In May, Zimbabwe alongside Mauritius, Seychelles and Madagascar, agreed to an EPA with the EU, which has since come into effect.
Under the agreement, exports from Mauritius, Madagascar, Seychelles and Zimbabwe, would have duty and quota-free access to EU markets while in return, the African countries agreed to gradually open their markets to European goods over a period of 15 years, with the exception of certain goods deemed sensitive.
In its Zimbabwe monthly economic outlook for June, AfDB cautioned that local industries would suffer from competition from the West.
“However, the opening up of domestic markets to European markets through the elimination of tariffs will expose local producers to competition from EU firms as their ability will be highly limited due to severe supply side constraints and also the country’s ability to use its tariff policy will be bound by the EPA,” AfDB said.
Zimbabwe’s manufacturing sector, though recording increased capacity utilisation, is constrained by lack of long term funding for retooling.
In addition, erratic power supplies have seen industries investing in alternative sources of energy thereby increasing the production costs. This has made local products expensive as compared to imports.
The caution by AfDB comes after a report by the Geneva-based South Centre said that Zimbabwe would benefit by signing a trade agreement with the EU.
In its report, South Centre said that Zimbabwe would lose US$15,4 million in tariff revenue but gains US$39,2 million in duties under the EU General Systems and Preferences (GSPs).
Under GSP, exporters from developing countries pay lower duties on some or all of what they sell to the EU.
This gives them vital access to EU markets contributing to the growth of their economies.