The agreement establishing the African Continental Free Trade Agreement (AfCFTA) entered into force at the end of May 2019 for the 24 countries that had ratified the agreement. Subsequently, the operational phase of the AfCFTA agreement was officially launched in July 2019. Trading under the AfCFTA will begin in July 2020 and the new trading block is expected to bring together 1.2 billion people and a combined GDP of more than US$3.4 trillion. According to UN Economic Commission for Africa (ECA), the AfCFTA has the potential to increase intra-African trade by 52 percent by 2022. In the long run, it is expected to strengthen the capacities of African companies to access and supply world markets and strengthen African’s economic and commercial diplomacy.
During the past ten years, Uganda’s export earnings from African countries increased more than the export revenues from non-African countries. Earnings from African economies increased from US$ 798 million in 2008 to US$ 1.6 Billion by 2018.On the other hand, earnings from non-African economies increased from US$ 927 million in 2008 to US$ 1.5 Billion by 2018. Therefore, Uganda is likely to benefit from increased intra-African trade under the AfCFTA. Whereas there is much hype about AfCFTA benefits and renewed hope about its implementation, what remains unknown is the reality of Uganda’s readiness to benefit from new and existing market opportunities under the AfCFTA.
Previous experience shows that to benefit from trade agreements, signing and ratifying them is a necessary but not a sufficient condition. Benefiting from trade agreements requires adequate preparation. Given past performance with regional economic communities, it’s intuitive that Uganda should be more prepared for AfCFTA. However, this might not necessarily be the case.
There are several challenges that Uganda must address to benefit from any new regional trading block. First, there is need to recognize the size of the economy and associated constraints. Uganda’s economy is largely a small economy with high costs of doing business (due to a number of factors such as: high regulatory burden and increased import competition). High costs of operation have limited value addition and push activities into a high concentration in agro-processing. Moreover, the weak and inadequate capacity to meet standards set by importing countries undermines the Uganda’s trade performance. Compliance to these standards requires additional spending which most small and medium enterprises (SMEs) are unable to meet.
Secondly, most African countries produce similar goods and this makes it hard to increase exports as demand is not usually very high, save for certain types of cereals like maize for particular periods. On the other hand, the rise in trade with non-continental countries like China and India has potential to limit and reduce intra-African trade. Lack of a policy and or strategy to enhance exports has been a hindering factor. This is especially with regard to access and penetration of international markets where Uganda has not performed well, for example the AGOA market preference. So far, there is inadequate investment into improving customs and administrative documentation and procedures; inspection requirements; police road blocks/check points; and transit procedures. The political will to deal with Non-tariff Barriers (NTBs) is weak. The current disagreements between Uganda and Rwanda that resulted into Rwanda closing its borders since early 2019 contrary to the rights and obligations provided for under the Common Market Protocol is a typical example of likely disagreements that may negatively affect Intra-African trade.
Although the government has undertaken steps to ensure that Uganda benefits from different trade deals – though more needs to be done. First, Uganda has made significant investments in transport and communication infrastructure such as the construction of roads to ease transport, the building of dams to increase electricity generation among others. Second, Uganda has embraced industrialisation to add value to its commodity exports. Third, the BUBU policy, though inward-looking, serves to improve the competitiveness of the private sector and has the potential to build companies’ capacity for external and internal trade. Fourth, trade facilitation measures such as the Electronic Single Window, Electronic Cargo Tracking, One-Stop Border Posts, Non-Tariff Barriers identification and removal mechanism and Border Export Zones have been put in place.
Nonetheless, Uganda needs to do more to fully benefit from the AfCFTA because this agreement is more complex and sophisticated compared to past trade agreements. To start with, Uganda must concentrate on building a more comprehensive trade policy strategy that focuses on improving the quantity and quality of the existing exports and taking advantage of the new markets. This implies that standards must be at the forefront of Uganda’s market access penetration activities. Also, key on the reform agenda should be export diversification by learning the product and service exports that can be sold profitably to new and existing markets. This will give Uganda a greater advantage in exporting and maneuvering through price fluctuations that affect economies that rely on commodity exports. This must be supported by improvements in productivity that facilitate quality improvements and efficiency.
Furthermore policymakers and the private sector need to find better ways to increase export growth, through long-term strategies that (i) emphasise export growth-enhancing investments (ii) expand access to trade finance (iii) reduce policy, economic and production inefficiencies (iv) strengthen human capital investments (knowledge and skills training) to improve the capacity of traders to understand the rules of origin and other terms under the AfCFTA and (v) eliminate instances of price undercutting by different Ugandan exporters against each other.
In sum, whereas boosting Uganda’s readiness to trade under the AfCFTA is important, this needs to be matched by the readiness of African economies to trade with Uganda. Unless infrastructure deficits, knowledge gaps, trade costs and commodity dependence are reduced across Africa, it might be preferable to continue trading with non-African countries.
