12 March 2021 – “It costs less to ship a car from Paris to Lagos than from Accra to Lagos.” With these words, a webinar on the new African Free Trade Area (AfCFTA) was launched (March 9th 2021) by two expert firms in the field – Tutwa Consulting and Cova Advisory. It is time for business to pay closer attention to the AfCFTA.
Businesses which attended were briefed on the importance of assessing their current trade relations with Africa, and then assessing how the new agreement will enable them to build on this.
It potentially covers 55 countries, with 1.3 billion people and a combined GDP of USD3.4- trillion.
In the current fragmented market, firms face high costs in often small markets, with the connecting infrastructure not developed to the required extent.
Combining these countries inside the AfCFTA, which makes Africa a far more formidable force to be reckoned with, is ambitious, but can really make a difference.
However, she warned that the pan-African trade accord is still a work in progress.
The negotiators are locked in discussion on tricky issues such as rules of origin – where there is still vital work to be done on autos, sugar, clothing, and textiles.
Offers have been made covering 81% of tariff lines where there are agreed rules of origin.
Imports are being categorised as A: non-sensitive (90%), B: sensitive (7%), or C: excluded (3%). This means that the trade accord will, in time, lead to zero tariffs on 97% of goods.
“While there is no question about the benefits of the AfCFTA, questions which remain to be answered include: what does this really mean for business, how will the AfCFTA agreement relate to other regional arrangements, and how will it be funded and enforced?” she stressed.
Cova Advisory’s associate director for customs, Caroline Rheeder said firms must look to whether AfCFTA imports, which will attract lower tariffs, will erode their own market share.
“Manufacturers must closely examine this competition from imports, must assess the risk, should monitor new imports, and must also be aware of any changes which will be forced in the sourcing of raw material,” Rheeder said.
“Exporters should examine the opportunities – are there new markets to export to?
“They must also look at who their competition will be – both in these new markets and in existing markets.
“And it is vital to be on top of the paperwork, in terms of rules of origin, certificates, invoice declarations and so on.
“The devil is in the detail – the agreement is product specific, driven by tariff classification.”
She warned that it is vital that a firm should lay out its future strategy in Africa and must be aware of who they are in competition with.
“The rewards could be enormous. Currently, for instance, there is a 3 000% tariff on South African sparkling wine to Egypt, but it should fall to zero under AfCFTA’” she suggested.
“This would deliver a big advantage for South African sparkling wine in the Egyptian market.”
Catherine Grant Makokera concluded: “As we have stressed, these negotiations are still in process. We have incomplete offers for tariff cuts on the table, so it is important for South African firms to get involved in the process.
“The Department of Trade, Industry and Competition (DTIC) has asked for inputs to make sure they are getting the information they require from the ground.
“We must also stress that the impact of the AfCFTA will be limited unless we address non-tariff barriers, infrastructure, customs administration capacity and so on.”
She noted that Cova Advisory and Tutwa soon hope to release a software tool to enable firms to monitor the progress of the negotiations, and to pinpoint what is agreed, in real time.
Cova was set up by Tumelo Chipfupa and Duane Newman. Cova is a majority black owned consulting firm. Its services range from sustainability, carbon and energy strategy services through to green tax and government grant services.
Cova has positioned itself as an independent advisor on matters ranging from carbon and energy strategy, green related funds, carbon tax and policies, and renewable energy. Cova has set up a strong local network within the private and government sectors. It has access to various thought leaders in South Africa and around the world on carbon and renewable energy and investment promotion.
The team has combined experience in grants and incentives of over 50 years.
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