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How ready is Zimbabwe for AfCFTA?

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IN a bid to spur intra-Africa trade, the African Union (AU) brokered the African Continental Free Trade Area Agreement (AfCFTA) in March 2018.

DUMISANI NYONI
The main objectives of the AfCFTA are to create a single market for goods and services, facilitate the movement of persons, promote industrial development and sustainable and inclusive socio-economic growth, and resolve the issue of multiple membership, in accordance with AU Agenda 2063.

It lays a foundation for the establishment, in future, of a continental common market.

The AfCFTA will bring together all 55 member states of the AU comprising a market of more than 1.2 billion people, including a growing middle class, and a combined gross domestic product (GDP) of more than US$3.4 trillion.

In terms of numbers of participating countries, the AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organisation, according to experts.

Estimates from the Economic Commission for Africa (Uneca) suggest that the AfCFTA has the potential both to boost intra-African trade by 52.3% by eliminating import duties, and to double this trade if non-tariff barriers are also reduced.

The World Bank estimates that the trade pact could boost regional income by 7% or US$450 billion, speed up wage growth and lift over 30 million people out of extreme poverty by 2035.

As of December 2020, a total of 54 countries had signed the agreement while 34 others had deposited their instruments of ratification.

Intra-Africa trade has historically been low, with only 12% of the continent’s US$560 billion worth of imports in 2019 coming from within.

However, the question is: How prepared is Zimbabwe’s economy, particularly the fallen industrial hub, Bulawayo, for the AfCFTA?

Are we not likely to see other local products start disappearing from the market due to stiff competition?

Industry officials who spoke to The NewsHawks painted a gloomy picture, saying they were not prepared for the AfCFTA.

They cited foreign currency shortages, obsolete equipment, power constraints, lack of affordable funding, expensive utilities, shortage of raw materials, among other factors, as major impediments.
This, they say, impacts on their competitiveness.

“We are not ready, we are not prepared. Same challenges which have dogged us for many years are the ones which are causing quite a bit of a challenge for us to be competitive. The biggest challenge is retooling,” Confederation of Zimbabwe Industries (CZI) Matabeleland chapter president Shepherd Chawira said.

“We have antiquated machinery and the financing model in the economy at the moment is not promoting any retooling. We are not competitive. Also, the other problem which we have as a nation is we are a high-cost producing nation.”

“Our utilities are expensive. We are just talking about fuel which has gone up, we are the most expensive in the region in terms of fuel. All these costs do not make up competitive at all,” Chawira, who is also Shepco Group chief executive officer,” said.

He said there was a dire need for the government to address challenges affecting the industry before the agreement kicks off, to avoid being overtaken by other economies.

“We are likely going to be overtaken by other economies and some of our products disappearing because we won’t then be able to sell or to offload them to the market. That’s the biggest challenge that we have,” he said.

“But we understand the government has asked for some years, but not sure how many, so that at least we can put our house in order. It would definitely be a disaster. We need to really work on our capacity utilisation.”

According to the CZI, the capacity utilisation increased to 47% last year, from 36.4% the previous year.
“If you are operating at 40% capacity utilisation compared to an organisation which is operating in, for example, South Africa, most of the organisations there are probably above 80% and some of them probably at 100%, it means in terms of cost per unit you are way high,” he said.

“So those are things which we need to work on to increase our capacity utilisation and hopefully the target that we have set for this year, which is 61%, we are going to achieve it and will continue building on that.

“But at least we can be above 80% then we can say we can compete with others. So there are a number of areas that we need to work on. Government needs to take care of our utilities because they are very expensive. Our fuel is very expensive; hence our cost of production is very high compared to the region. That has an impact on our competitiveness,” Chawira said.  

 Zimbabwe National Chamber of Commerce vice-president Golden Muoni said there are a lot of opportunities, but the issue of preparedness is the question of the “entire economy in terms of competitiveness because we have got to compete with economies that are operating normal.

“…we need to go and compete, so the cost per every production per unit must be as cheap as we can. Zimbabwe I think has some good quality products but, in terms of price now when you go out there, our products are high,” Muoni said.

“..when you are making a product per unit using a United States dollar-backed pricing structure, you won’t be able to compete. We still have a long way to work and to make sure that we fix our power issues. When we have got a good power supply which is consistent and all other features which affect the cost of production,” he said.

Muoni said the financial sector should also step up and be able to avail cheap funding.

“It’s a very good thing, but it’s an issue of how prepared we are and we also need to look at our banking system, how prepared it is because it’s not companies alone which can be prepared, but also our banks,” he said.

“Are they able to fund companies to make sure that our companies are going to increase their liquidity? Also, you have to look at the insurance, the efficiency and effectiveness of our insurance companies. So for every part of the economy, they have to be part and parcel of this. We have to be competent everywhere so that when our product goes to Africa, it’s very good quality and competent.”

In its latest article, The Africa Report said Zimbabwe’s competitiveness and productivity gap is huge and this renders the country incapable of competing with the rest of the African nations.

It said the country needs to strengthen the industrial sector and address challenges in the agricultural sector.

The Africa Report added that Zimbabwe’s exports are mostly raw materials and that local industries are not competitive regionally.

Zimbabwe’s low manufacturing capacity utilisation means that local industries cannot compete with regional peers such as Zambia, South Africa, Angola and Namibia that have enjoyed longer periods of economic and currency stability, and policy consistency.

The report said the major factors preventing Zimbabwe from benefitting 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 also a 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, it said.

As a way forward, Morgan & Co, a securities firm, opined that industrial policies in Zimbabwe should be crafted to work for and not against the AfCFTA. This means they may have to be coordinated at continental or regional level.

Coordinating industrial policies will also help countries plan specialised production in specific and complementary directions, it said.

It said Zimbabwe also can leverage its location and resource endowments to get a head start. Food production is a strategic area.

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