Moody’s warns on delay in launching African free trade agreement
JOHANNESBURG - Moody's has warned that the coronavirus pandemic threatened the launch of the African Continental Free Trade Agreement (AfCFTA) due to border closures and travel restrictions.
The ratings agency yesterday said the closure of borders to contain the spread of the pandemic would make the launch of the agreement impossible for July.
“The UN has estimated that the AfCFTA could result in welfare gains of $1.8billion (R32.8bn) for East Africa; boost intra-African exports by more than $1.1million; and create more than 2 million jobs,” Moody’s said.
AfCFTA secretary-general Wamkele Mene’s colloquium on Covid-19 was postponed at the last minute yesterday.
Last month, Mene said the AfCFTA had been put on ice until the Covid-19 pandemic was defeated.
The AU summit scheduled for May 30 to encourage AfCFTA negotiators to complete their bargaining on tariff reductions, rules of origin and other necessary regulations, was also postponed to December 5.
In March, Trade, Industry and Competition Minister Ebrahim Patel said there was no foreseen disruption to the implementation of AfCFTA as a result of closing of borders, saying the only thing remaining was the lowering of tariffs.
Intra-Africa trade has been historically low at 16.6 percent of total exports in 2017, compared with 68 percent in Europe and 59 percent in Asia.
Fellow at the Gordon Institute of Business Science Ronak Gopaldas said the July 1 start of free trade had been pushed out to at least next year as countries battled Covid-19.
Gopaldas said the delay was understandable but must be accompanied by a commitment to restart the process as soon as conditions permit.
“This is not just to protect the deal’s credibility, but preserve the momentum and accountability of all signatories, and prevent nations from using Covid-19 as a reason to renege,” Gopaldas said.
“Most importantly, with free trade, governments will have to forgo the revenue that would have been gained through the imposition of import taxes.
“Postponing the launch allows states to continue levying tariffs and retain desperately needed revenue to fund higher debt-service costs, as well as health care and social-support spend.”
Moody’s said the Covid-19 pandemic would complicate and possibly delay the US-China “phase two” trade negotiations, and the UK-EU and US-EU negotiations.
It said the pandemic had disrupted global supply chains and spurred export restrictions on medical and food supplies, as more than 90 countries have imposed restrictions or bans on exports of medical and food supplies.
“Global trade will contract sharply this year amid a sharp decline in consumer demand and investment and supply disruptions. Global trade will contract between 13 percent and 32 percent,” Moody’s warned.
“Key reasons are the coronavirus- induced drop in consumer demand and investment in the current quarter, and disruptions along supply chains and shipping routes resulting from coronavirus lockdowns.