Economists project that the East African Community (EAC) could lose about $187 million in customs revenues due to the African Continental Free Trade Agreement (CFTA), but that is significantly a small price to pay for the potential gains that come with ratifying the landmark treaty.

Concerns were also raised that the CFTA could detract the attention from EAC objectives, which is currently the fastest growing region on the continent, with an annual growth of 6.7 percent between 2013 and 2017.

According to the United Nations Economic Commission for Africa (UNECA), $187 million will be lost due to the elimination of tariffs on imports to the region if the CFTA is ratified.

However, the figure represents a meagre one percent of all EAC governments’ revenue, which is insignificant compared to the benefits that the region will get through liberal trade with an integrated market that boasts purchasing power of $6.4 trillion.

“The loss in revenue on tariffs due to the implementation of CFTA is very small. The progressive elimination of tariffs on intra-African trade will make it easier for EAC businesses to trade across the continent, help industries to grow and provide EAC products to the growing African market,” Andrew Mold, acting Director of UNECA in East Africa said.

The CFTA was signed as a landmark treaty early this year in Kigali, and now boasts 49 signatures out of the 55 countries on the continent.

The treaty requires the ratification of at least 22 countries to come into force, but only 12 countries have ratified it, including two from the EAC – Kenya and Rwanda.

Uganda is also on the verge of ratifying the treaty, sources say.

If fully adopted, the CFTA will cover a market of 1.2 billion people and a gross domestic product of $2.5 trillion, across all 55 AU member states – hence becoming the world’s largest free trade area.

With Africa as the leading trading partner for the EAC, economist argue that the region needs to do more to tap into the dynamism of regional markets especially at a time when global growth is underpinned by trade wars among super powers like the US, China and Europe.

“EAC exports to Africa would increase by 31 percent if tariffs are eliminated on intra-Africa trade, provide a welfare boost of $1.4 billion and provide a stimulus for the manufacturing sector. This would tremendously decrease imports to Africa and boost its balance of payments,” Mr Mold said.

“EAC still struggles with sharp fluctuations in the agriculture sector, which accounts for around a third of regional GDP and two thirds of employment. There is need to diversify our economies more rapidly; more exports to the rest of the continent will create a vibrant demand for agro-industries.”

End of EPAs?

The CFTA could also ultimately mean the final collapse in negotiations to ratify the Economic Partnership Agreements (EPA) between EAC and the European Union, as the region would put more impetus on benefits from trade with Africa, sources say.

Economists following the EPAs say that the EPAs have lost steam over the last couple of months, although Europe and the UK still consider the agreements a worthy trade platform.

“The enthusiasm to sign the EPAs has dwindled and lost steam tremendously even within the EU. This is because the region is divided while the CFTA has also provided an alternative for EAC. The belief is that Tanzania and Burundi will eventually not sign, yet the EPAs cannot be ratified unless each member has signed,” a source privy to the negotiations but not authorised to speak to the press, told Rwanda Today.

“There are some arguing that Kenya and Rwanda should be allowed to ratify the EPAs as individual states, but this is not possible as it would bring about disruptions in EAC integration and probably undermine the common markets union.”

Leaders from Eastern Africa countries will this week meet in Kigali to discuss the implementation of the CFTA.

President Paul Kagame, the outgoing chairperson of the AU, last weekend emphasised the need for ratification and implantation of the CFTA, during a special AU sitting in Ethiopia.

The AU is also eager to have Nigeria – the second largest economy on the continent – on board with the CFTA, but the country has continuously thwarted the idea.

According to UNECA, Nigeria’s government is now more optimistic that it will sign, but they are still negotiating with the private sector to ensure that all stakeholders in the country are on board.