DRC moves to stem income losses in Comesa entry push

Mineral-rich Democratic Republic of Congo plans to join a regional compensation fund by the end of the year to help it avoid revenue losses that threaten to deny it membership to Africa’s largest market bloc.

The vast nation, renowned for its huge reserves of gold, cobalt, diamond and copper, has since last year stepped up a campaign to be granted membership of the Common Market for Eastern and Southern Africa (Comesa) as part of an ongoing reconstruction exercise after decades of civil strife.

The Comesa adjusting facility specifically helps member nations to cushion themselves against losses arising from market liberalisation programmes as more nations integrate into larger economic communities.

Burundi and Rwanda last month became the latest beneficiaries of the fund when they received 4.4 million and 10.3 million euros respectively to help them integrate into the membership of the East African Community (EAC).

The leadership of Comesa is however warning that the incorporation of the DRC into its existing free trade area (FTA) and Customs Union arrangement would result in revenue losses once its existing tariff structures are aligned with those of the market.

“The big concern remains the removal of 100 per cent of most favoured nation (MFN) rates in line with the Comesa FTA,” Comesa secretary-general Sindiso Ngwenya, said noting that DRC and the Comesa secretariat would have to conduct a joint study to inform policy strategies of tackling threats posed by the removal of the MFN rates with respect to Comesa.

“The study should also recommend how the DRC could be assisted to align its national tariffs to the Comesa CET (Common External Tariff) as well as protect infant industry,” Mr Ngwenya said, adding that “Comesa will fund the study and the work will be undertaken with speed.”

The technical definition of a free trade area is a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most goods and services.

Countries most often adopt this kind of economic integration if their economical structures are complementary.

However, should they be likely to compete against one another, they opt for a customs union.

Unlike a customs union, members of a free trade area have different quotas and customs policies with non-members.

To avoid evasion, most commonly through re-exportation, countries use a system of certification of origin, most commonly called rules of origin, with a specified minimum requirement for local material inputs and local transformations adding value to the goods.

Special treatment

Goods that don’t meet these minimum requirements are not entitled to the special treatment envisioned in the free trade area provisions.

However, in a morale boosting development, statistics showed that except for the MFN status, all of DRC’s tariff arrangements are in tandem with those of Comesa — meaning that identifying a solution to the MFN-tied revenue losses would improve its chances for admission to the 19-member market.

For example, the current tariff structure of five per cent for raw material and capital goods, 10 per cent for semi-processed goods and 20 per cent for finished goods matches the Comesa common external tariff (CET).

To harness the opportunity, the Comesa secretariat said the DRC’s finance ministry had expressed a commitment to participating in the regional market and would join the Comesa fund’s adjustment facility by the end of the year.

Although the country has an option to drop the MFN rates, its Treasury warned that such a move would deal it a massive blow because the national fiscal budget depends more heavily on import duties and taxes than the internal revenue collected.

The Comesa adjusting facility specifically helps member nations to cushion themselves against losses that come with market liberalisation programmes as more nations integrate into larger economic communities.