RECs and TFTAs: A stumbling or building block for AfCFTA?

By Monica Byarugaba

“Rome wasn’t built in a day.” This timeless idiom resonates with the monumental task facing African nations as they navigate the intricacies of implementing the African Continental Free Trade Area (AfCFTA).

While the AfCFTA promises to unlock vast economic potential and foster regional economic integration, its success hinges on overcoming challenges inherent in the diverse landscape of existing Regional Economic Communities (RECs).

RECs (also Regional Trade Agreements, RTAs) like East African Community (EAC), Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA), were established to facilitate trade by eliminating tariffs and non-tariff barriers and harmonising the rules of origin within their regions.

The launch of AfCFTA in January 2021 marked a significant milestone for the continent, with Tanzania joining on September 9, 2021, becoming the 39th country to ratify the agreement. At first glance, the AfCFTA appears to be a beacon of hope, a pathway to prosperity through enhanced trade and economic cooperation among African nations to establish a single African market for goods and services originating within the continent.

However, beneath the surface lie implementation complexities stemming from the existing RECs, which for a long time have served as pillars of regional economic integration within Africa.

While partner states to the AfCFTA will be able to easily adopt and implement the rules brought by the agreement, it is likely to be rather challenging for states in the RECs that have significantly advanced in their integration to do the same. Whilst RECs have played a key role in fostering intra-regional trade and harmonising economic policies among member states, the coexistence of RECs alongside the AfCFTA creates both opportunities and challenges.

The recent implementation of the COMESA-EAC-SADC Tripartite Free Trade Area (TFTA) also known as the Tripartite Cooperation in July 2024 has intensified discussions on the future of African trade integration.

With 14 out of 29 member states ratifying the agreement, the TFTA has officially come into effect, resulting in optimism but also uncertainty within the business community in the region.

According to the Tripartite Cooperation, TFTA is built on three key pillars: market integration (through trade liberalisation and improved movement of business persons), infrastructure development (to enhance connectivity and reduce business costs), and industrial development (focusing on value addition, diversification, and competitiveness).

Some view the existing RECs and TFTA as potentially hindering the long term vision of AfCFTA due to overlapping memberships which result in multiple compliance obligations, lack of harmonisation of trade regimes between RECs and the AfCFTA framework and the technological, infrastructural and development gap between the partner states which may result in some member states being left behind.

However, if you look closely RECs and TFTA complement AfCFTA’s implementation as opposed to competing with it. For instance, by reducing tariffs and non-tariff barriers across its 29 member states (which represents 53 percent of the African Union’s membership), the TFTA serves as a strategic starting point for broader continental integration. With a market of over 600 million people, the TFTA offers a practical, step-by-step approach for RECs to deepen their trade networks while AfCFTA gradually expands across the entire continent in the long term.

This enables member countries of COMESA, EAC, and SADC to benefit from immediate access to a broader regional market with fewer barriers to stimulate economic activity, attract investment, and increase trade within these three major African trade blocs.

While RECs may be seen as challenging the implementation of AfCFTA, they also serve as powerful drivers of continental progress. Addressing these challenges will require collective effort and strong political commitment from all stakeholders.

The TFTA, in particular, acts as a ‘test run’ and learning ground for the AfCFTA. The experiences, successes, and obstacles encountered by the TFTA member states will offer valuable insights that can inform the ongoing AfCFTA implementation process. From a holistic perspective, it is evident that the two agreements complement each other, with the TFTA serving as a stepping stone for the broader goals of AfCFTA.

Although Tanzania has yet to ratify the TFTA agreement, pending completion of domestic constitutional procedures, the Ministry of Industry and Trade has indicated that efforts are being made to fast track this process. However, greater awareness is still needed, as Tanzanian participation in regional markets remains lower than in countries like Kenya. According to the 2023 EAC trade and investment report, Tanzania’s total exports to EAC declined by 16.38 percent from $1.416 billion in 2022 to $1.184 billion in 2023.

In contrast, Kenya’s total exports to EAC grew by 5.73 percent, rising from $2.058 billion to $2.176 billion over the same period.

To fully harness the benefits of economic integration, more efforts should be directed toward raising awareness and providing practical guidance for newer participants, particularly small and medium-sized enterprises. This can be achieved through collaborative efforts between key stakeholders including the Tanzania Revenue Authority (TRA), the Ministry of Industry and Trade, and the private sector to educate the business community on the tax and trade benefits available under these regional trade agreements and the AfCFTA.

Monica Byarugaba is a Senior Associate, Tax Services, at PwC Tanzania. The views expressed do not necessarily represent those of PwC