After African nations agreed to launch a single, free trade zone at the AU Summit in Niger on Sunday, the hope of most Africans is that it will help unleash the continent’s huge economic potential and usher an era of economic growth. Posed to be one of the world’s largest single markets, the agreement is expected to “unite 1.3 billion people, and create a 3.4 trillion USD economic bloc.”
This landmark free trade accord, which is expected to boost inter-African trade, has now entered its operational phase. So, what does this mean for Ethiopia, and how ready is the country for it?
The benefits
Inter-Africa trade is low; so, this inter-regional trade can be good, says Dr. Wondaferahu Mulugeta, Economics Associate Professor at Federal Meles Zenawi Leadership Academy. Not only in economic terms, but also in creating people to people and economic integration.
For long the focus of the country has been on traditional bilateral trade, but the Continental Free Trade Area presents a new ready-made market that is the size of more than a billion people. “It is a huge market, and we should be utilizing it.” To be able to do that he suggests looking into what competitive advantage the country has.
“For instance, global coffee prices are at their lowest. And given that the commodity gives us a competitive advantage in the region, we should look at close-by markets to sell. As the transportation cost will be lower, it will gain us an advantage.”
Moreover, Dr. Wondaferahu states that the free trade provides other benefits in the shape of increased productivity, private sector motivation and increasing access to markets, especially for Ethiopia’s small and micro enterprises.Further divulging on the potential benefits the trade area brings, Kassahun Mamo, Communications Director at Addis Ababa Chamber of Commerce and Sectoral Association, believes that it will provide a market opportunity for Ethiopia’s exporting companies to expand their product lines and develop new technologies to meet increased demand.
He also indicates that the agreement would provide access to more professionals to firms, and bring economies of scale that will eventually lead to lower prices for consumers and greater efficiency for exporting firms.
As to him, entering AfCFTA also means that Ethiopia’s manufacturing firms will be forced to be more competitive. “Some of Ethiopia’s manufacturing firms are characterized by less competitive in international market by price and quality of products.”
Ethiopia’s firms will face stiff competition from abroad when the door is opened for more trading activities in free trade agreement. Thus, to stay in the market, firms will be forced to increase their competitiveness, to cut costs and increase efficiency, he argues.
What the government is doing to elevate competitiveness
In terms of what the government should do to improve the competitiveness of Ethiopia’s companies, Kassahun opines that the government should practically and continually show its commitment to promote the private sector and market competition by further democratization, liberalizations, de-regulations and privatization initiatives.
But most importantly, improving the competitiveness of Ethiopia’s industries and ease of doing business in the country can go a long way in enabling them to harness the opportunities AfCFTA brings, he notes.
Of course, Ethiopia is serious about improving ease of doing business in the country. The government has undertaken a slew of reforms to improve ease of doing business, and ease of starting a business. As part of this process, Ministry of Trade has launched various initiatives to reduce the number of procedures, time, cost and convenience to start up a company and formally operate in the country’s economy.
Regarding this, Wondimu Filate, Communications Director with Ministry of Trade and Industry, says that Ministry has been undertaking works to shorten and simplify the process to start business.
In addition to this, he remarks that on top of modernizing administrative procedures under the One Stop Shop, the Ministry has also decentralize some of its work process to the regional states in order to make gains in improving ease of doing business in the country.
Wondimu believes that such initiatives, along with others, will help Ethiopia’s firms be competitive and harness the opportunities the continental free trade area brings.
Besides, Ethiopia has moved thoroughly in the negotiation process taking into account the peculiarities of its politico-economy, and making sure that the initiative also benefits its cause.
Talking to Ethiopian Press Agency some time ago, Musse Menday, Director of Multilateral Trade Relation and Negotiation at Ministry of Trade, Ethiopia has been part of the process since the conception the free trade concept in the 1980s. He also stated that six technical committees that hailed from various institutions, including Addis Ababa University has conducted studies before the agreement was signed.
He also stated that Ethiopia will implement the agreement in fifteen years time through various steps and phases. “We undertook a negotiation process that took into account the opportunities and challenges that it will bring to its economy and firms.”
How ready is Ethiopia?
On our current situation, I think there might be some initial struggle for a year or two, but then we will be in a better position after that, says Dr. Wondaferahu.
The fact that equity finance has started, and the conditions for the private sector to access credit has become more conducive (recent proclamation passed to provide for movable property security right), and the government reducing its share [in the economy] and encouraging the private sector will give Ethiopia a strong standing to be competitive in the free trade area.
When peace and stability is consolidated, and the industrial parks – which are almost operational – become fully operational, when the micro and small enterprise sector which could use a huge market fully develops, and the fact that the private sector’s credit constraint is being addressed will give the country a strong standing and competitive edge going forward, he concludes.
The Ethiopian Herald July 10/2019
BY ROBEL YOHANNES
