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The Possible Contribution of the African Continental Free Trade Area to the Economy of Eritrea

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The Possible Contribution of the African Continental Free Trade Area to the Economy of Eritrea International Journal of Research and Innovation in Social Science (IJRISS) |Volume V, Issue I, January 2021|ISSN 2454-6186 The Possible Contribution of the African Continental Free Trade Area to the Economy of Eritrea Ataklti Tsige Kidane Pan African University of Governance, Humanities, and Social Science (PAUGHSS) University of Yaoundé II, Soa, Cameroon Abstract: Regional integration has a considerable contribution to long been mostly excluded from the benefits of international achieving sustainable economic and social development through Trade (Matambalya, 1995). effective implementation of intergovernmental treaties and market-led strategies. These ambitions have been in the mind of The unification of African regionalism could therefore prove every African since African countries got their independence. To decisive, on the one hand, to create the right bargaining power reach these African dreams, African countries began with the vis-à-vis pertinent commercial partners (such as China, the establishment of African Economic communities (Abuja Treaty). USA, and the European Union). On the other, to foster Later the continent-wide free trade area that is AfCFTA came up economies of scale and value chains that can enlarge African with the objectives of creating a single continental free market companies' competitiveness in international markets. for goods and services, free movement of factors of production, However, the realization of these benefits is conditioned by and paving the ground for accelerating the creation of a continental customs union. Eritrea is the only country left overcoming numerous political, legal, economic, and behind from this continental free trade treaty. Most of Eritrea's functional challenges. policies are heavily influenced by the government's ideology, Eritrea is a country that has been challenged and survived which values self-reliance, that produced an inward-looking economy. However, these policies have contributed to Eritrea's from various United nation Security council Sanctions, weak economy and financial woes, reduces extreme poverty, and regional and global isolations, and now becoming an promotes national unity; it much limits civil liberties, influential nation politically in the horn of Africa. And also international engagements, and economic growth prospects; play a more significant role in the peace building process of therefore, it needs much reform. The study used one of the the horn of African countries. Generally, various issues various study plans, which is mixed-methods - qualitative driven- hamper the accession process for those countries not ratified: of exploratory research. The results revealed that the AfCFTA a) The concern that the removal of tariffs could survive has significant expected benefits for the Eritrea economy. These national productions at risk; and b) The issue of benefits are not only restricted to the economy only; it goes to compensations for those countries that depend on customs social, cultural, and diplomatic relations. The findings also discovered that the government has a limitation on reforming duties to consolidate their national budgets. In addition to that, investment, trade, and financial policies. Therefore, the study Eritrea has its problem different from those like limited recommends that Eritrea's government to amend and implement infrastructure capacity(soft and hard infrastructure), weak the suspended policy in accordance with AfCFTA and should financial institutions, Trade, and investment policies. sign the treaty. Therefore, the top political priorities are necessary to adopt cohesion policies and ad hoc measures to support different Keywords; Regional Integration, Regional Economic Integration, and AfCFTA countries and national actors' specific needs to make AfCFTA a comprehensive and mutually beneficial treaty for all. I. INTRODUCTION In addition to that, we know that this economic integration has egional integration is related to the discriminatory its advantages like- trade creation, greater consensus, political R removal of all trade impediments between a minimum of cooperation and employment opportunities, and so on. And two participating nations and establishing some aspects of also, it has disadvantages like trade diversions and national cooperation and coordination between them (M.El-Agraa & sovereignty, etc. Eritrea's provisional government passed the Ali, 1999). Regional integration is a strategy where countries country's first law on private investment when we see Eritrea's in the same region agree to enhance economic cooperation private investment law that was suspended during the war. through agreed institutions and rules, focusing on eliminating Eager to speed up economic growth, the government enacted barriers to free Trade in the region, increasing the free an Investment proclamation NO.18/1991 seven months after movement of labor, people, capital, and goods. RI is mainly independence. This proclamation encouraged both nationals trade-driven and is a process that involves expanding and foreigners to invest in Eritrea. So, as a result, in 1997, multilateralism in a regional economy, and later it involves Eritrea's growth rate was more than 7%; it means one of the integrating other economic, political, and social policies. It is fastest economic growth in the continent. a process during which the sovereign power of the member states is progressively diminished. African countries have www.rsisinternational.org Page 82 International Journal of Research and Innovation in Social Science (IJRISS) |Volume V, Issue I, January 2021|ISSN 2454-6186 According to Investment Proclamation No. 59/1994, Eritrea sources (https://www.heritage.org) has adopted an open and market-oriented economic policy. Illustrations; They were assigning the private sectors a leading role in the country's economic activities to function with no restrictions 80–100 Free or discrimination. Chapter 4. of proclamation No. 59/1994 deals with investment incentives. The incentives may be 70–79.9 Mostly Free classified into three categories; Fiscal incentives, financial 60–69.9 Moderately Free incentives, and other incentives (The government of the state of Eritrea, November 1994). 50–59.9 Mostly Unfree Fiscal incentives deal with duties and taxes on imports and 0–49.9 Repressed export, as well as on income. Financial incentives involve According to the heritage foundation report of 2020, Eritrea's loans, allocations of foreign exchange, remittance of foreign Economic freedom scores overall are as indicated in the above exchange. Investment guarantees and additional facilities fall table; it is 38.5%. It ranks 177 of 180 countries, and this under other incentives. The tax code itself is designed to means Eritrea has the least economic freedom, followed by promote investment and economic growth through liberal Cuba-26.9, Venezuela-25.2, and North Korea-4.2 globally and Trade. It offers a low rate on import tariffs for manufacturing regionally also, it scores the lowest percentage of all IGAD inputs—nominal custom duty of two percent on imports of members. (Miller, B.Kim, & M.Roler, 2019). capital goods and industrial spare parts. There are no duties or taxes on exports, which indicates the government's export- II. OVERVIEW OF THE REGIONAL ECONOMIC oriented economic policy. These necessary policies showed us COMMUNITY AND AFRICAN CONTINENTAL FREE that Eritrea's transitional government as pro-regional TRADE AREA economic integration and cooperation among the neighboring The Continental Free Trade Area (CFTA) creation is a countries (Eritrean Investment Center, 2003). significant cornerstone in the long run of African integration. Eritrea's socio-economic policies are hugely influenced by the As foreknow in the Treaty Establishing the African Economic government's ideology, which values self-reliance and equal Community (the Abuja Treaty), which entered into action in distribution of wealth among the nation's citizens. As a result, 1994, the integration process culminated in the African it has produced an inward-looking economy. These policies Economic Community(AEC). The CFTA aims to liberalize have contributed to Eritrea's weak economy and financial trade among African countries and to build on the substantial woes. Eritrea has many sectors that are suitable for successes already achieved within Africa's RECs. By doing development, but gross reform is needed. The state can learn so, the CFTA intends to facilitate intra-African exchange, from successful reform processes undertaken by countries like boost value chains that make smooth integration into the China and Rwanda. Like any other system, the Statist model world economy, and energize competitiveness, includes trade-offs. It reduces high poverty and promotes industrialization, and innovation, thereby contributing to national unity, but much limits "civil liberties," "international African economic and social progress and development. engagements," and "economic growth prospects" these are CFTA's developmental approach is solidly grounded in considered as the main problem to the country. Africa's political economy realities and development challenges. Any trade agreement embodies a confluence of Tabel. 1 Economic Freedom Scores broad political economy considerations underpinned by such Ranking Of the IGAD members by economic Freedom principles as flexibility, variable geometry, and special and differential treatment. These are typically seen through such World Regional rank-IGAD Overall Score Country modalities
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