On May 1, 2024, a revealing survey from the Confederation of Zimbabwe Industries (CZI) disclosed that only about a third of Zimbabwe’s local manufacturers are prepared to compete within the Africa Continental Free Trade Area (AfCFTA). This statistic emerges amid intensifying calls for the removal of barriers hindering a broader range of firms from accessing opportunities in what is considered the world’s largest free trade area.
The AfCFTA, an initiative by the African Union inaugurated in January 2021, aims to enhance intra-African trade and spur economic growth across the continent. A World Bank report projects that AfCFTA could potentially elevate 100 million Africans out of poverty and inject an additional US$450 billion into Africa’s GDP by 2035. Despite these promising prospects, the readiness of Zimbabwean industries to engage fully with the agreement remains tepid.
During an information dissemination workshop focusing on Zimbabwe’s tariff offer product categories for AfCFTA, CZI’s economic research officer, Macdonald Mutego, detailed findings from the recent survey. He revealed that a significant 45% of the industry reported being unprepared for competition under the new trade regime. “They said we cannot compete with our regional counterparts. If you open our borders, we cannot compete,” Mutego relayed from the survey responses.
Further breakdowns of the data showed that readiness varied by company size, with 50% of large companies, 48% of medium companies, and 40% of small companies feeling unprepared for AfCFTA. Even more concerning was that 17% of large companies were unsure about their ability to compete, highlighting a considerable gap in information and preparedness related to the trade agreement.
The primary concerns for those unprepared hinge on several key issues: high operational costs, an unfavorable tax regime, and onerous regulatory costs. Zimbabwean companies lamented the high cost of production relative to other countries, which they attributed mainly to the challenges of electricity supply. Dependence on generators due to unreliable power supply significantly inflates operational costs, they argued.
Furthermore, participants in the survey criticized the prevailing regulatory environment in Zimbabwe, which they claim has been prohibitive since before the onset of AfCFTA. They noted that approximately 80% of their operational costs could be traced back to regulatory expenses, underscoring the need for regulatory reform to foster a more business-friendly environment.
The high cost of labor and the taxation landscape in Zimbabwe were also cited as critical factors undermining the competitiveness of businesses. These elements combine to create a cost structure that makes it difficult for local industries to price their goods and services competitively on the AfCFTA stage.
To address these issues, Mutego emphasized the urgent need for actionable strategies to prepare industries for effective competition within the AfCFTA. Key among these is securing adequate financing to enhance product standards to meet regional benchmarks. “We need to secure adequate financing for them to prepare so that they can compete, update their technology, and produce products that meet the regional standards,” Mutego stated.
The prohibitive cost of capital and the scarcity of long-term funding in Zimbabwe were highlighted as significant barriers to achieving these upgrades. Mutego called on the government to conduct comprehensive impact assessments before implementing regulatory changes. These assessments would help tailor policies to improve the ease of doing business and make Zimbabwean industries more competitive under the AfCFTA framework.
The readiness of Zimbabwean industries to fully leverage the opportunities presented by the AfCFTA is clearly in jeopardy, as evidenced by the CZI survey. The findings underscore a critical need for a concerted effort by both government and the private sector to address the myriad challenges facing local industries. Such efforts would not only prepare them for the demands of the AfCFTA but also position Zimbabwe to capitalize on the potential economic benefits of increased intra-African trade. As the global economic landscape evolves, the stakes for timely and effective adaptation grow ever higher, making the need for comprehensive policy and financial interventions more urgent than ever.
Source: Newsday
