2 April 2019

Uganda: Continental Free Trade Area - What Is in It for Uganda?

On a sunny afternoon in Kigali Rwanda, on March 21, 2018, about 80 per cent of African countries, including Uganda, made a statement of intent.

Forty four Heads of States - one by one - signed an agreement establishing the African Continental Free Trade Area during the 10th Extraordinary Session of the Assembly of African Continental Free Trade Area (AfCFTA) held in Kigali, Rwanda.

By the end of the day, the AfCFTA agreement and related protocols were signed by 44 countries including Uganda), a figure that constitutes about 80 per cent of the African Union membership.

Never before in the history of African integration has a legal instrument been signed by that number of countries at a single sitting.

According to the trade minister, Ms Amelia Kyambadde, this is a testimony to the desire of the African leaders to economically integrate their countries together for the development of the African people for mutual benefit.

In a statement she issued later regarding the development, she said: "We agreed to the principle of variable geometry, which allows those that are ready to proceed while the others will join whenever they are ready."

She continued: "Thus there are 11 countries (including Nigeria, South Africa, Botswana, Lesotho, Burundi, Sierra Leone, Eritrea, Tanzania, Zambia, Namibia and GuineaBissau) that did not sign the Agreement. These countries will sign the Agreements at a convenient time whenever their domestic processes are completed."

To date, 21 countries have since ratified the agreement with a total of 22 ratifications needed for the treaty to become operational.

By end of June, the commissioner for external trade at the trade ministry, Mr Silver Ojakol, believes that the mega agreement would have taken off. This means the minimum required number of ratifications needed to trigger the Continental Free Trade Area agreement into action would have been achieved.

What's in for Uganda?

Speaking to members of Uganda Manufacturers Association last week in a sensitisation workshop on AfCTA, Mr Ojakol, said the government is already doing its job ahead of the ratification expected to be a done deal in the next three months or at worst, by close of the year.

Prosper Magazine understands that a Cabinet Sub Committee has been put in place to fast track Uganda's penetration into the broader market and ensure the country's competitiveness in the wider regional and continental market.

Already, the government has profiled several local commodities which the private sector should embrace for export to the continental market.

According to Mr Ojakol, should the private sector players, particularly the manufacturers heed the government appeal, then the chances of being spectators as opposed to active participants will not arise.

Products for continent

Products profiled by government for the continental market include: livestock products notably dairy and beef, coffee, tea, iron and steel.

As for services, the government believes the country has competitive advantage in education, tourism, business and infrastructure services.

According to the government, the objectives in African economic integration is driven by the need for expanded markets for the country's growing economic operations; attracting cross-border investment; creating employment opportunities for the young populations domestically through expansion in production of goods and services that will be demanded by the expanded markets.

And the key focus markets are West Africa in particular Nigeria, Ghana and Cameroon. In North Africa, the target is Morocco, Algeria and Tunisia.

Picking lessons

"What we have achieved in trade in the EAC and COMESA following our regional economic integration policy, is a testimony to the success of our regional integration policy. As a result of this policy, our exports to the region have grown significantly from less than $100 million in 1993 to a high of $1.49 billion in 2012 before reducing to $1.23 billion in 2016," an earlier statement issued by the ministry of trade reads.

The statement further said: "The reduction is attributed to a number of factors including the instability in South Sudan and the Eastern DRC and climate change that occasionally affects agricultural production.

Uganda's imports from the East African Community (EAC) and COMESA increased from $97 million in 1993 to a high of $760.2 million in 2012. This reduced to $609.8 million in 2016.

It is in the EAC and COMESA regions where Uganda have recorded a positive trade balance since 2007. The country's trade balance was $383.9 million in 2007, rising to $806.8 million in 2008. It reduced to $792.8 million in 2012 and to $615.7 million in 2016.

However, for the first time in more than three decades, the country exported more to Kenya than the other way round.

This means by close of 2018, Uganda had a surplus/favourable balance of trade with Kenya of $122.78 million (exports of $628.47 million against imports of $505.70 million) and also registered a record highest trade balance in the EAC region of $413.86 million (exports of $1,220.63 million against imports of $806.77 million) in the same period.

Impact of agreement

The AfCFTA involves the 55 Member States of Africa, and the world's largest free-trade area, by number of countries. It establishes a single market of 1.2 billion people, with a combined Gross Domestic Product $3.4 trillion. And the position of the Cabinet is that Uganda should go for this grand opportunity!

Presenting the cabinet position, Ms Kyambadde said for the case of Uganda and, indeed, most African countries, large markets support more trade in goods, services and assets produced by job-creating enterprises, generate income and create jobs. The AfCFTA will contribute to meeting public policy objectives and national aspirations in National Development Plan II and Vision 2040. Large open markets support the exploitation of economic gains along the value chain, lead to specialisation and efficiency.

She was also of the view that the AfCFTA is one of the vehicles to catalyse the development of African countries. Few countries in history, if any, have achieved significant economic development without trade. In order to develop, African countries will need to trade more, both with one another and with the rest of the world. By breaking down trade barriers between African countries, the AfCFTA would significantly boost trade on the continent.

In addition Africa is the continent with the largest arable land, 874 million hectares of which only 274 million hectares is under cultivation, while 600 million is idle or underutilised. In addition, there are large reserve of strategic minerals, abundant aquatic resources, and the youngest population, 60 per cent- 70 per cent of the population.

However, Africa, is the continent with the lowest level of development (35 of the world's poorest countries are in Africa); Africa is the least industrialised, and has the highest rates of unemployment between 50%-80% youth unemployment.

"African nations need this to boost trade as an engine for economic growth and development," she said, adding "currently, trade among African Nations accounts for just over 14 percent of their total trade, a considerably lower figure than trade within many of the world's more developed regions, including Europe and North America -- both of which have intraregional trade rates at over 60 percent. The intra-Asian trade is about 50 per cent, while Intra- Latin American trade is about 45 per cent."

Sector players'

Without proper infrastructure and connectivity, AfCTA, according to local sector player will remain a white elephant in the room.

In an interview with several sector players' representatives it emerged that the success of the implementation of the AfCFTA will require commitment to walk the talk.

They say properly coordinated and executed plan will see the increase in the stock of infrastructure in terms of land, air and maritime transport, energy and ICT, which will improve interconnectivity and reduce the cost of doing business, something which the acting executive director of Uganda Chamber of Commerce for Small and Medium Enterprises Beatrice Alyanata says they are routing for.

For SMEs, the continental market is a dream come true. But according to Ms Alyanata, all this will result into nothing if Uganda and the other African states do not deal with the connectivity and infrastructure issues that will allow intra continental trade to happen.

As for the deputy executive director of Private Sector Foundation, Mr Francis Kisirinya, the private sector cannot wait to participate in the continental trade. But that will depend on government efforts to reduce the cost of credit and infrastructure development.

Thorn in the flesh

Critically, however, is whether the private sector will be able to generate the required volumes with the right quality. Mr Ojakol says this is the main challenge the private sector should focus on solving.

Government is ready to help It further emerged that, the issue is actually not so much the market, but the consistency to supply the market with the right quantity and quality.

THE TREATY

Uganda is a signatory to the Treaty establishing the African Economic Community (the Abuja Treaty), adopted and signed in 1991. One of the major objectives of the Treaty is to promote economic, social and cultural development and the integration of African economies to increase economic self-reliance.

During the 18th Ordinary Session of Assembly of the African Union (Addis Ababa, Ethiopia, 23-30 January 2012), the summit adopted a "Decision on boosting intra-African trade and fast tracking the Continental Free Trade Area".

Negotiations were launched by the Assembly in June 2015 and effective negotiations started in July 2016 after a preparatory phase.

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