On May 30, 2019, the African Continental Free Trade Agreement (AfCFTA) officially came into force. The AfCFTA was created to form a single market for goods and services on the African continent, which allows for free movement persons and investments. It is envisaged that the AfCFTA will expand trade within the region, through better harmonization and coordination of trade across the regional blocs and Africa as a whole.
Benefits to African countries expect to come via; increased market for agricultural and manufactured products and economies of scale, increased competitiveness which could improve firm efficiency, access to more employment opportunities as trade barriers to goods and services are lessened, and technology transfer through constant trade interactions.
The United Nations Economic Commission for Africa (UNECA) estimates that the AfCFTA has the potential both to increase intra-African trade by more than 50 percent through eliminating import duties and expansion of trade once non-tariff barriers are reduced. In addition, UNECA forecasts an increase in intra-African trade by 15 to 25 percent (approx. US$50 billion to US$70 billion), by 2040. Besides, the International Monetary Fund (IMF) also projects an increase in more efficient goods and labor markets within the AfCFTA. These changes are expected to boost competitiveness of industries on the continent.
Despite these projections however, Uganda still faces some challenges that may constrain its ability to benefit from new the regional bloc. These include the very low investment in Research & Development (R&D). In 2010, the World Bank, showed that R&D expenditure (as a percentage of GDP) in Uganda was less than 0.5 percent. This is quite very low compared to other countries. In addition, Uganda is constrained by limited capacity to supply goods and services; poor standard of goods produced; poor infrastructure to facilitate the transformation of inputs into outputs for products or services; inadequate access to finance and weak institutions to support industry. Hence, given the challenges, it’s important to undertake some reforms in order to realize maximum gains from the AfCFTA.
There is need to promote trade facilitation and efficient logistics so as to support the movement of goods and services between producers and consumers. Efficient border management and clearance processes, along with logistics infrastructure and services will make supply chains more efficient and reduce overall trading costs. There is also essential to invest in R&D in order to improve innovation in technology, new products and value addition, given the fact that Uganda’s level of technology is still very low as well as the ability to absorb technology from foreign sources and use it to compete favourably on the world market.
In addition, other bottlenecks which hinder technological advancement should be addressed such as, improving the quality of products and ease of movement to markets. Increasing access to finance is another area which requires improvement due to the limited access to credit facilities. This can be done through the development of public-private partnerships to support technical capability of local firms to invest in the production of better quality products and hence improve their competitiveness. Also, infrastructure development is another important factor especially the roads and railways which facilitate the transformation of inputs into outputs for products or services, and allow for quick movement of the products to the consumers, thereby improving trade competitiveness.
In summary, the AfCFTA offers an opportunity for Uganda and other African countries to increase their trade opportunities. Hence in order to maximize the benefits from the AfCFTA, Uganda ought to look inward at the promising opportunities in the country and support the sectors which can be traded under the AfCFTA. Through these interactions, policy makers can gain a better understanding of the sectors which will benefit more from the regional bloc.
Justine Luwedde is a Research Analyst, Trade & Regional Integration, Economic Policy Research Centre (EPRC)