East African countries face $160mln forfeiture in tax revenues under AfCFTA but long-term future gains

Zawya

25-03-2025

Four East African countries (Kenya, Rwanda, Tanzania and Uganda) face a potential loss of up to $160 million in tax revenues this year, the smaller penalty to pay for future bigger gains on open borders for goods and services.
Findings from the UN Economic Commission for Africa (ECA) suggest the pain will be short-lived, to be compensated by bigger gains on larger sales between African countries.
The report, Economic Report on Africa, for this year says Africa stands to lose three percent ($2 billion) in tax revenues in 2025 as a result of the 1.3 billion free market that came into effect from January 1, 2021, known as the Africa Continental Free Trade Area (AfCFTA).'Africa's Least Developed Countries (LDCs) would be granted longer timeframes for tariff liberalisation, with non-sensitive products to be brought to zero between 2021 and 2030, while tariffs on sensitive products are to be removed by 2033.'As a result, the decline in tariff revenues would be rather marginal in the early years of AfCFTA implementation, with an estimated marginal three per cent ($2 billion) reduction of tariff revenues for African governments in 2025,' the report says.
The report shows that in East Africa Community region, Rwanda will be heavily impacted by AfCFTA agreement this year expected to lose 3.5 percent of its tax revenues equivalent to $70 million. It will be followed by Uganda (2.1 percent or $42 million), Kenya (1.5 percent or $30 million) and Tanzania (0.9 percent or $18 million).
According to the report, tariff revenues for African governments will decline as the trade agreement is implemented, but the decline will be shielded by compensation from rising volumes of trade.'The reduction in customs duties due to the implementation of the AfCFTA agreement will inevitably reduce tariff revenues collected by African governments,' says the report.
UNECA's latest empirical assessment foresees a 10.7 percent (or $21.1 billion) decline in Africa's total tariff revenues in 2045 following the full implementation of agreed tariff concessions under the trade agreement, compared with a situation without the reforms.
However, this loss would be progressive in line with agreed liberalisation schedules under the AfCFTA protocol on trade in goods, thus giving time for countries to implement mitigating measures.
According to the report, the decline in tariff revenues is expected to accelerate in 2030 with an anticipated 8.2 percent ($7 billion) reduction, before progressively reaching 10.7 percent ($21.1 billion) reduction in 2045.
This decline following the AfCFTA implementation is expected to be uneven with Cameroon, Ethiopia, and Zimbabwe anticipated to be among the most affected, with estimated reductions of tariff revenues of over 15 percent in 2045.'However, governments have other sources of revenues at their disposal to compensate for such losses. Revenues generated from the large increase in intra-African trade would also be important and still help in reaching higher levels of welfare, despite reduction in revenues from customs duties,' the report says.
An AfCFTA Adjustment Fund has been established as an integral part of the AfCFTA Secretariat structure with the support of Afreximbank to assist vulnerable countries to mitigate tariff revenue losses.
The trade agreement seeks to remove barriers to trade and put in place common policies to ease movement of goods and services within the continent creating the eighth trading bloc in the world with a combined gross domestic product (GDP) of $3.3 trillion.
Read: AfCFTA gains momentum as 48 African countries ratify agreementThe AfCFTA is the world's largest free trade area in the number of member states and the scope, and as of January 2025, all except one African country had signed the agreement. Eritrea is the only exception.
Among signatories, 48 have also ratified the deal, which includes a series of protocols and annexes negotiated in two phases.
Phase 1 covers trade in goods, services and procedures for dispute resolution. Phase 2, adopted in February 2024, includes protocols such as investment policy, competition policy, intellectual property rights, digital trade, and women and youth in trade.
The schedule for liberalisation of the protocol in trade in goods of AfCFTA identified three types of products—non-sensitive, sensitive and excluded—and two groups of nations—least developing countries (LDCs) and non-LDCs.
The LDCs have a longer period for tariffs liberalisation, with 10 years to liberalise 90 per cent of tariff lines for the non-sensitive products and 13 years to liberalise sensitive products.
Non-LDCs have five years to liberalise 90 percent of their tariff lines for non-sensitive products and 10 years for sensitive products, which can constitute up to seven percent of tariff lines.
LDCs and non-LDCs have the option to exclude up to three per cent of their tariff if this does not represent over 10 percent of intra-African import value.
In practical terms, by 2033—13 years from the date of entry into force of the AfCFTA agreement—trade in 97 per cent of all goods originating in Africa should be traded across borders free of any customs duties or other charges having equivalent effect.
The trade agreement envisaged to help in reducing tariffs and non-tariff barriers within the continent, offers an unprecedented opportunity to widen the existing small base of formal intra-African trade.
UNECA estimates that in relative terms, overall intra-African trade (exports) would increase by about 45 per cent (or $275.7 billion) in 2045, while intra-African trade is expected to increase by 60 per cent (or $58.6 billion) for agri-food, 48 per cent for industry (or $165.6 billion), and 34 per cent for services (or $4.9 billion), from a baseline situation without the agreement.
The expected increase in intra-African trade for energy and mining, while significant at an estimated 28 per cent (or $46.6 billion), would therefore be notably less than that of other main sectors. © Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).