Capital account protectionism deters Ethiopia’s AfCFTA negotiation
The protectionism policy over capital accounts is hindering the technical committee at the Ministry of Trade and Regional Integration from negotiating on any service export products ahead of operationalizing the AfCFTA. The technical team requested the negotiation committee to make policy shifts and liberalize capital accounts.
Muse Mindaye, director of trade relations and negotiations at the Ministry of Trade and Regional Integration (MoTRI), told The Reporter that Ethiopia will not benefit from service exports unless capital account is liberalized.
“We requested the national negotiation committee to liberalize capital accounts. The committee knows very well the pressure of this issue on our AfCFTA negotiation. We clearly indicated to the national committee that Ethiopia cannot benefit from the service export, unless capital account is liberalized,” Muse said.
Since Ethiopian service providers cannot go to other African countries, open accounts and do businesses there, the technical team is unable to negotiate on any service items. Ethiopia did not offer any service items under the AfCFTA negotiation, according to Muse. This means Ethiopia is only making tariff free goods available, while service items are going to be closed off at least for the next decade.
“The capital account protectionism is a big barrier and must change. If Ethiopia is going to allow Ethiopian service providers to go to African countries and do business, we have to change our policy regime and liberalize capital account,” said Muse.
“Even an Ethiopian hotel owner cannot go to Djibouti and open a hotel. Under these circumstances, I cannot negotiate for Ethiopian hotel owners to join the AfCFTA. Simply put, Ethiopian service sector cannot go outside Ethiopia and provide service. To the contrary, foreign service providers can come to Ethiopia,” Muse added.
To solve this, Ethiopia must allow capital account liberalization, according to the team’s recommendation. However, capital account liberalization is not expected to take place before the opening up of the banking industry, according to Muse.
Service items are going to be included in the 10 percent of AfCFTA items to be listed. These are exclusive and sensitive items that will be made tariff free over the next decade.
Muse says Ethiopia is going to lag in negotiating the service items. “For online services, we can open up, since the money can come to Ethiopia. But neither Ethiopians can go abroad nor become consumers and provide services for foreigners abroad, since capital flight is not allowed.”
“For instance, MTN can come and invest in Ethiopia. But Ethiopian companies cannot go to Kenya and provide the same service. So service negotiations are defensive, always protecting our sectors. Since we cannot go and operate there, we cannot allow theirs to come and operate here,” added Muse.
The technical team has readied the 90 percent goods to be tariff free. But the Office of the Prime Minister has to see the offer list in terms of customs revenue implications. Once it approves the list, Ethiopia can submit its offers to the AfCFTA secretariat. However, no definite time set on how long the PM’s macro-economic committee is going to take to review the offer list.
“Banking is not included in the sectors that are going to be opened. As a result, we did not consider it for tariff free purposes. But there is still plan to open the banking industry,” said Muse.
The Ministry of finance, Customs Commission, Ministry of Revenue, Industry and others participated in preparing the offer list.
On the other hand, the delay of the goods and service offer is shortening the time left to open up the whole economy under the AfCFTA. The time to liberalize sensitive items has reduced from ten to nine years now, since the AfCTA operationalization since January 1, 2021.
The former Ministry of Trade and Industry’s split into the Ministry of Trade and the Ministry of Industry nine months ago is also affecting Ethiopia’s offer and negotiation process. The Ministers of trade and industry have frequently changed over the past years, hindering a continuous negotiation process.
The Ministry of Trade is the designated implementing organ of the AfCFTA, while the Office of the PM plays a role in the negotiation part only.
So far, the tariff offers are still being handled by the Ministry of Trade. “We do not know when the macroeconomic team will review the offers and make the decisions,” added Muse.