Ethiopia Envisages Entry into the COMESA Free Trade Area

The government of Ethiopia is calling for an entry into the free trade area (FTA) of the Common Market for Eastern and Southern Africa (COMESA) in order to benefit from preferential trade between member countries. Although Ehtiopia is a member of COMESA, the country has not ratified a special FTA arrangement. 

This decision follows the recommendation of a study conducted under the auspices of COMESA and the Ethiopian Ministry of Finance and Economic Development (MoFED). As emphasised by Geremew Ayalew, director general of trade relations and negotiations at the Ethiopian Ministry of Trade (MoT), the study finds the 93-million people country ready to compete and prosper on the liberalised markets in Eastern and Southern Africa.

From market exit to export competitiveness

The findings of COMESA and MoFED are to be interpreted in the context of a trend reversal in the Ethiopian economy: Until recently, the empirical evidence for the competitiveness of the country’s goods and services was not supportive of any trade liberalisation endeavour. Experts found that under increased competition, domestic firms were more likely to exit the market than upgrade their technologies and hence increase their productivity. This lack of resilience was attributed to the low levels of investment in innovation in an Ethiopian economy characterised by large numbers of small companies. Consequentially, research about the economic implications of a potential accession to the COMESA FTA is reported to have predicted adverse employment effects.

According to COMESA, the current situation is however different: Ethiopia has managed to increase its price competitiveness both in the agricultural and manufacturing sectors. For example, in a recent report the World Bank highlighted the growth of the Ethiopian flower industry from a single firm 14 years ago to approximately 100 companies today, with an estimated annual export value of $200 million and 50’000 employees.  The manufacturing sector, in turn, has benefitted from foreign companies through knowledge and technology spillovers. Based on these developments, African newspapers portray Ethiopia’s entry into the COMESA FTA as a means to create new market opportunities for the country’s economy and to further diversify its exports.

Dynamic regional integration

The COMESA FTA was established in October 2000 and today counts 13 members differing both in economic size and structure: For example, both the small island developing state Mauritius with its flourishing services sector and the Kenyan economy with its agricultural export base are part of the FTA. It is documented to have contributed to the nearly six-fold increase in intra-COMESA trade from $3.1 billion in 2000 to $18 billion in 2013. Moreover, if Ethiopia enters into the FTA, it would receive a seat at the negotiating table for a prospective tripartite agreement together with the East African Community and the Southern African Development Community. The tripartite FTA is seen as a stepping stone for the project of a Continental Free Trade Area in Africa. Currently negotiations for the Tripartite FTA are on-going and their conclusion contingent on the resolution of the remaining sticking points, most notably differential rules of origin.

Notwithstanding the prospects of economic growth through trade liberalisation, some sources emphasise that the accession to the COMESA FTA will also have costs for Ethiopia: Specifically, the integration would imply a dismantlement of tariffs and quotas and a subsequent loss in revenue for the government in Addis Ababa. Some experts argues that tariff revenues still constitute a major source of public income in Sub-Saharan Africa.

Two tracks of trade liberalisation

Ethiopia’s integration into the COMESA FTA is part of the country’s two-tiered approach to trade liberalisation: Beside the engagement on the preferential track, the government in Addis Ababa is involved in accession talks with the World Trade Organization (WTO). In 2003, the WTO General Council established a Working Party to analyse the application of Ethiopia. Four years later, the country submitted a summary of its foreign trade regime. The liberalisation of Ethiopia’s state-run banking and telecommunications sectors has proven controversial in the bilateral negotiations with existing members. To enable the next and fourth Working Party meeting, Ethiopia has to submit additional documents including an offer for the services sector.  Last year Lesanework Zerfu, the Head of the multilateral trade relations ministry for Ethiopia, asserted that Ethiopia would become a WTO member by the end of 2015. He stressed that the country was on track towards accession, and that so far, progress in negotiations had not been detrimental to the country’s national interests.