Category : Trade Agreement
International Economics Consulting Ltd. (IEC) has authored a study on ‘The Mauritian Strategy to Leverage the Opportunities in the African Continental Free Trade Area (AfCFTA)’ for the United Nations Economic Commission for Africa (UNECA), its Sub-Regional Office (UNECA-SRO-SA), and the African Trade Policy Centre (ATPC). In a bid to strengthen pan-African trade, African States agreed to start negotiations for an AfCFTA at the 25th Summit of the African Union in June 2015. The AfCFTA which has been signed in March 2018 and entered into force in May 2019, aims to transform the existing dispersed and fragmented markets in Africa into a more unified and connected market.
The AfCFTA has the potential of expanding trade and development for Mauritius. Although the island state has been a member of some of the most active Regional Economic Communities (RECs) on the continent such as the COMESA and SADC, representing over 68.5% of the African continent, Mauritius is yet to harness its full potential. Mauritian exports to SADC represent 20.1% of all imports whilst those to COMESA account for only 12.5%. Overall, Mauritius’ exports to Africa only amount to 23.7% of total exports. As such, Mauritius’ main export partners lie outside Africa. Exports to the European Union constitute 36.1% of total exports whilst those to the United Kingdom and the United States make up 11.1% and 10.8% of all imports respectively. South Africa and Madagascar are the only African countries that account for a relevant share of Mauritius’ African exports. Over half of Mauritius’ exports are destined to South Africa, representing 53% in 2019 whilst exports to Madagascar constituted 14%. Mauritian exports to Africa are largely restricted to three industries: clothing and textiles, sugar, and plastics. On the other hand, when it comes to imports, Africa represents only 23.7% of the island state’s total imports and its main import partners instead include the EU, China, and India, all of whom have strong investment ties with Mauritius. In 2019, imports from Africa were estimated to account for USD 714 million, reflecting only 12.8% of Mauritius’ total import expenditure. Most of Mauritius’ imports from Africa are sourced from South Africa, Seychelles, Madagascar, and Kenya. In 2019, Mauritius’ imports from South Africa amounted to USD 453 million, representing around 60% of imports from Africa. However, in terms of overall imports, this represents only 9.2%. Taking all of these into consideration, it can be observed that Mauritius has not adequately explored the opportunities to be derived from the African market, especially when it comes to the provision of raw and immediate materials. There is a low level of integration in the regional value chains as Mauritius mostly trades in finished goods and agricultural products with Africa.
However, the AfCFTA offers the possibility of rectifying the existing constraints that limit intra-regional trade in Africa. Strategic sectors such as pharmaceuticals, clothing and textiles, food, education, and financial services are being prioritised in order to drive economic transformation. The AfCFTA has the potential of increasing Africa’s intra-continental exports by over 81% by 2035. However, it will be the removal of non-tariff barriers (NTBs) and the adoption of trade facilitation measures that will lead to more significant outcomes. The real income gains from tariff liberalization are expected to be minimal, equivalent to approximately 0.22% in 2035 but the removal of NTBs could result in a rise in real income by 2.4%. Caution is required, however, in interpreting the stated results, as the modelling work used amplifies the scope of the trade facilitation measures by modelling the impact of adopting and implementing the WTO’s Trade Facilitation Agreement. Mauritius will only benefit from the AfCFTA if NTBs are removed, and trade facilitation measures are adopted. The removal of tariffs will increase Mauritius’ income by 0.3%. In contrast, the elimination of NTBs and accompanying trade facilitation measures can lead to a 3.8% and 6.9% increase in national income respectively. For Mauritius to make the most of the AfCFTA, a Strategy has been devised by IEC. The Strategy will act as a roadmap and provide guidance to improve the country’s development framework through economic diversification and regional value chain developments and this will allow Mauritius to increase trade in both goods and services in Africa and enhance investment potential.
The Mauritian Strategy to Leverage the Opportunities in the AfCFTA is a key element of the country’s broader Africa Strategy that governs the country’s relationship with the continent. Thus, it is necessary to align the vision of the AfCFTA Strategy with that of the Africa Strategy and this can be reached through the implementation of three overarching strategic objectives. The first objective that has been identified is the need to facilitate the transmission of Trade Information across all business players and especially with SMEs. The private sector needs to have access to the right information and tools in order to make the most of the AfCFTA. The Economic Development Board (EDB) and private sector operators such as the Mauritius Export Association (MEXA) and the Mauritius Chamber of Commerce and Industry (MCCI) all provide a range of trade information services. The second strategic objective involves the reinforcement of the country’s trade promotion and economic diplomacy efforts. It is estimated that 1% increase in the investment of export promotion corresponds with an increase of 0.074% in overall exports. Moreover, trade promotion also has benefits for the overall economy and can contribute to GDP growth. The third objective consists in improving the country’s transport and logistics connectivity with the African continent. Given the weak and limited connectivity with the continent and the elevated transportation costs, Mauritius has begun implanting a series of projects aimed at addressing the existing hurdles that Mauritian companies face such as the Africa Warehousing Scheme and the Freight Rebate Scheme. These programs aim to mitigate the significant competitive disadvantage that Mauritius currently faces as opposed to other regional competitors. IEC has also recommended a series of other measures that will help reinforce Mauritius’s competitiveness in this regard. Collaborating with major logistics services providers to implement a digital consolidation platform, for instance, may help freight forwarders and shippers to increase efficacy and effectiveness, and thus reduce freight rates. Moreover, it will also be important that there is effective coordination and monitoring of the implementation of the AfCFTA and in this context, IEC has also proposed the setting up of an AfCFTA National Implementation Committee whose membership will include representation from all relevant key stakeholders and amongst its tasks it will oversee and mobilise resources for the effective implementation of the AfCFTA.