Mussie Mindaye, Ethiopia’s Top Expert and Negotiator in AfCFTA
Muse Mindaye has been Ethiopia’s top expert and negotiator in the African Continent Free Trade Agreement negotiation forum since the beginning of the effort to create a single African market. He is also director of Multilateral Trade Relation and Negotiation at the Ethiopian Ministry of Trade and Industry. An Economist in profession, Mussie predicts the hour of Africa’s economic redemption against globalization is at the door, only clouded by COVID-19. EBR spoke to him to further understand what Ethiopia would benefit from AfCFTA and how the future will look with the implementation of the agreement.
At what stage was AfCFTA when COVID-19 struck?
AfCFTA is launched on July 7, 2019, at the AU assembly after the 22nd country deposited its ratification tool in May, 2019. 28 countries have ratified and 54 countries have signed the agreement, except Eritrea. The next step sees ratifying countries submit the goods and services they want to trade tariff free. According to the agreement, 90Pct of goods and services will be tariff free in ten years’ time for Least Developing Countries (LDCs).
Negotiations are still pending for most items. There is disagreement on textile items, sugar, vehicles and oil. For instance, some countries are saying textile and garment must be 100Pct African produced. But other countries that import cotton and produce garment locally say the amount should be adjusted. Those countries who gave the 90Pct so far have either less dependency on those products or have competitive edges. But Ethiopia will offer the 90Pct only after the rules of origin for argumentative items is finalized. Currently, we are identifying which items Ethiopia should liberalize under the 90Pct tariff free agreement, or place in sensitive and exclusion categories.
In terms of service schedule, four countries have offered 90Pct so far: Egypt, South Africa, DRC and Zambia. Ethiopia will also offer on service but we need time. Sometimes, items given as goods are related to service. After Kigali, we had seven meetings of chief negotiators; that brings the total negotiation forums to 17 while five more have taken place at Ministerial level.
The plan was to finalize the rules of origin negotiation in March and April, 2020. Then, countries offer their 90Pct. In May, 2020, there was a plan to hold the AU extraordinary assembly in Johannesburg. Then, trading under AfCFTA was planned to kick off in July 2020. Unfortunately, COVID-19 happened. Assembly meetings are so confidential; thus, conducting it through webinar or zoom is impossible. But the negotiations will continue through zoom to be finalized in June, 2020.
Many countries fear being a dumping site and are cautious of loss of tax revenue after making 90Pct of their goods and services tariff free. Which countries will benefit most under AfCFTA?
Countries excelling in manufacturing industry, such as: Egypt, South Africa and Morocco will have better export diversification. They can be advantageous in the short term. But in the long term, all African countries would benefit by improving their output, attracting more FDI and boosting domestic investment. Manufacturing industries will boom in Africa short after AfCFTA is launched because every country will have access to the whole continental market. Global investment would also be interested to claim a stake in this huge market. Domestic investment will also boom to take advantage of the huge demand.
Ethiopia’s manufacturing industry must become competitive. No doubt AfCFTA will slash customs revenue. Of course, Ethiopia’s trade with Africa is insignificant. Ethiopia’s export to African countries has been low. Ethiopia’s import from Africa also stands at 4.6Pct of the total import, which is around USD16 billion. Half of what Ethiopia imports from Africa (the 4.6Pct) is fertilizer from Morocco, oil and onion from Sudan and sugar. The tariff for these items is already zero. Therefore, we will not lose big customs revenue.
According to our study, Ethiopia has been losing ETB920 million customs duty revenue per year due to tariff free trades with African countries. Ethiopia gave 10Pct tariff free under COMESA. But we expect the loss will be compensated through trade diversions. Informal cross border business will be legalized when tariff becomes zero. Under the zero customs duty, trade will shift from Asia and the West to Africa.
We are putting our items with relatively better production in the sensitive and exclusion categories. We will liberalize them in the long term because they are our competitive edge. Goods and services upon which Ethiopia enjoys a comparative advantage in exports will be protected. Items that affect food security are also protected. We cannot rely on import by liberalizing such sectors. Sectors and items which are the source of livelihood for our citizens, such as agriculture, will also be protected.
At this time, we are done with the first draft of which goods, services and sectors to protect under the 10Pct sensitive and exclusion categories. We are talking to chambers, industries and associations especially about textile, leather, garment and sugar products. We tell them which sectors we are liberalizing and keeping.
What criteria do you use to determine whether an item should be in exclusion, sensitive or the 90Pct tariff free categories?
Items with export competitive advantage for Ethiopia will be protected under sensitive or exclusion category. Emerging and promising sectors, livelihoods like agriculture and sectors with higher share to GDP will be protected. Tax revenue level, trade diversion, food security, and especially social impact are also put into consideration.
Which of Ethiopia’s manufacturing sub-sectors will be more competitive under AfCFTA?
These issues are confidential. For instance, we have competitive advantage over other African countries in leather and leather products. The demand for our footwear, coffee and sesame is higher in other African markets. For instance, Sudan does not produce coffee but it consumes it. So, we must keep those advantages. The government approaches the issue from the job creation and GDP expansion sides while the private sector considers profit maximization. Further discussions are required before offering tariff free items.
What exactly happens on the first day of AfCFTA’s launch?
Tax will decline immediately because tariff is slashed at least by 10Pct in the first year. If the customs duty of product X imported to Ethiopia is 35Pct at normal time, it will be 32Pct in the first year AfCFTA is launched. It decreases 10Pct every year until it reaches 90Pct and zero tariff on the tenth year. The service sector will also be liberalized bit by bit. More foreign new service providers engage in business and this will have big impact on the economy, market and business activities.
Africa’s import and export activities with the rest of the world have plummeted due to COVID-19. Africa needs to rely on its own markets in terms of the free movement of food items, medical equipment and other goods and services. Many argue that AfCFTA can fill the gap created due to the decline in global trade. On the other hand, others argue launching AfCFTA under COVID-19 would fuel the spread of the pandemic. What is your take?
There is also logic that Africa has not been affected that much by COVID-19. It proposes the time for intra-Africa trade is now. But latest developments show the spread is hiking in Africa. We do not know if Africa is going to be the next stage of tragedy after developed countries revive from the pandemic. At the AU, the second logic holds more water. AU believes safety and health should be the first concern; it still believes Africa should benefit from globalization.
For instance, most of our imports are from Asia, specifically China. Whenever there is global crisis in these areas, it reflects on Africa. Our industries cannot operate without raw materials from china. Compared to even other African countries, Ethiopia is less integrated with the rest of the world. Global crises have direct or indirect impact on Africa.
Therefore, production and trade in Africa cannot be active until the economies of countries like china revive. Launching AfCFTA will have no impact under the circumstances, unless the global economy revives. Most of our industries depend on imports from outside continents such as Asia. The prospect of AfCFTA and Africa will be determined by the revival time of the global economy. Plus, there will be no demand and buyer under COVID-19.
Where the global economy is heading has not been identified yet. It is not even clear to the WTO. Every country is replacing imports by reviving local production. Almost all countries are keeping stock, because even if global trade resumes, the logistics and shipment queue will be longer. For instance, Ethiopia’s agricultural export is increasing under COVID-19. So, there is no single conclusion on the future direction of the world economy.
Most countries have decided to become self-sufficient in all sectors. They are installing factories or shifting production lines. WTO reported 800 goods and services have been globally restricted since COVID-19. Restricting import and export is possible even under WTO, when it comes to people’s safety. This provision is also copy pasted into AfCFTA.
Is nationalism weighing on globalism and regionalism?
Definitely, yes. But global and regional trade instruments such as the WTO or other regional blocs will not be closed because there must be a platform to trace and centralize trade. Not only Africa but even developed countries need an institution to handle trade.
When it comes to centralizing Africa’s trade in terms of globalization, different stakeholders have varying perspectives, including the AU. It is difficult to judge but African countries are still committed to AfCFTA.
We have communications through different internet platforms. All countries are active and remain committed. The dimension might shift, if the spread of the pandemic worsens in Africa.
Does that mean AfCFTA will not go operational, if COVID-19 continues?
Currently, we expect AfCFTA to kick off in January, 2021. That is a tentative launch date after the original schedule for July was postponed. The AU extraordinary meeting is also postponed from May to November.
There is no doubt Africa must industrialize. The Industrialization can be done either by domestic or foreign manufacturing companies. If a US or Chinese company opens in Africa legally, it is a juridical person that is producing in Africa for Africa. It is an African company. AfCFTA attracts global FDI to Africa. A Chinese company that has come to Ethiopia targeting 100 million of Ethiopia’s population can now access a market of 1.3 billion people.
As an African country, we need to boost employment and industrialization to retain raw material export. Developed countries, including the West and China, that buy raw material from Africa might not be happy with such an ambitious plan. The European Union has positive support for AfCFTA. The rest of the world can come, invest in Africa and benefit from AfCFTA’s privileges. In the future, every trade deal Africa makes with the rest of the world will be negotiated and signed as a single Africa in a way that benefits all African countries. We deal with EU, USA, china or others as a continent.
Outsourcing production to African countries increased especially since the 2008 financial crisis. But now, this export from Africa to developed countries will be redirected back to the African market under the AfCFTA incentives. What will be AfCFTA’s impact in the global market?
The global demand will rise for some sectors and fall for others. Demand for raw materials needed by textile industries in Ethiopia will increase. Some final goods we used to import from other continents will decline, either because we will become self-sufficient or the import will be from African countries under the duty-free privileges. So the relation between Africa and globalization will depend on the types of items produced in Africa and not.
Infrastructure is another expected obstacle to AfCFTA. How much of an opportunity would AfCFTA be for Ethiopian airlines?
AfCFTA will be the biggest advantage for Ethiopian airlines. The problem is that air cargo is more expensive than shipment. Africans who produce perishable products might use air cargo but not all Africans will afford it.
Infrastructure is a big limitation for Africa. It is simpler to send goods from Ethiopia to Beijing than to Dakar. Developing railways and highways crisscrossing the African continent is the second flagship project of the AU, next to AfCFTA. Single air transport market is also part of this. African aviation companies will not pay for flying over the African continent. Currently, Ethiopian airlines pays for crossing over Sudan’s air territory. But it will be liberalized for all African aviation service providers under the single African air market, which many countries signed. But the charges will apply to Lufthansa or any other non-African aviation company. Short after the launch of AfCFTA, the infrastructural impact will be felt more. Intra-Africa trade may not surge instantly due to the infrastructural limitations. But the impact will be solved in the long term. The trade itself will fuel investment in infrastructure.
How does the Ethiopian private sector view AfCFTA?
Ethiopia’s private sector was represented in all the AfCFTA negotiations we undertook through the chamber and sectoral association. The technical committee for AfCFTA negotiation has 36 members and almost all Ethiopian institutions are represented. The steering committee comprises all Ministers and commissioners in Ethiopia, including the NBE. We have traveled to every regional state in Ethiopia, raising AfCFTA awareness.
The Ethiopian private sector is dormant. We repeatedly asked them to tell us which sector they want to be liberalized or protected. But they are not responsive. The government plans only from the perspectives of employment and GDP growth. But the private sector knows every detail of each sector. Nonetheless, they are not responding to us. The only factor the Ethiopian private sector actively follows up and responds to is changes in the price of fuel. They expect a simple automatic economic fluctuation than in-depth and fundamental shifts in market systems. We are still trying.
Did Ethiopia integrate AfCFTA targets in the recently launched Homegrown Economic Reform?
The homegrown economic reform does not yet have a detailed, numerical and compiled document. The GTP document is more detailed. But the government is acting on some sectors based on the homegrown direction. The homegrown economic reform considers WTO and AfCFTA as external anchors. Home-grown economic reform is a domestic strategy. So, it capitalizes on the domestic sectors. It perceives AfCFTA and WTO only as external supportive agreements for the domestic reform. We have already prepared AfCFTA implementation strategy for economic advisors of the PM. The strategy outlays how to implement AfCFTA in Ethiopia and what kind of institutions we have to establish.EBR
9th Year • Jun.16 – July.15 2020 • No. 87