A new World Bank report has indicate that, African Continental Free Trade Area (AfCFTA) represents a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion. If implemented fully, the trade pact could boost regional income by 7% or $450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035.
The report suggests that achieving these gains will be particularly important given the economic damage caused by the COVID-19 (coronavirus) pandemic, which is expected to cause up to $79 billion in output losses in Africa in 2020. The pandemic has already caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food.
Most of AfCFTA’s income gains are likely to come from measures that cut red tape and simplify customs procedures. Tariff liberalization accompanied by a reduction in non-tariff barriers – such as quotas and rules of origin – would boost income by 2.4 percent, or about $153 billion. The remainder,$292 billion would come from trade-facilitation measures that reduce red tape, lower compliance costs for businesses engaged in trade, and make it easier for African bu sinesses to integrate into global supply chains.
Successful implementation of AfCFTA would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs. In the longer term, AfCFTA would provide a path for integration and growth-enhancing reforms for African countries. By replacing the patchwork of regional agreements, streamlining border procedures, and prioritizing trade reforms, AfCFTA could help African countries increase their resiliency in the face of future economic shocks.
“The African Continental Free Trade Area has the potential to increase employment opportunities and incomes, helping to expand opportunities for all Africans,” said Albert Zeufack, the World Bank’s Chief Economist for Africa. “The AfCFTA is expected to lift around 68 million people out of moderate poverty and make African countries more competitive. But successful implementation will be key, including careful monitoring of impacts on all workers – women and men, skilled and unskilled – across all countries and sectors, ensuring the agreement’s full benefit.”
According to the report, the agreement would reshape markets and economies across the region, leading to the creation of new industries and the expansion of key sectors. Overall economic gains would vary, with the largest gains going to countries that currently have high trade costs. Côte d’Ivoire and Zimbabwe where trade costs are among the region’s highest would see the biggest gains, with each increasing income by 14 percent. AfCFTA would also significantly boost African trade, particularly intraregional trade in manufacturing. Intra-continental exports would increase by 81 percent while the increase to non-African countries would be 19 percent.
Implementation of the agreement would also spur larger wage gains for women (an increase of 10.5 percent by 2035) than for men (9.9 percent) [chart above]. It would also boost wages for skilled and unskilled workers alike -10.3 percent for unskilled workers, and 9.8 percent for skilled workers.
Trade might be the gateway to development
The statistics in Africa aren’t too impressive, especially when it comes to one of the biggest opportunities for growth: trade among African countries. Trade between African countries has the greatest potential for building sustainable economic development and integration.
In March 2018, African countries signed a landmark trade agreement, the African Continental Free Trade Area Agreement (AfCFTA), which commits countries to remove tariffs on 90 percent of goods, progressively liberalize trade in services, and address a host of other non-tariff barrier.
There are widespread opportunities for African countries to trade opportunities for cross-border trade within Africa in food products, basic manufactures and services exist, they remain unexploited. However, eliminating export diversification and job creation. Regional trade barriers fall more heavily and disproportionately on women and the poor in Africa.
Movement from political will to policy action as far as improving regional cooperation is ongoing but remains slow to materialize. Customs procedures are onerous, visa restrictions are high, while failure to produce value-added goods and to diversify from natural resources and goods different from neighbouring countries continues to stifle trade.
The continent’s railways and roads often lead towards the ports rather than link countries across regions. To fly from one African country to another, it is often easier to pass through Europe. Relatively lower tariffs on African goods entering European Union and US markets also make export to industrial countries more lucrative than to other African countries. Because of hindrances to trade within Africa, exports from Tunisia and Cameroon often find their way to French warehouses before being redirected to each other’s market shelves.
As African countries pursue more trade opportunities, they will also require a dynamic private sector to play a role. In many African countries the private sector is often made up of a few giant multinational corporations at one end and a large but small-scale informal sector at the other. One of the challenges facing African policymakers is how to deal with a small-scale sector that is responsible for a significant portion of production, trade and services.
The continent has the potential to spur growth and development, their impact depends both on complementary global reforms and on countries’ implementation the African Continental Free Trade Area (AfCFTA).