Thursday, February 29, 2024
BusinessFree trade pact to cost Ethiopia 26 bln birr in revenue losses

Free trade pact to cost Ethiopia 26 bln birr in revenue losses

Ethiopia could lose up to 26 billion birr annually by putting into operation the African Continental Free Trade Area (AfCFTA), according to a document from the Ministry of Trade and Regional Integration. This includes Sur tax, withholding, excise, and VAT tax revenues generated from imports from African countries, which will be tariff free under the AfCFTA.

To operationalize the AfCFTA, countries have to waive the tariffs of 90 percent of the goods and services, which are close to 6,189 items. Even though the AfCFTA will become operational in January 1, 2021, Ethiopia did not offer which goods and items to be made tariff free so far.

The House of Peoples’ Representatives (HPR) and the Council of Ministers (CoM) have recently requested the Trade Ministry to finalize and submit the tariff zero list within two months-time.

“We are still negotiating. The source of origins for automobiles and textile has complicated the issue,” said Muse Mindaye, director of trade relations and negotiations at the Ministry. Once the tariff free items are approved by the Ministry of Finance, Ethiopia will operationalize the AfCFTA.

The document prepared by Trade Ministry states that the AfCFTA will create a stable market for Ethiopian exports, stabilize inflation, boost competitiveness, increase domestic and foreign investments in Ethiopia, modernize trade, formalize informal border trades, strengthen political relations, and create more jobs, among others.

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The ‘negative impacts’ of the agreement are fall in customs revenue, shrinking policy space and supply side constraints.

According to NBE’s report, the customs revenue from import of goods and services from Africa grew from 24 billion in 2015 to 26 billion birr by 2019. About 18.9 percent of Ethiopia’s export proceeds in 2019/20 were generated from Africa. Africa accounts for 8.1 percent of the total annual imports of Ethiopia. This means, Ethiopia spends around USD1.5 billion to import from Africa, while export to Africa generates a third of that.

Total customs revenue constitutes over 40percent of Ethiopia’s tax revenue. In the current fiscal year, Ethiopia expects 147 billion birr from import duties, constituting 44 percent of the total 334 billion birr in tax revenue forecasted.  

The AfCFTA is expected to boost intra-Africa trade by 53 percent. However, some scholars conclude that comparatively industrialized African economies like SouthAfrica, Egypt, Nigeria and Kenya will dump agrarian economies like Ethiopia.

Nonetheless, Muse says Ethiopia has a much better comparative advantage in coffee, oilseeds, leather, textile and basic metals, among others.

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Video from Enat Bank Youtube Channel.

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