Rwanda goes ahead ambitiously with the AfCFTA on liberalizing its market for trade with other African countries.
By Ashu Billy Manners
Rwanda is an important and one of the most committed players in the establishment of the African Continental Free Trade Area. The country not only volunteered to host the signing of the AfCFTA agreement, but was also selected as one of eight countries to pioneer and test the African free trade system in starting trade in 96 goods ranging from tea, sugar, and pasta to tiles and batteries under the agreement. African nations have been working to create a free market among themselves for decades. After a long series of efforts, including merging into regional economic blocs, their efforts were finally crowned in 2018 with the creation of the landmark African Continental Free Trade Area (AfCFTA). Signed on March 21, 2018, in the Rwandan capital of Kigali, Rwanda, the agreement sets out the key objectives of the FTA: to liberalize trade in goods and services between each of the parties. Four years after the signing of the agreement and its gradual ratification pending in only eight of the continent’s 54 countries, the aim is to assess the effectiveness of its implementation by Rwanda and the benefits Rwanda hopes to reap from the effective implementation of the AfCFTA.
AfCFTA: An overview
The AfCFTA is a 54-member African duty-free market created by the AfCFTA Agreement in 2018 and entered into force in 2019. Taking into account the 1.2 billion inhabitants of the African continent, the AfCFTA is the largest free trade area in the world after the World Trade Organization (WTO). In this regard, the main objectives of the AfCFTA include, in addition to the creation of a single market and the liberalization of goods and services, the promotion of the movement of capital and people and the facilitation of investment within African countries, the preparation for the establishment of a future continental customs union, the promotion and achievement of sustainable, inclusive social and economic development, including gender equality and structural transformation of the Parties. Similarly, to make greater use of the economies of scale arising from the market integration of member states into a common market, leading to strong competitiveness outside the African market as well. African industries are to be promoted through diversification and emergence of value chains, agricultural productivity, and food security, as well as provide solutions to trade problems in Africa, including the numerous and sometimes overlapping memberships in various regional African economic communities (RECs) such as the Common Market for Eastern and Southern Africa (COMESA) or the Economic Community of West African States.
Current status of AfCFTA membership
African countries ratified or pledged to ratify the African continental free Trade Area.
Rwanda’s leading role in implementing the FTA is not a product of chance. Rwanda’s National Implementation Strategy for the AfCFTA Agreement (RANIS) is the foundation and backbone for the realization of the agreement. Through RANIS, Rwanda has developed a strategy that promotes its comprehensive trade policy, identifies comparative trade opportunities and weaknesses, and also develops a workable approach to have an overall advantage in the African market. According to UNECA, the strategy elaborated on goods and services sectors where Rwanda could particularly benefit, such as agricultural processing of staple foods, including flour, cheese, milk, vegetables and other horticultural products, mining and processing of extracted minerals such as coltan, tantalum and cobalt. Similarly, a competitive advantage is seen in construction materials such as iron, steel or ceramics, light industry such as textiles, leather goods, pharmaceuticals and electronic equipment.
Rice fields in Rwanda’s fertile rainforests
With the AfCFTA coming into force, African countries hope to improve food security in the region, as some regions in East Africa, for example, regularly suffer from severe droughts. Free trade offers the opportunity to even out the differences between the various climatic zones. (Source: David Vogt, 2022)
Opportunities for Ruanda
All participating countries expect enormous benefits from the implementation of the AfCFTA agreement. The African market has a size of about 1.2 billion people, these generate a purchasing power adjusted gross domestic product of 16 trillion US dollars (nominally 3.4 trillion). Effective duty-free trade among the signatory states would not only put each signatory state in a position of economic prosperity, but would also significantly reduce Africa’s economic dependence on European or Asian trading partners and help individual countries become more independent. Currently, Africa is the region of the world with the least trade between its regional neighbors. While almost 70 percent of trade within individual European countries takes place among themselves, and individual countries can contribute to different value chains with their respective strengths, Africa’s countries contribute to global value creation almost exclusively by means of unprocessed agricultural and mineral raw material exports, whose value in total global production, however, continues to decline. In Asia, economic linkages have increased rapidly in recent years with the rise of China. More and more Chinese companies, taking over know-how from Western firms, outsourced production themselves to suppliers in neighboring, now often cheaper countries, and began selling competitive products such as smartphones and now even electric cars under Chinese brand names.
Intraregional trade in various world regions (in percent of overall trade)
With 15 percent Africa is the world region with one of the lowest trade ratios traded between Africa. The rest is exported to the rest of the world. (Source: UNCTADStat, 2021)
Rwanda, as a small open economy, stands to benefit greatly once again from this implementation: the increases in both goods and services trade between the major African economic and population centers of Tanzania, Kenya, and the Democratic Republic of Congo could prove proportionally huge for the small country at their center. From a surge in industrialization to an increase in employment and economic value added, Rwanda is at the epicenter of an economic boom and bust. Notwithstanding the fact that Rwanda is a small landlocked country, its strategic geographic location gives it a competitive advantage over other competitors within the AfCFTA initiative. According to Germany’s GIZ, Rwanda’s membership in several regional blocs in eastern, central, and southern Africa positions it at a neuralgic point from which it can tap into the continental market. Antoine Kajangwe, Rwanda’s director general of trade and investment at the Ministry of Trade and Industry, said that since 2021, Rwanda has gained access to markets in West and Central Africa through the reduction of tariffs at preferential rates. On the prospects of the AfCFTA for the Rwandan economy, the Rwandan Minister of Trade and Industry said in a July 9, 2022 tweet that Rwanda will gain wider access to African markets for duty-free export of its goods and services. The agreement will thus allow Rwanda to capture new markets on the continent, giving Rwanda opportunities to expand its intra-African trade beyond the EAC and COMESA regional trade agreements to Central, West and North African countries.
So far, the slow implementation of the AfCFTA by many of its member states has been one of the main obstacles to the agreement. Trade under this new regime was supposed to have begun in 2020 but was delayed by two years. The reason was the outbreak of the COVID-19 pandemic, which closed borders in much of the world again after decades of liberalization. The rampant pandemic was thus a case of force majeure, resulting in protracted closures of national borders, ports, markets, and ultimately the freedom of movement of people and thus economic actors. As in other parts of the world,recovery from the deep cuts of the pandemic was surprisingly rapid and robust in Africa. Countries like Rwanda took the first steps toward breathing life back into the agreement by exporting their coffee products to Ghana.
Rwanda’s deficits to fully participate in free trade
Despite its advantageous location on the border of numerous large economically powerful countries, Rwanda’s geography remains its Achilles heel in terms of the actual profitability of pan-continental trade. Rwanda is a landlocked country with no major bodies of water, which means it has very limited transportation options compared to other countries. In general, moving goods by water by ship is about the most cost-effective method of long-distance transportation for many categories of goods. Countries such as Uganda on Lake Victoria or Burundi on Lake Tanganyika can ship large, bulky or bulk goods, especially agricultural ones such as grain, very easily via their lake access.
However, Rwanda also relies on the ports of neighboring countries such as Tanzania, Uganda, or the Democratic Republic of Congo as shipping routes for trade with distant other African nations, such as West or South Africa. Not only are these routes expensive, but maintaining them hangs by a thread of political will as well as good relations. This gives these waterfront nations a competitive advantage in trade, especially for bulky or bulk goods. Given that Rwanda specializes primarily in the trade of certain minerals such as cobalt or coltan, construction materials such as cement, iron, steel, and ceramics, the high cost of transportation could have a negative impact on competitiveness as well as lead to political dependencies vis-à-vis potential competitors.
Transport of goods in the Rwandan hinterland on steel frame wheels
Without proper roads escepially in the backcountry, heavy duty traffic will be impossible. Hence, infrastructure is key to the successful participation in a free trading zone. Here, two Rwandan men transport their harvest on steel-frame bicycles in the region of Lake Burera. (source: own)
Transport service per drone
However, Rwanda managed to overcome this shortfall with the company Zipline. Zipline has revolutionized transportation to remote areas with it drone transport service. (source: Zipline, 2021)
Prospects of the AfCFTA
The networking of African countries under the AfCFTA initiative has been applauded around the world. The AfCFTA is not only the largest market after the WTO in terms of population, but will also bring financial and economic benefits to the continent and thus prosperity to the African population. Sixty percent of all signatory countries expect increases in their agricultural and industrial production, and the World Bank estimates that full implementation could lift 50 million people out of poverty. All this comes at a small price: Due to the current almost non-existent intercontinental trade, losses from customs revenues remain only a minor factor in government financing – in the long run, these could even increase due to expanded trade. In contrast to many other liberalizations, the African free trade area thus knows relatively few losers. Rwanda, as a small country in the middle of the continent, is one of the biggest beneficiaries of free trade and plays a correspondingly key role in the realization of the project. As one of the first signatory states, it carried out pilot projects on trade in goods and thus built up its competitive advantages over its competitors by gaining experience. With its national AfCFTA implementation strategy, Rwanda is well on its way to reaping the benefits of the agreement. The country’s decision to focus its exports on specific sectors, such as processing of agricultural products, mining, construction materials, and also textiles, pharmaceuticals, or electronic devices, is opening up new employment opportunities for the Rwandan population, with an estimated 33 percent expected to go to AfCFTA contracting parties as of 2035, compared to 17 percent today. But to fully reap the benefits of the pan-African free trade area, various shortcomings need to be addressed, such as the geographical limitations of the transport infrastructure, especially connectivity to world ports
Ashu Billy is a researcher of International trade and investment in Africa. He works as Contracts and Fintech Associate at Midas Law Group, a law firm based in kigali, Rwanda. He has a two masters degree, firstly in; International Trade and Investment Law in Africa and secondly in Human Rights, International Criminal Law and International Humanitarian Law.