Continental Free Trade Area: Survey shows little trade among East African states

A survey done by SEATINI Uganda has indicated that there is little intra-regional trade among East African states, a situation that might make the African Continental Free Trade Area (AfCFTA) to not effectively achieve its goals.

The AfCFTA agreement sets in place a common market for 55 African states that are members of the African Union and currently, 54 countries have signed the agreement while 43 of these have deposited their instrument of ratification to the largest free trade area in the world by number of participating countries.

Speaking during the  East African Community  Post Tax and Budget Dialogue for the financial  year  2022/2023 at Serena Hotel in Kampala, the  SEATINI Executive Director Jane Nalunga said the volume of trade among the East African Community partner states is not high enough, with many trading with those outside the region.

“EAC member states import mostly from outside Africa. Only 23% of imports for Uganda, 12% for Kenya,11% for Tanzania are from within the African region,” Nalunga said.

She noted that Rwanda and Burundi have tried to import from within East Africa or Africa at large as part of the Continental Free Trade Area with at least a quarter of their imports from within whereas Kenya and Tanzania have performed worst.

“Between 2018 and 2020, Uganda, Burundi and Rwanda have registered an increase in imports from Africa. Kenya and Tanzania share of imports from Africa have remained flat over the years. The extent to which we are importing from Africa will determine the impact on our fiscal revenues when signing or negotiations of the African Continental Free Trade Area.”

Nalunga explained that whereas there is potential to lift 30 million people out of extreme poverty, as well as real income gains from full implementation of AfCFTA expected to increase by 7% by 2035 to nearly $450 billion as well as having the potential of boosting intra-African trade by 52.3 % by eliminating import duties , there are reasons why intra-trade among the countries is still down.

“African member states mainly produce similar products including agricultural commodities and minerals. There are also challenges of poor infrastructure among the states as well as colonial ties,political conflicts. For example there is no straight road from East Africa to Morocco. While flying, one has to first go outside Africa before flying to Morocco,” she noted.

Fear of  losing custom revenues due to AfCFTA

Speaking during the same meeting, Julius Mukunda , the Executive Director of the Civil Society Budget Advocacy Group (CSBAG) said many countries are moving cautiously in regards implementing the African Continental Free Trade Area for fear of losing revenues for  each of the participating countries at least in the short and medium term as highlighted in the survey.

“What precautions have we put in place for the lost revenues by countries,”Mukunda asked.

He noted that many countries are skeptical of losing revenues when they fully implement the AfCFTA.

SEATINI’s Nalunga explained that East African Community countries will lose customs revenues as a result of AfCFTA because of the rest of Africa given that tariff revenue from existing trade is reduced or removed.

“The second way will be through trade diversion by countries outside Africa exporting to other destinations as a result of increased tariffs in Africa.”

She noted that in terms of absolute amounts Kenya will incur the largest loss followed by Uganda at US$ 14.2 million and  $13.5 million respectively whereas Tanzania will lose US$5.3 million, Burundi US$ 4.3million and Rwanda US$ 3.9 million in customs revenue because of fully implementing the AfCFTA.

In terms of proportional losses of the tariff revenue, Burundi incurs the largest proportion of 30%, followed by Uganda with 7.6 %, Rwanda 5.5 %, Kenya 4 % and Tanzania 3.7 %.

Commenting about the same, Moses Kaggwa, the director for economic affairs in the Finance Ministry said there are so many gains from the African Continental Free Trade Area if fully implemented by East African countries.

“We should not be scratching our heads because we are going to lose $13.5 million(shs51bn) in revenues and that as a result we shouldn’t talk about the Continental Free Trade Area. This is little money since we are to collect shs25 trillion next year. We should be talking about areas we are not taxing other than the little money we are losing due to the AfCFTA,”Kaggwa said.

“We should be talking about widening the tax base locally. We should be empowering URA to collect more taxes.”