Experts query benefits Uganda would reap from EAC-COMESA-SADC FTA

On June 10, representatives from Uganda along with counterparts from 26 other member countries of the three regional trade blocs— the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Cooperation (SADC) — will finally convene in Sharm el Sheikh, Egypt, to sign the long-awaited tripartite free trade area (FTA) agreement.

A free trade area is a geographical region that covers a trading bloc, whose member states have signed a free trade agreement, and in the process eliminate barriers to trade such as tariffs and import quotas.

Once it is endorsed by all the members, the FTA will stretch from Cairo in Egypt to Cape Town in South Africa, only skipping the newest nation on the continent, South Sudan, which is not yet a member of any of the three regional blocs.

The countries have a combined population of over 600 million people and a gross domestic product (GDP) of $ 1.3 trillion – almost 60% of the continent’s total GDP – according to a 2013 COMESA policy document.

When signed, the tripartite FTA sometimes referred to as the ‘grand free trade area,’ would be the largest economic bloc on the continent.

Though Amelia Kyambadde, Uganda’s minister of trade, industry and cooperatives is positive, other experts are not very excited yet. Kyambadde told The Independent on May 9 that the FTA, which will be transformed into a common customs union at a later stage, presents opportunities for Uganda and this is in terms of a wider market for local commodities and labour.

The FTA, she argues, would also build and present more clout for the members in future since they would be able to “stand up” to the more powerful global trading States and blocs like the US, China and the EU during trade negotiations.

But while Martin Luther Munu, a programme officer at the Southern and Eastern African Trade Negotiations Institute (SEATINI), also sees an enormous opportunity for economic growth in Uganda considering that intra African trade is still low despite enormous potential, he remains a bit sceptical. He says Africa’s total trade is low, accounting for only 3% of global trade, and the share of intra-African trade in total African trade is similarly low.

For instance, between 2000 and 2010, intra-African imports amounted to around 14% of total African imports on average, while intra-African exports accounted for 10% of total African exports. Against this background, the three blocs have been successful in improving regional trade.

With the creation of FTAs in the tripartite region, intra-regional trade is reported to have grown significantly. Exports rose from $ 7 billion in 2000 to $ 27 billion in 2008 and imports grew from $ 9 billion in 2000 to $ 32 billion in 2008, according to a March 2015 policy paper from the European Parliamentary Research Service (EPRS).

The tripartite was initiated a decade ago but it was only in 2008 in Kampala that the first summit bringing together the heads of State of the participating countries, agreed on a programme to harmonize trade rules between the regional blocs.

A second summit in 2011 endorsed a project to launch the tripartite FTA. A declaration issued at that particular summit laid out an approach based on three pillars; market integration, infrastructure development and industrial development.

The negotiations were in two phases; first to liberalize trade in goods, by removing tariff and non-tariff barriers and ensuring the free movement of business people. During the second phase, the talks will tackle the gradual liberalization of trade in services.

Boon for Uganda?

As long as consumers are able to get cheaper high quality commodities, the tripatite FTA would be a good thing, argues Annet Kuteesa, a research fellow at the Makerere-based Economic Policy Research Centre (EPRC).

However, at state level, she says Uganda’s niche appears to be in exporting low value-addition agricultural based raw materials. This, she says, is where the country has a competitive advantage.

“In terms of manufactured goods, Uganda does not stand a chance,” she told The Independent on May 8.

Kuteesa attributes Uganda’s undoing to the high cost of manufacturing, which is still up because of issues to do with unsteady supply and the high cost of electricity.

She says, as things stand now, SADC states like South Africa, are going to benefit more from a bigger market.

But she also sees Uganda utilising her geographical position to act as a bulking centre where, for instance, the SADC countries use it as a safer transit point enroute to final destinations like South Sudan, Rwanda, Burundi and eastern DR Congo.

Munu agrees saying what needs to be urgently done is building domestic capacity to produce and take advantage of the opportunities this bigger market would bring.

This, he says, would require addressing the numerous challenges like high energy costs, improving rural-urban roads and other infrastructures to link farmers to markets (both nationally and within the FTA) and completion of the standard gauge railway as well as extending it to link the entire FTA.

“We need to support the agricultural sector through extension services, and affordable inputs financing so that we can actually increase production other than face a situation where we have more demand with limited supply, leading to food insecurity as producers rush for more lucrative regional markets,” Munu said.

However, the tripartite FTA needs to devise means of shielding the likely losers in the process, especially the livelihoods of indigenous communities, small scale farmers and local manufactures by putting in place mechanisms that links them to regional value chains (for the FTA).

“Without such a mechanism, we will see increased trade which is not directly linked to improved livelihoods.”

Munu also added that the issue of non-tariff barriers (NTBs) would need to be carefully addressed in the negotiations that will follow the signing of the tripartite FTA.

That, he says, means that a lot of work still needs to be done even after the agreement, in order to harmonise laws to undertake the necessary reforms.

But Fred Muhumuza, a research and advocacy specialist at KPMG adds that although there are benefits related to the FTA, they may not be as ‘automatic.’ A member state, Muhumuza says, must have products to sell to the other members, which were possibly being blocked by barriers.

“Uganda has so many markets it has almost free access to but has often lacked what to sell; consider the food to South Sudan and other neighboring countries.”

“Evidence shows that traders are now booking gardens even before the crops are ready, meaning the demand is there but no supply. Also consider the case of fish where we have regularized sale of immature fish; again the demand has outstripped supply,” he says.

With such a scenario, Muhumuza says, the FTA will not benefit Uganda. He gives the example of AGOA, which the government has so far failed to utilize.

He says political patronage and bad ethics fails the emergence of genuine trade partnerships that are critical for international trade.

A country must have trade infrastructure—roads, rails, waterways, cooling facilities— to participate in trade with the FTA members.

“Uganda may be trying to improve internal roads but is still doing badly with connections to member countries.”

“If you want to export to Egypt, Zambia or Ethiopia; we have no trade facilitation infrastructure to give us benefits, even in the medium term.”

On the issue of free movement of labour, this too is still a very constrained issue even within the EAC, he says.

Muhumuza says he does not see that being relaxed by the members in light of massive unemployment in each member country and the socio-cultural orientation of the citizens, pointing to recent xenophobic attacks in South Africa.

Even within the EAC, according to Muhumuza, there is still the problem of work permits.

The success of the FTA will only happen after gauging the political readiness and commitment of the members because on several occasions, countries have reneged on their commitments either due to political pressure at home or realization that losses outstrip benefits.

“Let us not lose sight of the fact that the continued existence of the regional blocs (EAC, COMESA and SADC) is largely a result of trade and political differences between the members,” Muhumuza says.

For instance, Tanzania is in all the trade blocs and only invokes the one that suits them best. Uganda needs the FTA, but it will not single handedly deliver the anticipated benefits.

“There is no magic silver bullet here; even if we are to have the bullet, the gun and shooter are missing.”

Source: The Independent

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.