The Continental Free Trade Area (CFTA)

On 21st March 2018, Mauritius, along with other 43 African countries signed the historic Agreement establishing the Continental Free Trade Area (CFTA) in Kigali, Rwanda. Participating countries have committed to remove tariff on 90% of the goods (10% of « sensitive items » to be phased in later), thus, boosting intra-trade on the continent from 18% to about 50% over the next five years. Trade within Africa stands at only 18% compared to Europe where intra-trade is 69% and 59% in Asia.

In his Budget Speech 2018/19, the Minister of Finance reiterated his government commitment for cross-border investment opportunities for the Mauritian entrepreneurs under the Africa Strategy. Already, some progress has been made in Côte d’Ivoire and Senegal with the Mauritius Africa Fund. The government is, now, offering a five-year tax holiday to enterprises investing in infrastructural development within the Special Economic Zones (in Senegal, Cote d’Ivoire, Ghana, and Madagascar). In addition, government is working with the European Union regarding loan guarantee facility to Mauritian enterprises trading on the continent.

Doing business in Africa is not an easy task, it is complex and it involves a lot of inherent risk and challenges which may not exist in other regions. Government support is vital to facilitate the investment process and create the right business environment especially in the SADC and Eastern African regions where potential business opportunities are available.

Trade experts are of the view that the CFTA will change the landscape of trade on the continent by boosting trade within a borderless Africa. It provides a golden opportunity for African countries to harmonize its trading policies and increase export. It is therefore important for our business consultants, negotiators and development partners to ensure that the business projects within Africa do benefit from the CFTA regime and this demand innovative approach to doing business on the continent.

From a political perspective, the CFTA is a stepping stone toward the long road to a United States of Africa, the dream of the founders of the African Union. However, in order for the Agreement to be successful and sustainable in the long-term, it needs to be economically beneficial to member States. Such an ambitious project can only be successfully implemented, if all the 44 participating countries actually feel that the long-term economic benefits derived from such collaboration is more than the custom revenue forgone.

Mauritian enterprises will require government support to be able to take advantage of this free trade area and this may come in the form of policy reforms especially regarding trade facilitation, trade-related infrastructure, and equity and trade finance. This CFTA initiative is providing an opportunity to Mauritian businesses to access a single continental market of more than one billion consumers. This comes at a time when some of our trade preferences in our traditional markets are being removed.

Although the CFTA will gradually reduce custom revenues on intra-African trade for the African countries, it is expected that these shortfalls will be modest and will be compensated by overall trade benefits. However, the Agreement will necessitate drastic structural adjustments where factors of production may shift across borders and across economic sectors depending on new business opportunities and challenges.

Apart from the reduction or removal of tariff on intra-trade, African countries will need to work on:

• non-tariff barriers (NTBs) such as border clearance (administrative and bureaucratic delays), road infrastructure, bribe and corruption, restrictive government trade policies;
• standard and strict rules of origin policy;
• facilitation of intra-African investment by allowing free movement of capital and business people;
• Harmonisation of trade law, intellectual property and trade arbitration and dispute settlement;
• Consolidation of platform for e-commerce within the region, cross-border merger & acquisition, research & development.

The CFTA is also an opportunity for Mauritius to reposition its Small and Medium Enterprises (SMEs) to take full advantage of the African market. In order to capitalise on this opportunity, it will be important:

1. to focus on building capacity for self-employment and entrepreneurship through business training on intra-Africa trade and industrialisation;
2. to reengineer business process of the SMEs to make them more competitive through cost effective production, financial support and fast-track export procedures and documentation;
3. to assist in market access through regional trade networks, trade information exchange and freight rebate;
4. to provide appropriate tax incentives to firms doing business on the continent; and
5. to assist SMEs in engaging the services of professionals to develop business plans with clear vision, mission and objective within the CFTA.

It is also imperative that Mauritian trade authority and financial institutions are fully committed to provide necessary support to SMEs to enable them to expand their businesses beyond borders, thus maximising their benefits by taking the advantage of this free trade market. If the CFTA regime is successfully negotiated and implemented, the continent-wide market will boost our export sector and make our enterprises more productive and efficient through economies of scale, improvement on value chains and better quality. The dice has been cast!

Raj Khooblall is the Director of Finance at SADC Parliamentary Forum and is based in Windhoek, Namibia. He has worked for more than 15 years across various African countries and has published articles on business opportunities in Africa. The views expressed here are his own and not those of his employer.