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After having received the requisite 22 ratifications, the African Continental Free Trade Area Agreement (AfCFTA) will officially enter into force on the 7th of July. The goal of this agreement is to create a single market encompassing the entire continent. Thus creating the world’s largest free trade area. There are high hopes for the AfCFTA to play an important role in economic growth and development on the continent. However, while sometimes drowned out by the widespread expression of neoliberal enthusiasm for the AfCFTA, there are also voices expressing concern. These concerns centre on who will benefit from the AfCFTA and whether benefits will be shared equally. Equally between the different countries within the AfCFTA, equally between multinational corporations and citizens, and equally between men and women. While all three potential inequalities are cause for concern it is perhaps the last one that is most worrying. The importance of empowering women and combating gender inequality is widely recognised as is evidenced by its inclusion in the Sustainable Development Goals (SDG 5). Consequently, serious efforts should be taken to ensure that the AfCFTA becomes a tool for gender equality rather than a barrier to it. Without any corrections to the current course, the AfCFTA runs the serious risk of becoming the latter.
The AfCFTA ostensibly recognises the importance of gender equality and commits itself to it. Under Article 3(e) it mentions that one of the objectives is to “promote and attain sustainable and inclusive socio-economic development, gender equality [emphasis added] and structural transformation of the State Parties”. The question is how this commitment will manifest itself in practice. The fact that the phrase “gender equality” is not used again in the entire document while variations of liberalisation are mentioned 24 times, gives an indication of the relative importance that seems to be attached to the pursuit of gender equality. It seems unrealistic to expect that general growth in trade and economic development will automatically translate to gender equality. Nevertheless, there are those who believe firmly that this is exactly what will happen.
Vera Songwe (Executive Secretary of the United Nations Economic Commission for Africa) is one of the people who is optimistic about the results the AfCFTA will have on female empowerment. At the Oxford Business Forum Africa organised by the University of Oxford in March this year, she said: “One of the big indirect effects of the African Continental Free Trade Agreement (AfCFTA) will be that women become a lot more economically empowered.” Going on to state the hope and expectation that the AfCFTA will help close the gender gap in 15 years rather than the 102 predicted by a World Economic Forum report (World Economic Forum, 2018). Careful note should be taken of Mrs. Songwe’s identifying female empowerment as an ‘indirect effect’. This appears to implicitly acknowledge that no direct action to facilitate gender equality will be taken under the AfCFTA. Without specific direct action focused on female inclusion and empowerment, it is unlikely that the AfCFTA, or any other trade measures, will succeed in closing the gender gap. This was acknowledged recently in the Joint Declaration on Trade and Women’s Economic Empowerment on the occasion of the WTO Ministerial Conference in Buenos Aires in December 2017. The statement stressed the importance of fostering inclusive trade policies and developing evidence-based interventions in order to make trade more gender responsive and aid in closing the gender gap. An important element of the statement was its acknowledgment of the importance of data with respect to combating gender inequality. One action that both those optimistic and pessimistic about the effect the AfCFTA will have on gender equality should be able to agree on is a commitment to measuring the effects. Without gender disaggregated data it will be impossible to see how increased trade through the AfCFTA affects gender equality. It is important that any efforts to measure the effects of the AfCFTA on gender equality do not focus solely on the effects of trade but also look at the effects of changes in tax policy which are likely to arise as a result of the AfCFTA.
The link between trade liberalisation and tax competition is well established. The easier it becomes for different economic actors to relocate between different tax regimes, the more likely it is that governments will start competing on tax to entice these actors to relocate to their jurisdiction (Genschel and Schwarz, 2011). It thus stands to reason that the liberalisation of markets within the AfCFTA will likely encourage member states to compete for foreign direct investment with favourable tax policies. Currently, tax policies appear to negatively affect women disproportionally. While more disaggregated data and research on this issue in the African context is necessary, what we do know is that women spend a higher percentage of their income on consumption goods. Consequently, they are affected more than their male counterparts when VAT is increased. VAT is a significant source of tax revenue in many African countries, contributing around 25% in the Sub-Saharan Africa region (Fjeldstad and Iverson, 2015). In comparison, corporate tax in many cases contributes a less significant amount to tax revenues. As mentioned above, a likely effect of the AfCFTA will be tax competition. This will likely mean corporate taxes will be lowered and/or tax incentives will be doled out. While the goal of such incentives would be to increase the tax base through increased investment and economic activity, contemporary research casts doubt on this prediction (Beer and Loeprick, 2018). Therefore, the most likely effect will be a decrease in tax revenue. Such a decrease will have to be dealt with somehow. One option is for governments to derive the missing revenue from other sources. In that case, VAT is a likely candidate and as mentioned women will be disproportionally affected by this. Alternatively, government spending can be dialed back. Due to their often disadvantaged economic position, women are more often dependent on government spending. Consequently, a cut in spending is also likely to affect women disproportionally. Considering the above, the AfCFTA looks more likely to widen the gender gap than to close it. To avoid such a scenario focused action and a serious effort to gear the AfCFTA towards gender equality enhancing policies is needed.
To ensure the AfCFTA achieves its stated purpose of attaining gender equality several steps need to be taken. First of all, a serious investment needs to be made to procure important gender disaggregated data to allow the effects of the AfCFTA to become visible. Such data must show us where member states are now in terms of gender equality and also serve as a basis to set clear measurable goals. Where periodic measurements show countries are not on track this should trigger an active re-evaluation of AfCFTA policies. Secondly, the AfCFTA needs to do more in committing itself to establish trade policies that are not just conducive to trade in general but conducive to female economic empowerment in particular. A gender-neutral approach is likely to further exacting inequalities rather than reduce them. Finally, the AfCFTA needs to consider likely implications of a free trade area on tax competition. A comprehensive common tax policy that avoids a race to the bottom on corporate tax, ensures multinational corporations pay their fair share and avoids a scenario where women are disproportionally left to pick up the bill, should form an integral part of the AfCFTA. Only by taking these important steps can we ensure that women become the beneficiaries of the AfCFTA rather than its victims.
Authored by Martijn van de Kerkhof, TJNA Fellow and student in MSc Africa and International Development, University of Edinburgh.
References
Beer, S. and Loeprick, J. (2018) The Cost and Benefits of Tax Treaties with Investment Hubs: Findings from Sub-Saharan Africa. IN: IMF working paper WP/18/227.
Fjeldstad, O-H. and Iverson, T.O. (2015) The Added Value of Value Added Tax. CMI brief, 14(2).
Genschel, P. and Schwarz, P. (2011) Tax competition: a literature review. Socio-Economic Review, 9, pp. 339-370.
World Economic Forum (2018) The Global Gender Gap Report. World Economic Forum.
[1] See for example the 2019 budget review for South Africa and the 2019 Economic Survey for Kenya.