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Ethiopia cautious over potential revenue losses under AfCFTA

Ethiopia cautious over potential revenue losses under AfCFTA

The Reporter | 30th December 2023

By Samuel Bogale

Ethiopia’s trade negotiators are taking cautious steps to minimize revenue losses from the impending full implementation of the African Continental Free Trade Area (AfCFTA).

Officials at the Ministry of Trade and Regional Integration are organizing close to 6,500 goods and services into three tariff brackets under the free trade agreement. The first comprises 90 percent of the goods and is designated tariff-free.

The second bracket constitutes ‘sensitive’ goods and services that may be subject to tariffs, while the third lists 192 items that are excluded entirely from the free trade agreement.

The Ethiopian government submitted its tariff offer to the AfCFTA secretariat in Ghana in November, nearly three years after the free trade agreement was officially initiated in January 2021.

The secretariat has since approved the 5,828 goods and services Ethiopia has designated tariff-free under AfCFTA.

Officials plan to table the goods and services included in the ‘sensitive’ and exclusive brackets during bilateral negotiations with the AfCFTA secretariat scheduled for May 2024.

Tages Mulugeta, head of international and regional trade integration at the Trade Ministry, revealed that goods and services that are a major source of tax revenues for the federal government or are deemed strategic will be placed on the exclusionary list in a bid to offset worries about revenue losses.

Customs duties on imports in Ethiopia range from zero to 35 percent, depending on the goods. Items that are taxed at the ceiling rate of 35 percent will most likely be included in the exclusionary list, according to Tages.

Fully-assembled automobiles and goods that have health implications (such as alcoholic beverages and tobacco) are two examples of commodities that Tages says the government wants to see excluded from the AfCFTA.

Importers pay 35 percent duty on alcoholic beverages and tobacco, while automobile duties can go as high as 400 percent depending on the age of the vehicle in question.

Tages argues that removing tariffs from automobile imports would not only eat into government tax revenues, but would also kill budding domestic vehicle assemblers.

“Automobiles are strategically important as local manufacturing can draw investment in,” he said.

Tages also notes that the AfCFTA will have minimal impact on government revenues as intra-African trade accounts for a small portion of Ethiopia’s total trade.

A profile published by GIZ estimates that Intra-African goods trade accounted for only 10 percent of Ethiopian trade in 2020. Tages observes the trade ratio is much lower for imports.

Ethiopia’s imports from other African countries accounts for 4.5 percent of total imports, which stood at USD 18 billion last year.

“There will be a few revenue losses for sure, but it isn’t that significant,” said Tages. “Our biggest fear is the possible diversion of goods from other continents to Africa and selling it to Ethiopia, which will cause a loss of revenue.”

Making good use of an AfreximBank adjustment fund valued at USD one billion is another opportunity Ethiopian officials are eyeing before fully committing to the AfCFTA.

The tariff offer document approved by AfCFTA secretariat is due to be tabled to Parliament for approval as legislation, before the Ministry of Trade and Customs Commision are tasked with implementation.

The AfCFTA is not the only trade agreement that senior Ethiopian officials are eyeing.

On December 26, 2023, Trade Minister and Chief Trade Negotiator Gebremeskel Challa announced his office has set 2026 as the deadline for Ethiopia’s World Trade Organization (WTO) accession, following decades of delays.

A committee set up by Prime Minister Abiy Ahmed (PhD) to steer Ethiopia’s pursuit of WTO accession was convened at Skylight Hotel last Tuesday.

Eyob Tekalign (PhD), a state minister of Finance, the Trade Minister, Customs Commissioner Debele Kabeta, central bank vice-governor Fikadu Digafe, and Beyene Petros (PhD, director-general of the Policy Studies Institute, are a few of the committee’s members.

The committee issued directions to begin trial implementation of trade under the AfCFTA with countries that have bilateral agreements with Ethiopia. It also discussed the impending liberalization of the Ethiopian financial sector, and its expected tie-ins with free trade agreements.

 source: The Reporter