Dar es Salaam. Regional experts explained why countries should not fear joining the African Continental Free Trade Area (AfCFTA) which is touted as a game changer in the continent’s trade once it kicks off despite a small price in revenue.
According to the United Nations Economic Commission for Africa, Tanzania may lose 1.3 percent of the total government revenue on removal of some tariffs but the country will benefit more from the trade pact.
Ethiopia, Uganda, Kenya and Rwanda are also expected to lose in the tariff adjustment but the losses will be offset by the long-term benefits.
“Tanzania is expected to experience a larger tariff revenue loss, equivalent to 1.3 percent of total government revenue but our estimates also indicate that it is one of the countries which will benefit most from the AfCFTA, through higher levels of trade and economic activity,” said ECA director for the Eastern Africa sub-region office Mama Keita who spoke during the online meeting yesterday.
“The revenue losses in cases like this may well be considered by policymakers a price worth paying for the added dynamism of the domestic economy –which overtime will, in itself, lead to higher government revenues through VAT and other taxes,” she added.
More than third of Tanzanian exports are now directed towards the African market, largely driven by trade with the East African Community (EAC) partner states.
The two-day meeting was convened by the UN Economic Commission for Africa (ECA), through its office for Eastern Africa under the theme to deliberate the economic and social impacts of the Covid-19 crisis and the strategies for recovering.
The meeting which involved policy makers from 14 countries also discussed the benefits of AfCFTA and encourage countries to ratify.
Tanzania has not yet ratified the deal expected to create the world’s largest free trade area.
The government has categorically stated that it’s still evaluating the benefits of the agreement before ratifying.
Going by the current figures on revenue collections, hundreds of billions will be lost in the revenue but that will be offset by the gains.
Some of the gains include increased economic growth of four percent and that Tanzanian exports to Africa will increase by between 23 and 32 percent, according to the ECA.
The deal, signed by 54 of the African Union’s (AU) 55 member states, commits countries to 90 percent tariff cuts within a five-year period.
The AU estimates it will boost trade by 60 percent between the continent’s 1.2 billion people by 2022.
The agreement, which focuses on removing non-tariff trade barriers, was launched at a Niger summit in July, but its implementation was delayed by the coronavirus pandemic.
The AfCFTA will also lead to net welfare gains of over $1.8 billion for consumers in East Africa, with the bulk of the gains accruing to Tanzania, Uganda and Ethiopia.
A notable positive outcome is that the AFCTA will boost production in the pharmaceutical sector in Kenya and Tanzania.
Africa manufactures less than two percent of the medicines it consumes, while it imports about 70 percent of its needs from outside the continent, at an annual cost 14.5 billion.
At the same time, Tanzania has embarked on a Sh1.189 trillion ($517 million) pharmaceutical project that will see establishment of three medicine manufacturing plants through partnership with the private investors.
The government says the feasibility study for the project was already approved and is now set to receive partner investors as it attempts to reduce the country’s reliance of imports to meet the local pharmaceutical demand.