Kenya, Uganda, and Non-Tariff Barriers
The new African Continental Free Trade Area could transform Africa’s economic prospects. The World Bank estimates AfCFTA could lift more than 30 million Africans out of extreme poverty (defined as having an income of less than $1.90 per day), and 68 million more people out of moderate poverty (an income of $5.50 per day), within 13 years. Yet, significant hurdles exist that may stymie the entire continent’s economic development.
The AfCFTA is primarily focused on reducing formal trade barriers and subsequently deepening trade relationships. However, non-tariff barriers (NTBs), such as quotas, import restrictions, and expensive export and import licences, are just some hurdles that, if not addressed will continue to limit growth across the continent.
Thankfully, some governments are taking steps in the right direction. Last month, Kenya and Uganda signed a Memorandum of Understanding to eliminate many NTBs. Agreements such as this should serve as examples for other African nations to follow.
Tackling the NTBs is crucial. Today, it is several times more expensive to transport goods just 1,700 KM from Douala in Cameroon to N’Djamena in Chad than it is to ship those same goods 12,000 KM away to Shanghai. While some of these high costs can be attributed to poor infrastructure, non-tariff barriers also play a large role in making trade between African states more expensive, and therefore, less likely. While implementation of the AfCFTA will reduce 90% of tariffs between African states and make trade far cheaper, refusing to address the NTBs will continue to make trade more costly than it needs to be.
It’s a simple calculation: the easier trade becomes, the more effective AfCFTA will be.
If a substantial amount of the NTBs are removed, the United Nations Conference on Trade and Development estimates that African countries could make about $20 billion annually. Similarly, the Economic Commission for Africa suggests that intra-African trade volumes can double if both tariffs and the NTBs are reduced.
Formal tariff barriers are easy to quantify and reduce, but the NTBs are more difficult to measure. Fitch Ratings, an organisation that has studied how AfCFTA is attempting to reduce the NTBs, has warned that the process of removing the NTBs will likely lag behind reducing formal tariff barriers. In addition, they noted that the success of the East African Community Customs Union, which began in 2005, has been limited due to the NTBs that have increased costs. African governments should strive to ensure AfCFTA does not need to endure the same fate.