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African Union seeks aid for states affected by free trade zone

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African Union seeks aid for states affected by free trade zone

Call for billions of dollars to support governments that cut tariffs

Trucks queue in Kasumbalesa, a Congolese town on the border with Zambia © AFP

The African Union is seeking billions of dollars in aid to support governments whose revenues will suffer from cutting tariffs to join the continent’s free trade area.

Albert Muchanga, the AU trade commissioner, said he wanted to create an “adjustment mechanism” that would be used to provide budget support, improve officials’ competence and develop infrastructure during the period of “short-term losses” until the expected “long-terms gains” of greater trade materialise.

Forty-four of the 55 members of the AU in March created the African Continental Free Trade Area that will cut 90 per cent of tariffs from their current average of 6.1 per cent to eventually zero.

Governments in some less developed countries, such as the Democratic Republic of Congo and Mali, raise little from taxes and rely heavily on tariffs. They would suffer significantly from cutting the hundreds of tariffs required to participate in the free trade area.

“We’re trying to get some funds, an adjustment mechanism, to alleviate the impact [of cutting tariffs] and then move towards expanding the production base,” Mr Muchanga said on the sidelines of a meeting of African finance ministers in Addis Ababa.

He added that development partners such as the EU and World Bank had agreed “in principle” to provide the funds, which he estimated at billions of dollars.

Vera Songwe, executive secretary of the UN’s Economic Commission on Africa (UNECA), said “resources” would be needed to help some countries “bridge the gap” as they lose tariff revenues after the free trade area comes into effect.

She said encouraging development agencies “to veer some of their trade support towards accelerating direct support to the CFTA . . . would make sense”.

“If we’re saying we’re supporting the continent because we want growth, jobs, prosperity, to reduce poverty, then . . . we’ve done the studies that show that when Africa trades with itself it adds more value, it creates more jobs and it’s more prosperous,” she said.

Donors such as the EU and World Bank did not comment on the proposals.

UNECA forecasts that if all the big African nations joined the free trade area, trade between African nations would grow 50 per cent in the following five years. Intra-African trade currently accounts for about 15 per cent the continent’s trade, according to the African Export-Import Bank.

Four countries — Kenya, Rwanda, Niger and Ghana — have already ratified the AfCFTA. Officials hope that the 22 ratifications that are required for the agreement to come into effect will be signed by early next year.

However, South Africa and Nigeria, the continent’s two biggest economies, have yet to sign it. Officials are confident that Pretoria will join in a few months but opposition to the initiative is still strong in Abuja.

Bernd Schlenther, an adviser at the African Tax Administration Forum, a think-tank, said he doubted that billions of dollars would be required.

Mr Schlenther also said donors should wait until the free trade area came into effect before contributing to such a scheme.

“If African countries can get the agreement ratified and implemented and demonstrate progress then there would be a good rationale for developed countries or donors to get involved and help boost those that are dependent on trade for their revenues,” he said.

Other AU initiatives to deepen integration include an open-skies policy for aviation travel, which was launched in January, and a free movement of people protocol.

The article has been amended to remove any suggestion that Vera Songwe, executive secretary of the UN’s Economic Commission on Africa, considers the support being discussed between the African Union and its partners as compensation.

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