Recently in June 2015, Zimbabwe with other countries signed the Tripartite Free Trade Area (TFTA), touted as the Cape to Cairo Free Trade Zone. The TFTA is an African free trade agreement between Comesa, Sadc, EAC and is comprised of 26 countries, which include Libya, Djibouti, Eritrea, Sudan, Egypt, Ethiopia, Kenya, Uganda, Burundi, Rwanda, Tanzania, Malawi, Zambia, Zimbabwe, Angola, the Democratic Republic of the Congo, Mauritius, Madagascar, Comoros, Seychelles, Mozambique, Botswana, Lesotho, Namibia, South Africa and Swaziland.
Zimbabwe is among the 16 out of the 26 countries that have already signed the TFTA. Then 10 countries, which are members to either one or two of the three blocs, but have not yet signed, include Botswana, Ethiopia, Eritrea, Libya, Lesotho, South Africa, Zambia, Mauritius and Madagascar.
The TFTA was mooted in an effort to remove some of the inconsistencies emanating from overlapping memberships by the integrators. The objectives of the TFTA are to remove trade barriers on most goods, making them cheaper and stimulating $1 trillion worth of economic activity across the region of approximately 600 million people.
It is hoped that the TFTA will be operational in two years’ time, since some countries have not yet signed the regional integration agreement.
How can Zimbabwe benefit from the TFTA
Free trade brings economic growth as economic agents in developing countries come into contact with modern technologies, new products and skills. Technology and skills transfer expand the production frontier of the host country owing to inward foreign direct investment (FDI). It is often argued that the increase in production translates into direct increases in export volumes and value. Attendant to this are employment creation opportunities.
Free trade encourages efficiency and rational allocation of resources. As such, Zimbabwe should take advantage of the TFTA in order to witness faster economic growth, due to an expected reduction in the distortions in price relativities, opportunities for technology transfer, innovation in new products and human capital development.
Regional integration offers easy access to larger markets to member countries by removing trade barriers among the integrators. When fully operational, the TFTA will create a large market of over 600 million customers. As a larger market access is created, Zimbabwe will circumvent the natural limitations of her own small domestic market.
The manufacturing sector can benefit from an expanded market size, which is an important factor in facilitating technological innovation. Moreover, consumers within and beyond Zimbabwe’s borders will benefit from greater competition in product markets as well as a wider choice of products to choose from.
Free trade enhances national competitiveness, which is the ability of a country to sell and supply its value added goods and services to international markets in relation to its imports. The elimination of barriers to trade as espoused in the TFTA will enable members to import necessary raw materials from within Africa at a cheaper cost and allow firms to enjoy economies of scale.
Regional integration attracts foreign direct investment to competitive markets, as Multinational Corporations in saturated markets seek new markets beyond their borders. Moreover, Zimbabwe is likely to benefit from the emergence of value chains and enhance inter linkages within the TFTA.
Infrastructural development is a benefit deriving from regional integration. A country that belongs to a regional bloc is forced to develop and rehabilitate its infrastructure in order to minimise obstructions to free trade. As envisaged in Zimbabwe’s economic blueprint, Zim-Asset, under the Infrastructure and Utilities Cluster, a “robust infrastructure and network system is critical for the social- economic development of Zimbabwe.”
Addressing Competitiveness Issues
In order to benefit from the TFTA, Zimbabwe has to deal with inherent structural bottlenecks that prevent her from quickly adapting to changes in demand. These include infrastructure deficits, weak institutions and dearth of capital, which are contributing to heightened deindustrialisation and informalisation of the economy. Zimbabwe needs to aggressively deal with supply side constraints in order to take advantage of an expanded market in the TFTA.
Since Zimbabwe is faced with stiff competition to sell its value added goods on the international market and even on the domestic one, it has to improve efficiencies in macroeconomic policy formulation and implementation and quicken technological adoption in order to aggressively sell to fellow integrators.
The local industry has to pro-actively replace obsolete plant and equipment in an effort to withstand the competition from within the TFTA. This can be complemented by attracting FDI into the country.
The education system needs to quickly adjust to changes in technology and new methods of production, thereby enhancing the country’s competitiveness. As Zimbabwe strives to create the economic and social conditions required to meet the needs of new and expanded markets, it simultaneously enhances its competitiveness.
Zimbabwe has realised that in order to meaningfully participate in the regional and even global economy, she has to enhance her competitiveness, and this has necessitated the writing of the National Competitiveness Assessment Report, which is due to be published in the second half of 2015.
In this regard, the Government has instituted the National Competitiveness commission to spearhead competitiveness issues in the country.
It is important to note that free trade in an uncompetitive country may lead to unemployment and reliance on imports which causes trade deficits and other economic challenges.
Countries benefit from easy access to markets if they do not have behind-the-border challenges to international trade. Behind-the-border challenges are non-tariff barriers that affect the competitiveness of a country when doing business with other integrators. Such barriers include among others, regulatory hurdles, complex business registration procedures, and complicated export permits which investors have often complained about in Zimbabwe. These barriers increase transaction costs, hence inhibit free trade by reducing the volume of exports.
Addressing behind-the-border challenges will enhance cross border trade, especially at this juncture when a lot of SMEs are emerging within the Zimbabwean economy due to company closures and the associated loss of employment. Protectionism is not good, because it raises costs and it also damages the trading system as countries tend to retaliate to import tariffs and other trade restrictions, thereby hurting the export and import system.
Transit obstacles such as trucks spending too much time crossing borders at our points of entry, notably Beitbridge, diminishes the benefits of free trade due to high costs of doing business.
As envisioned in Zim-Asset, “Government plans to rehabilitate, upgrade and develop the national grid, road and railway network, water storage, supply and sanitation buildings, as well as ICT related infrastructure” to facilitate national development. Notable examples are plans to dualise the Harare-Beitbridge Road to facilitate trade. Plans are also underway to establish a one-stop-border post at the Beitbridge Border Post so that Zimbabwe benefits from enhanced trade and revenue generation.
The rehabilitation and development of infrastructure will assist Zimbabwe to increase value addition initiatives in order to meet the growing needs of larger and constantly evolving markets. Besides, the demand for primary products which forms the bulk of Zimbabwe’s exports is prone to contagion effects when the international markets experience their own economic crises.
The New partnership for Africa’s Development (Nepad) conceded that “Africa cannot experience meaningful development without trade and there can be no trade without adequate and reliable infrastructure to facilitate trade within the continent and beyond”.
Successful integration requires strong institutions; those that facilitate trade as well as an efficient domestic institutional system of which enhanced competitiveness is a derivative. An aggressive capacity building strategy should be put in place and followed to the dot so that Zimbabwe benefits from free trade.
In order to fully reap the benefits of free trade and under the TFTA, Zimbabwe needs to address the following factors which include inter-alia, but not limited to balance of payment difficulties, fear of loss of revenue owing to free trade and private sector needs to actively participate in trade negotiations. Zimbabwe needs to strengthen the capacity of trade facilitation institutions in order to enhance and sharpen trade negotiation expertise within the country.
Tafadzwa Bandama is an Economist at the National Economic Consultative Forum (NECF) and she writes in her own individual capacity. Therefore, the views expressed are her own and do not necessarily represent the views of the NECF.