Tuesday, April 16, 2024
BusinessEthiopia weary of AfCFTA impact on tax revenue, dumping

Ethiopia weary of AfCFTA impact on tax revenue, dumping

South Africa, Nigeria, Egypt, and Kenya push to access Ethiopian market

The Ethiopian government is considering the implementation of the African Continental Free Trade Agreement (AfCFTA) with caution in order to avoid becoming a dumping ground and resulting in revenue loss. Relatively industrialized African economies demand that Ethiopia fully open the market, while Ethiopia negotiates cautiously to safeguard its economic advantages.

The Office of the Prime Minister, the National Bank of Ethiopia (NBE), the Ministries of Finance (MoF), Planning and Development (MoPD), and other macro-level stakeholders are all looking into this issue, officials from the Ministry of Trade and Regional Integration (MoTRI) said during their six-month performance report to Parliament on February 2, 2023.

Gebremeskel Challa, minister of MoTRI, told Members of Parliament (MPs) that the AfCFTA has two big effects on Ethiopia.

“The tariff on 90 percent of our trade items will be zero in the next ten years. This means our revenues from import tariffs and excise tax will be zero, among others. Items will be imported into Ethiopia without any tax. This will affect our revenue,” Gebremeskel said.

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“The second effect is on our economy. Our economy has been closed and not exposed to foreign competition. We have been protecting our investors and subsidizing them on many things to make them compete and stay in the market. Once those supports and subsidies end, they will be exposed to shocks. Our market will be filled with Kenyan products, simply. This will be good for our consumers, but it will kill our country.”

Even though the officials said that the MoTRI finished the studies and forwarded the tariff offer document two years ago, it is still waiting for the final approval of the MoF and the Office of the PM.

In the meantime, pressure from relatively industrialized African economies is increasing on Ethiopia to open up.

“Especially South Africa, Nigeria, Egypt, and Kenya are highly interested in entering the Ethiopian market. They are ready to tap into the 120 million consumers in Ethiopia,” Gebremeskel said.

He says that the question that needs to be answered is, “Are we going to operationalize the AfCFTA to export our products to other markets or to become a market for other countries?”

“We are working hard to maximize our market opportunities inside the AfCFTA, but we are exercising caution not to sustain negative effects later. The MoTRI has finalized the study, but decisions have to be made in a way that will not affect the national interest of Ethiopia. We do not want to operationalize it in an unwise and immature way, refraining from jumping into action with mistakes,” said Gebremeskel.

Trading under the AfCFTA was officially operationalized in January 2021. But the actual trading has remained very limited so far; many members have to localize the terms yet. Up to 90 percent of liberalized goods will have their tariffs reduced by the latest in 2030 and seven percent by 2035. Countries are allowed to tax three percent of produced goods.

Ethiopia, though it ratified the AfCFTA, has not offered tariff-free lines yet. There are over 6,000 goods and services identified in the AfFTA platform. A member country is expected to select and make 90 percent of those items tariff-free, and the rest 10 percent are sensitive and strategic items that need protection and will be liberalized in 13 years.

For Ethiopia, it was telecom and financial services that were non-negotiable in the past, but it has resorted to opening up these sectors for foreign competition. However, Ethiopia is working to protect commodities that have competitive advantages for Ethiopia’s exports. These include coffee, leather, textiles, and other agricultural and light manufacturing items, according to sources. The main goal is also to compensate for revenue losses through increased export revenues under AFCFTA.

The AfCFTA is estimated to potentially lift 50 million Africans out of poverty and increase the continent’s income by USD 470 billion. But while relatively industrialized African economies are readying to export en masse, less industrialized economies are in fear of becoming dumping grounds and losing customs revenue.

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Video from Enat Bank Youtube Channel.

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