Promoters of the African Continental Free Trade Area (AfCFTA), which seeks to promote intra-Africa trade while accelerating regional integration, tout the bloc as having the potential to increase trade volumes by up to 50 percent over the next five years.
But for countries such as Malawi, the fortunes are mixed. The continent-wide free trade area promises both gains and losses. In the meantime, the losses seem to outweigh the gains.
To date, 54 African countries, including Malawi, have signed the agreement. However, from the pack, only 27 countries have ratified the AfCFTA agreement. When fully rolled out, the AfCFTA is expected to bring together 55 African countries with a population of about 1.2 billion people and a gross domestic product (GDP) of more than $3.4 trillion in one market.
In reality, though, countries such as Malawi could lose an estimated $11 million (about K8 billion) annually in revenue due to the liberalisation of tariffs under the agreement.
Key among the threats or fears for Malawi is the question of competitiveness. This is natural as the country’s industry is still ‘infant’ and the economy is rocked with challenges, including unreliable electricity supply.
Proponents of the free trade area argue that the threats should be turned into an opportunity to “grow” the local industry, I would say it is easier said than done. For instance, economic liberalisation has over the years exposed domestic products to stiff competition from imported products on the market.
That said, it does not mean that Malawi should not ratify the AfCFTA agreement. It should. But what is needed is to give countries such as Malawi more time than the proposed 15 years relating to elimination of sensitive products.
If truth be told, Malawi is not new to international trade agreements. The question that comes to mind is: What has Malawi benefited from the Southern Africa Development Community (Sadc) Free Trade Area and the Common Market for Eastern and Southern Africa (Comesa) Free Trade Area? Perhaps, due to lack of competitiveness, the opportunities have not been fully exploited.
Electricity is one major setback for Malawi. Electricity is key to achieving competitiveness, but in Malawi supply is unreliable, prompting industries to incur additional costs through investment in alternative power sources.
Moving forward, it is critical that before ratifying the deal, Malawi identifies industries or products in need of protection as the local industry strengthens its capacity, of course with a conducive business environment in place. There is a lot to be done.
It is time for Malawi to get into trade deals that can unlock foreign markets for exports.
Statistics indicate that 85 percent of goods traded in Africa come from outside the continent with only 15 percent of goods traded on the continent produced locally.
For Malawi, its intra-Africa trade is relatively diversified for exports but concentrated in terms of imports. Trade Law Centre (Tralac) indicates that Malawi’s intra-Africa exports accounted for 33 percent of the country’s global exports while imports from within Africa were at 30 percent of Malawi’s global imports. The bulk of exports were destined to Comesa and Sadc regions in 2017.
It is important to play it safe by critically assessing the issues, especially potential revenue losses.
When all is said and done, Malawi and the rest of the countries cannot do without international trade. No country is an island in today’s global village. International trade is at the centre of the global economy. However, do not be in a hurry to put pen to paper as all that glitters is not gold.