The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US$3.4 trillion. Only 16 percent of Africa’s trade currently takes place on the continent, according to the African Union Commission.
Uganda and 43 other African countries have agreed on Continental Free Trade Area agreement (CFTA), a trade deal that seeks to help to overcome some of the barriers that have hindered commerce on the continent. This means that 11 countries including Africa’s two largest nations (Nigeria and South Africa). Both account for over 30% of Africa’s GDP.
The CFTA is clustered on seven areas: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and factor market integration.
The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US$3.4 trillion. Only 16 percent of Africa’s trade currently takes place on the continent, according to the African Union Commission.
While CFTA may be good news, there is the not-so-good news: we are not known for executing effectively existing regional agreements. Uganda is already a member of the East African Community and Common Market for the Eastern and Southern Africa but full operationalisation of the different stages of regional integration remains to be attained.
The EAC after restoration is nearly making two decades and the non-trade barriers continue to prevail and also integration activities remain predominantly funded by external resources. However, notably Uganda has seen sizable growth its exports to the EAC as the region is its largest destination.
For each trading day, Uganda exports in excess of USD1 million to South Sudan, USD2 million to Kenya and USD1.5 millon to DR Congo. The need for regionalisation in principle is warranted and the extent to which the implementation is adhered to is key to realisation of the intended benefits.
The CFTA will only take operations only when 50% of the countries have ratified the agreement in their Parliaments. Lessons could also be drawn from ASEAN on how to anchor the big boys (Nigeria and South Africa) to the trade agreements. China not part of the ASAEN has been preferentially aligned to the ASEAN regional bloc.
Central Bank Rate is necessary but not sufficient to drive interest rates and lending rates down. It is noted in the March 2018 – Bank of Uganda state of the Economy report that commercial banks’ lending rate while adjusting to the Central bank rate, it has been with a lag and sluggishly so.
The weighted average lending rate on shilling denominated loans remains over 20%. This implies the CBR and lending rate spread is about 11% consistent with spread in March 2017.
The overall conduct of monetary policy is also constrained by the persistent build-up of structural liquidity in the system because commercial banks prefer to transact on overnight basis yet the seven-day interbank rate is BOU’s operating target, which causes volatilities in the money market rates. BoU in the interim is relying more on the deposit auctions and REPOs. REPOs are however, constrained by exhaustible underlying stock of securities.
BoU will continue to engage the Ministry of Finance Planning and Economic development for longer dated marketable instruments. Notable also is that there is slight recovery but still subdued growth in Private Sector Credit Growth in an environment of sustained monetary policy easing which in part reflects a raft of supply side constraints and implies that monetary policy alone cannot boost economic growth.
The risk of Non-Performing Loans (NPLs) to PSC growth has moderated following the decline in the ratio of NPLs to 5.6 per cent in December 2017, from 7.2 per cent in the preceding quarter ended September 2017.