Unlocking Free Trade Area

By Teshome Fantahun /ABN/

The African Continental Free Trade Area (AfCFTA) is a free trade area, outlined in the AfricanContinentalFreeTradeAgreement among 54 of the 55 AfricanUnion nations.[2] The freetradearea is the largest in the world in terms of participating countries since the formation of the World Trade Organization.The agreement was brokered by the AfricanUnion (AU) and was signed on by 44 of its 55 member states in Kigali, Rwanda on March 21, 2018.One of the advocates that have brought the idea on table was Pan African Chamber of Commerce and Industry (PACCI).

ABN’s Teshome Fantahun meets Kebour Ghenna,Executive Director of the Pan African Chamber of Commerce and Industry (PACCI) and discusses CFTA today. Kebour has presided over the Addis Ababa and Ethiopian Chambers of Commerce, the Ethiopian Business Coalition against HIV/AIDS, and the Ethiopian Red Cross Society.

The Lycée Française alumni, Kebour Ghenna has been involved in a number of sectors, such as agriculture, technology, media and education. He also served as a non-executive director of the Commercial Bank of Ethiopia, Abyssinia Bank, and the National Fertilizer Company. Kebour also has extensive experience in research and development and has been involved in numerous research projects and worked as an expert and consultant for UNECA, UNDP, WBI, IDRC and others. Kebour has written on a variety of development and governance issues. He had also lectured at the Addis Ababa University Faculty of Business and Economics.

ABN: Let’s start with the practice of working together and collaboration in Africa; how is it like?

Kebour:I think discussions began in 2013. I mean the discussions about Continental Free Trade Area started then. Between 2013 and 2018, African Governments reached a milestone by putting together and signed the conventions. In March 2018 the agreement was signed by all African countries. The result has clearly shown African countries’ willingness to integrate the economy, of course the idea is to go beyond the economy, and integrate tourism and infrastructure as well.

“The first phase of CFTA is where goods and services are given priorities in terms of negotiations. There is also another protocol which has been signed to liberalize air travel among 23 countries.”

ABN: What is CFTA and how does it operate?

Kebour: The continental Free Trade Area/CFTA/Agreement is basically an area, in this case the continent, where goods, services, capital and people are allowed to transfer or travel from one country to another without any friction; For goods, for example,it can be issues related to custom, tariff, professional traveling from one place to another,etc.

The process is not that simple and straight forward at this stage. The first phase of CFTA is where goods and services are given priorities in terms of negotiations. There is also another protocolwhich has been signed to liberalize air travel among 23 countries. There is also another discussion to issue an African passport which would allow people to travel from a place in Africa to another. Some countries including Ethiopia have already started issuing online Visa, Visa on arrival etc. So countries are really coming closer and closer to each other.

ABN: We have already known regional integrations such as EAC, AGOA, ECOWAS, COMESA, SADC and many others, so how is CFTA different from these agreements?

Kebour: The structure is quite straight forward. The regional economic commissions are the ones that practically do all the negotiations at their levels and then bring the negotiations to a continental platform where all will be integrated at the continental level. The regional economic organizations are still relevant to build the continental FTA’s.

ABN: The Agreement has been brought to a discussion, the first day the required threshold 22 countries have ratified. Within five years as you said, the agreement has been negotiated and ratified by almost all governments. How do you see the momentum and the success of CFTA at this stage?

Kebour: The endorsements have already been signed by 54 Countries. Yet, for the implementation you need at least 22 countries and that has also been achieved in a very short time. The negotiations as I said earlier started in 2013 and in 2017 March the first agreement was signed and the ratifications happen within a year which I would say a record time. Looking at the momentum, you could say that the journey ahead might not be that difficult as many people think. So the plan,I think, is really moving ahead.

ABN: These days again countries are closing their frontiers again, this week Nigeria has announced that it has closed the border with Benin, can we say that CFTA is being challenged?

Kebour:When you look at the world today, there is more and more a kind of thinking that CFTA is not beneficial to countries. There is a sort of protectionism whereby countries protect their businesses. The case that has happened in West Africa is probably a reflection of that attitude but I wouldn’t say. We have to be careful regarding the case in Nigeria and Benin; it is a sort of controlling illicit trade I don’t think that puts CFTAin question.

ABN: Most of the commercial transactions are dominated by few countries like Egypt, South Africa, Nigeria, Morocco, etc. People say that CFTA is not a kind of agreement that benefits smaller countries like Djibouti, Eritrea, Benin and even Ethiopia. Does this agreement serve only big economies? Who are the winners and losers of this agreement?

Kebour:There are countries that are well positioned to benefit from CFTA. They are quite a few countries benefited initially from CFTA. But overall, when we talk about CFTA it is not a mechanism to benefit all countries at once. That did not happen even in Europe. What happened in Europe was countries that were better off have allowed the transfer of funds to countries that were not better off with the objective that, in the long run, to help the entire continent. We are not currently at the level where the openingof frontiers will be somewhat difficult for countries that are aspiring to do business in the continent.

I think we obviously have smaller countries that have difficulties in catching up the bigger onesbut that is again something that can be negotiated. When you take the case of Ethiopia, it has not really allowed. It has not agreed to liberalize 90% of its goods like many other countries of the continent. So far seven or eight countries have agreed to liberalize 85% of their produces. We have to negotiate more in order to help smaller countries and countries that need really to build up their productive capacities to arrive at a level where they perhaps compete at equal footing with others.

“The government has to be one willing to accompany small and medium enterprises to do well, to bring banks closer to them. It has to bring technology…. Then we obviously can benefit from CFTA.”

ABN: How is Ethiopia doing in this regard?

Kebour:There was a study done by the Ethiopian Chamber of Commerce on a sort ofidentifying the challenges and the difficulties of Ethiopian cross trade. Ethiopia has both the opportunities and challenges.

It has the opportunity to expand its exports to neighboring countries. Until recently, it has been building a manufacturing base which would have allowed exporting many of its goods to other African countries. Until recently, it was a country that was very attractive to FDI, to investors who want to base their manufacturing plants in Ethiopia. However, Ethiopia is disadvantaged in a sense that many of its companies are quite weak so they may not be able to compete at a continental level. Therefore the government should set up a strategy in order to strengthening those companies that need to be strengthened to be able to be participating to benefit from CFTA.

In certain areas, local businesses need to be protected. This is the kind of strategy the government needs to study and try to work out with the private sector. So far it has not happened yet. I think it is better that these things happen ratherearlier than laterwhen maybe it is bit difficult to rectify.

ABN: Some experts talk about CFTA is not a race that rewards most of the runners. It benefits very few countries which are faster. How do you think countries be faster in the race to benefit from CFTA?

Kebour:You know CFTA is just a mechanism or an agreement which would allow countries to take benefit of low or no tariff, which would allow countries to transfer capital.The main thing you have to do is to build your productive capacity. Unless you have anything to sell or to export, having an agreement is not going to be much of a benefit. Therefore the government has to be one willing to accompany small and medium enterprises to do well, to bring banks closer to them. It has to bring technology; it has to improve schools and a lot of things need to be done. Then we obviously can benefit from CFTA.

I think CFTA, for me, is an instrument that would help totally the overall business ecosystem in Ethiopia; some of the legislations have to be updated, others need to be changed, some new legislation need to be introduced. Innovations have to be encouraged. We have already the government focusing on five areas. If that is really the way to go, then these five areas should be very much supported all the way to the end so that they could benefit from CFTA. There is a lot of work that need actually to be done.

ABN:The argument is CFTA benefits SME’s and there is also another counter argument that CFTA increases cross border competitions. How do you think Ethiopian SME’s be able to compete the Giant Nigerian or Moroccan businesses?

Kebour:Today most of the large businesses and global manufacturing companies are disappearing. I think the winners these days are the smaller and more flexible, one two three person companies. They are really doing very well. There is always an opening for smaller ones providing goods and services, providing complimentary products to larger products provided by the giant ones. I mean, they even can benefit from the value chain that the bigger ones establish. There are still doors for micro, small and medium enterprises. Yet, it still needs a strategy. The government needs a strategy to bring in finance to smaller companies. Smaller companies in Ethiopia have difficulties in accessing funding. This has to change actually in order to help the 90% smaller and medium enterprises.

The answer is “I don’t think we need really to be very much concerned about big Nigerian businesses coming here to do business.”I think if we are well-organized, being very small or very innovative will take us a long way.

ABN: You have said many times that we need strategies to benefit from CFTA, to help SME’s etc. But my question is who should design these strategies? Whose responsibility is to build strategy? I mean what is PACCI doing in this regard for example? What are you doing in this regard to help governments have a viable strategy etc.?

Kebour:One of the things that I have noticed not only here in Ethiopia but also in my travel across the continent, is the departments, the ministries do not talk to each other. For me it is amazing, for example, the Ministry of Trade has little or no contact at a professional or expert level with Ministry of Education. Ministry of Education does not know what goes on in the Ministry of Industry and so and so on. That has to change. All the ministries have to work as one and CFTA is one project actually which they can work together. When you go to the Ministry of Industry, an expert has to be able to tell you what another expert in the Ministry of Education is doing in order to strengthening the capacity of schools graduating students in business. We need really to work in harmony. Effort has to be put to change the culture and the way, not only government-to-government but also government-to-private and private-to-private sectors. The responsibility falls not only to individual leaders but also I think we need really a coordinated effort that brings all these to an organization.

ABN: The most frustration fact in Africa for governments to open up I think is immigration. How is it possible for governments to open up given thousands of people migrating each day?

Kebour:We have difficulties these days to communicate at regional levels. You can imagine how difficult it is going to be at the continental level. We have to start to believe on an idea, Africa is ours.

We are all in this continent; we probably have the same culture, the same level of development. We want to travel from one country to another. Some countries have already done others have not yet. We need to ask ourselves, what is the ultimate objective? The reason these people are going from one place to another is because there is perhaps no enough food or there is no security or some violence going on in their countries, therefore, we have to stand together to address all these problems. Otherwise, no German, or French or American is going to come to help us.

“One very successful company in the government hand is the Ethiopian Airlines; other not successful in the government hand-Ethio-Telecom can improve its management and its services while in the government’s hand.”

ABN: The renowned global magazine-The Economist has reported this year that most of the imported goods in Ethiopia are illicit products; medicines, telephone, imported drinks, cosmetics, cigarettes etc. In its report unveiled on the 4th world illicit trade summit, it was reported that 40% of the total tobacco products are illegal. South Africa’s illegal trade accounts for 33 percent of the total maker and is as high 43 percent in the non-organized trade, resulting in eight billion lost taxes annually. Having seen the extent of illicit trade in the continent, don’t you think contraband and illicit trade would be challenges for CFTA?

Kebour:It would be a challenge. However, again the answer is you need to have a stronger government, a government that is difficult to corrupt. Illegalities including corruption, contraband etc. prosper when they have someone in government protecting them be it a law or individuals. Some countries have already been able to reduce illicit trade with the help of CFTA in the sense that there is no need to go through customs and get charged 100% or 200% of custom. That disappeared due to CFTA that would in a way discourage the contraband. You have to reform your institutions at the border so that they cannot really encourage such illicit activities to grow. The most important thing in my opinion when we accept CFTA we have to at the same time work on our institutions. We have to strengthen the institutions; we have to encourage them to speak to one another to work together. We have to bring in all governmental and non-governmental organizations to talk to each other. We have to make the government talk to businesses. I think it is something that everybody needs to participate to better address this problem.

ABN: Tell us about privatization and the businesses that the government wants to privatize.

Kebour:You can privatize businesses that can be easily (I would say) privatizable. I think that is a normal way of looking at things. The government may privatize businesses whenit thinks that the businesses are performing less than they have to. I mean the government has to be free to do other things that others are not capable of doing; for example, the 4G network installation, Biology, Medicine etc. When you call government to play a role, it is where the private sector has failed to do so. But you have also areas where things are considered strategic; strategic because they help the country develop in other areas. They bring not only revenue to you to finance to finance other new developments, to finance develop new schools, to finance actually develop innovation programs etc. But also they can also bring in other companies build around major strategic companies, other sort of major technology. They have a role more than the services they provide. These companies are considered strategic therefore these companies should not be privatized. They should be reformed in one way or another. The basic examples for us is two examples that are diametrically opposite but two companies that require technology, skilled human resource, marketing. One very successful company in the government hand is the Ethiopian Airlines; other not successful in the government hand- Ethio-Telecom can improve its management and its services while in the government’s hand. You may have to change individuals at the head of the organizations or the way the organization works but you don’t simply sell these businesses. Ethio-Telecom like Ethiopian Airlines can be very productive, innovative and useful. It is useful still. I mean you can make it attractive for others to join in. Ethiopian Airlines goes from Ethiopia and does business in Kenya, in France, in the United States. I don’t see why Ethio-telecom does not do business in Sudan, in Djibouti. This is by choice. We made a choice to have this kind of telecommunication organization in Ethiopia, and that is the government’s choice. And the government is saying I want to sell it because it is not performing but people have to be able to say “it is your choice that made the organization non-performing.” The government’s decision to denationalize what was the national entity and to give it to a foreign investor has an implication on our sovereignty. It is like giving part of our sovereignty. These big companies are much bigger that the government thinks they are in terms of influence. They are once gone it is very difficult actually to get use of these companies. Telecom today is a sector that brings and disrupts work laps in financial services. Telecom plays a big role in financial services. Within five or six years we will not have manual Banks. They should be digitalized and the main platform is telecom. Where our sovereignty then? The idea of keeping 60 or 50 of ownership is may not mean much as long as you don’t control the management of the organization.

The whole story that goes on in Ethiopia these days, political challenges within the regions, part of the regions, the language etc. should not be the main issue. The main issue is while everybody is focusing on these issues we are losing the most important things for the country smoothly, slowly no-one really is asking about these.

ABN: Looking at two countries Kenya and Singapore, one is a winner and the other is a loser after privatizing the national carrier. Can we generalize that privatization is good or otherwise?

Kebour:You bring in the Example of Singapore; Singapore Airline is a government company. The way they setup is really different. By the way 90% of the business is under government or some sort of government involvement. Singapore has been able to change and transform the management of this public association to be as performing as a private sector sort of organization. Yes it is by choice. Now, when they arrived at a level where they are confident enough this particular sector can be released to the private sector without disrupting the integrity of the public and the sovereignty of the country. They move towards it. They move on to a lot of things actually where the private sector have difficulties in investing on. Singapore has been successful in moving in to these kinds of sectors. When they arrive at a certain level the government quits and privatize the sector. These major entities in Singapore are still owned by government. But the structures they operate under as the private sector are rewarded on the process that they generate if they don’t generate they will be let go.

But the model that we are trying to adopt which is the neo liberal model where privatization has the major role, the role of the government is diminished, where any kind of production has to made by the private sector, where social services have to be reduced in favor of private sort of services. All these have created an environment where many of the countries that we want have made the right policy  questioning themselves. In France, for example, they have these people out on the streets saying that they cannot really live on the salaries they are generating. In France the ones that are growing more and more are somewhat retrenching or reducing.It is same thing actually or even worsein the US. Today we have a debt level where we cannot really concede that it can be paid. Imagine we are at the zero% interest rate, move it to 1 or 2 %, with the level of debt you have, how much of your revenue will go in to covering the debt. It is impossible so we have reached this level. We, in changing our approach to development, are adopting what has failed in many countries even developed countries.

ABN: What are the types of privatization?

Kebour: There are many types of privatization such as constructive privatization. Here you still keep some parts of the company and subcontract the management. A good example in this regard is the Hilton Hotels. Hilton Hotels has been profitable for years actually and the government has decided to privatize. I mean a hotel you privatize and tomorrow you can build a hotel. But you cannot build another Airline tomorrow. That is the fact. You have that type of contract, the management takeover. Instead of privatizing the public asset, you take over the management. Then you have the outright sell. There are quite a few types of privatization arrangements. The 49/51 arrangement is a trick actually. We have seen it when they sold Ethiopian Tobacco; initially 49/51% then another 20%, then another 20% and today all have gone actually. For me tobacco again is not a strategic asset. When they say 49/51 it is a trick next time to say guys we are not moving ahead so we have to be innovative, we need new equipment, new software and we need to borrow one billion dollar. So 51% Ethiopia and it will pay 51% of that debt. Even you don’t know where they spend that 51% because you are not managing it. I know you cannot pay the debt; therefore, let us make it 60% 80% and finally 100%. These are well-documented tactics.   

ABN: Are you Optimist regarding CFTA, will it realize?

Kebour:As an African, I want to be and need to be optimist. If not that I don’t want to think this thing is not working. What I want to say is….Yeah! this is challenging. We all have to put on our minds to make it work. I mean this is so in that sense I am Very much optimistic.

ABN: Thank You very much for the time you share with us!

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