As published in print with Uganda investment
As published in print with Uganda investment
Regional trade

The world’s next big trade bloc

The 20th century in Africa was marked by borders, first colonial and then those of newly independent states. But with massive new free trade agreements in the works, this century is set to bear witness to the redefinition of those frontiers and an Africa that is more integrated than ever before

On March 21 in Kigali, Rwanda, the leaders of 44 African countries signed an agreement to establish the framework of the African Continental Free Trade Area (AfCFTA). The agreement is yet to be ratified by all of the individual countries, which were given 120 days to do so. But if it is fully adopted, AfCFTA will become one of the world’s largest trading blocks.

Uganda was one of the signatories to the free trade area’s initial framework, which aims to harmonise trade liberalisation, remove tariffs on 90 per cent of goods and create a single continental market and customs union. Under AfCFTA, the United Nations Economic Commission for Africa says intra-African trade could increase by 52 per cent by 2022, as compared to 2010 trade levels.

1.68 billion

Population of Africa in 2030 (UN)

Market fragmentation, Ugandan President Yoweri Museveni points out, is a bottleneck that has long held back growth in African economies. “The 53 former colonies, the modern African states are, individually, small markets. They would have an easier time attracting investment if they were larger,” he says.

Uganda has yet to ratify AfCFTA, but the country has demonstrated its commitment to a more united Africa through its pivotal role in other regional trade organisations. Uganda was a central member of the East African Community (EAC) when it was founded in 1967, and again since it was revived in 2000. Home to around 150 million people, the six-state organisation is now one of the world’s fastest-growing regional economic blocs, and continues to deepen cooperation amongst its members. Its stated goal is the creation of an East African Federation.

In 2014, Uganda also joined the Common Market for Eastern and Southern Africa (COMESA) free trade area that spans from Libya in the north to Swaziland in the south. Then, in 2015, the trading blocs took another massive step towards integration and signed the EAC-COMESA-SADC (Southern African Development Community) Tripartite Free Trade Area, which aims to increase economic cooperation between the three massive organisations.

Historically, intraregional trade has been low in Africa compared to in other regions. Between 2007 and 2011, 70 per cent of Europe’s exports stayed within the European market, 50 per cent of exports in developing Asia stayed in the region, while in South America it was 21 per cent. But in Africa it was only 11 per cent, according to UN figures. The African Economic Outlook 2017 report by the African Development Bank also argues that the continent’s economies have also been hindered by the fact that many exports undergo processing abroad.  

“Petroleum exports from Africa to the rest of the world stood at $85 billion, yet Africa’s fuel imports from outside the continent ranged between $63 billion and $84 billion from 2010 to 2015,” the report reads, also suggesting that a continental free trade area would strengthen Africa’s appeal to outside investment. Studies predict that by 2030, Africa’s population will rise 40 per cent to 1.68 billion people, whose combined business and consumer spending will reach $6.7 trillion.

With the benefits of a more united Africa in mind, many in Uganda, including the country’s finance minister, Matia Kasaija, would even like to get rid of some borders altogether. “I personally want total integration of East Africa, not only in trade, but also in politics. I look forward to being one single economy and one single state,” he says.

Free Zones incentivise export-based business

In September 2014, Uganda passed a law authorising free zones, special economic areas that are now being made available to export-oriented investors.

In September 2014, Uganda passed a law authorising free zones, special economic areas that are now being made available to export-oriented investors.

“We decided as a country to adopt free zones as an economic tool to complement the efforts of the government to boost our performance on exports,” explains Richard Jabo, executive director of the Uganda Free Zones Authority.

Incentives include tax and duty exemptions and unrestricted remittance of profit after tax

Under the legislation, investors in designated areas of Uganda can enjoy fiscal incentives including exemptions from taxes and duties on imports, unrestricted remittance of profit after tax, and VAT exemptions, to name a few.

Currently, Mr Jabo says, the authority is now investigating strategic locations for future free zones and is concentrated on creating one near the Entebbe International Airport.