How can Mauritius take advantage of the African Continental Free Trade Area (AfCFTA)? (By Chido Pamela Mafongoya & Veedushi Mooloo)
By Chido Pamela Mafongoya & Veedushi Mooloo
Mauritius, being strategically located between Asia and Africa, praise itself as having one of the continent’s most stable regulatory environment. The Mauritius Financial Centre has built a reputation as a safe, trusted and competitive financial center, which has enabled it to position itself as the preferred jurisdiction for Foreign Direct Investments (FDIs) flows to the continent, since the country can serve both the Francophone and Anglophone Africa.
Mauritius and the other Africa countries are long known for the ties they share, both politically and economically. Mauritius ranks first in Africa has also made its way to Africa by being a member to two of the continent’s most important trade blocs, namely the Southern African Development Community SADC, and the Common Market for Eastern and Southern Africa (COMESA). Through these memberships, many foreign entrepreneurs have set up their businesses in Mauritius to gain from the trade advantages offered.
Apart from SADC and COMESA, Mauritius is now part of the African Continental Free Trade Area (AFCFTA). Launched on 1 January 2021, the African Continental Free Trade Area (AfCFTA) is an exciting game changer for African trade. Currently, Africa accounts for only 2% of global trade and only 17% of African exports are intra-continental, compared with 59% for Asia and 68% for Europe.
The AfCFTA is the world’s largest free trade area in terms of the number of participating countries since the formation of the World Trade Organization with all African countries being signatories except for Eritrea. The main purpose of the agreement is for members to remove tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent. The general objectives of AfCFTA can be summarized as follows, to:
- Create a single market, deepening the economic integration of the continent.
- Establish a liberalized market through multiple rounds of negotiations.
- Aid the movement of capital and people, facilitating investment.
- Move towards the establishment of a future continental customs union.
- Achieve sustainable and inclusive socio-economic development, gender equality and structural transformations within member states.
- Enhance competitiveness of member states within Africa and in the global market.
- Encourage industrial development through diversification and regional value chain development, agricultural development, and food security.
Mauritius has over the years been an offshore gateway to Africa. It has long been an advocate for developing economic bridges between itself and other African states, leveraging its position as Africa's best place to conduct business as recognized by The World Bank. Through its Global Business sector, Mauritius has firmly established and promoted itself as a regional hub for facilitating investments on the continent. It is thus undeniable that AfCFTA will add further to the attractiveness of Africa as a place to do business. The AfCFTA provides a platform for Mauritius to contribute significantly to the new African impetus by making available to investors and businessmen an ecosystem that not only makes it easier for them to do business with Africa, but also enhances and safeguards their investments.
The AfCFTA also gives Mauritius market access estimated to be as large as 1.3 billion people across Africa, with a combined gross domestic product (GDP) of $3.4 trillion which covers most service sectors, including financial services, telecommunications, ICT, professional services, construction, and health. The AfCFTA will eventually reach zero tariffs on most of traded items, boasting trade outside of its boarders.
The Mauritian economy is a mixed developing economy based on agriculture, exports, financial services, and tourism. Since the 1980s, the government of Mauritius has sought to diversify the country's economy beyond its dependence on just agriculture, particularly sugar production. In 2018, Mauritius Intra-Africa exports accounted for 23% of Mauritius’ total exports and imports for 13% of total imports. Mauritius mainly exports textiles to the rest of Africa. Of the top 10 intra-Africa export products five products are items of clothing or fabric accounting for 30% of Mauritius’ intra-Africa exports for 2018. The AfCFTA will provide the country access to an African textile market worth billions of dollars such that the country will be poised to become a major supplier of textile in the African market. The recent 2020 – 2021 budget of the government has announced one measure that can boost Mauritian exports from the already existing supply capacity to the region. The plan to set up Mauritius Export Warehouse in Tanzania and Mozambique will definitely support a number of Domestic Oriented Industry. Some are already gearing for Tanzania which is a more immediately obvious market than Mozambique. Mauritius has good potential to export a range of services in the context of the priority services lines set by the AfCFTA, namely Business services, Financial Services, Tourism and travel.
Mauritius mainly imports manufactured goods, petroleum products, cars, packaged medicaments from China, India and South Africa. The AfCFTA calls for a reduction in tariff in intra- Africa which means there will be a lower expenditure on importation of the above-mentioned goods from South Africa. As a result, there will be a reduction in the prices, reducing the country’s negative balance of trade.
The movement of goods and services amongst African countries will create employment opportunities for citizens in Mauritius. It will provide an opportunity for entrepreneurs to work together in a liberalized trade environment. Further, the AfCFTA will strengthen the existing commitment of deepening regional trade integration initiatives under regional bodies such as the African Union, COMESA and SADC. The geographical diversification brought about by the AfCFTA is likely to open up new markets for Mauritius thus boasting its economy.
The AfCFTA offers an opportunity for Mauritius to promote good governance both globally and across Africa, through the concept of “Trade Integrity” which is defined as international trade transactions that are legitimate, transparent and properly priced as a way to ensure the legitimacy the global trading system. Trade Integrity will provide investors with more confidence to increase their investments in the country.
The AfCFTA will also assist to alleviate some of effects brought about as a result of the COVID-19. The African Development Bank Group’s African Economic Outlook (AEO) 2020 Supplement estimates that Africa could suffer GDP losses in 2020 between $145.5 billion (baseline) and $189.7 billion (worst case), from the pre-COVID–19 GDP estimates. Further, trade in medical supplies and food has been disrupted. It is being fully recognized across the continent that AfCFTA presents a short-term opportunity for countries to “build back better” and cushion the effects of the pandemic. In the longer-term, the impact will increase the continent’s resilience to future shocks.
In conclusion diversifying exports, accelerating growth in its trade, competitively integrating into the global economy, increasing foreign direct investment, increasing employment opportunities and incomes, and broadening economic inclusion are just a few of the positive economic outcomes AfCFTA can bring to Mauritius. Mauritius having undergone a remarkable economic transformation from a low-income, agriculturally based economy to a diversified, upper-middle-income country that has attracted considerable foreign investment should ensure that it fully takes advantage of the opportunities offered by the AfCFTA.
Authors: Chido Pamela Mafongoya & Veedushi Mooloo, Centurion Law Group
Distributed by APO Group on behalf of Centurion Law Group.