil due to the COVID-19, the creation of a vast regional market will help Zimbabwe diversify its exports, accelerate growth and attract foreign direct investment.

Confederation of Zimbabwe Industries president Henry Ruzvidzo says the AfCFTA will encourage inter-Africa trade, which is low at the moment.

“We have the opportunity to leverage on our location, resource endowments and considerable manufacturing experience and know-how to get a head start in the race,” he says.

Constance Chemwayi, a ministry of foreign affairs and international trade spokesperson, tells The Africa Report that Zimbabwe is preparing tariff offers to submit to the AfCFTA secretariat in order to operationalise the trade pact.

She said these will show the preferential tariffs to be applied on imports coming from the continent, with the aim of eventually eliminating the tariffs.

Tariff preparations

Chemwayi says that once Zimbabwe submits the tariff offers and they are subsequently gazetted, the potential benefits include access to export and import markets at reduced preferential customs duties for products with agreed rules of origin from the continent.

“The preferential duties will be favourable as compared to the most-favoured-nation duties, which are payable by countries not party to the AfCFTA,” she adds. “While there is a need to boost local industries so that we can fully benefit from the agreement, the government is working to create a conducive environment for business to take advantage of the AfCFTA.”

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