AfCFTA: Economic Impact And Its Benefits
As African economies struggle to manage the consequences of COVID-19, the implementation of the African Continental Free Trade Agreement (AfCFTA) aims to provide an anchor for long-term reforms and integration. The African Continental Free Trade Area (AfCFTA) agreement creates the largest free trade area in the world measured by the participation of 1.3 billion people across 54 countries with a combined Gross Domestic Product (GDP) valued at US$3.4 trillion. According to the World Bank, AfCFTA is estimated to contribute a lifting of additional 30 million people from extreme poverty and 68 million people from moderate poverty by 2030. Real income gains from full implementation of the agreement could increase the African economy by 7% equating to US$450 billion.
The AfCFTA is expected to significantly boost African trade, particularly intraregional trade in manufacturing. Following the analysis carried out by the IMF, it estimated that by 2035, the volume of total exports would averagely increase by almost 29%. Inter-continental exports would increase by more than 81%, while exports to non-African countries would rise by 19%. This would create new opportunities for African manufacturers and workers. The full potential of the Agreement will depend on putting in place significant policy reforms, strong political will, and trade facilitation measures. Such policy reforms and trade facilitation measures include:
- Decreased tariffs, which remain stubbornly high in many countries in the region.
- Lowering trade costs by reducing non-tariff barriers and improving hard and soft infrastructure at the borders.
These trade facilitation measures would reduce red tape, lower compliance costs for traders, and ultimately make it easier for African businesses to integrate into global supply chains.
A report published by the World Bank estimates that compared with a business-as-usual scenario, implementing AfCFTA would lead to an almost 10% increase in wages, with larger gains for unskilled workers and women. A freer intra-African trade would help women by lowering the gender wage gap, and workers by increasing decent employment opportunities. A growing manufacturing sector would provide new job opportunities, especially for women. This Agreement would also reduce tariffs among member countries and cover policy areas such as trade facilitation and services. It will also address regulatory measures such as sanitary standards and technical trade barriers. It will complement existing sub-regional economic communities and trade agreements in Africa by offering a continent-wide regulatory framework and by regulating policy areas such as investment and intellectual property rights protection.
The biggest gains of the AfCFTA would arise from the reduction in Non-Trade Barriers (NTBs) and the implementation of the Trade Facilitation Agreement (TFA). Under the combined tariff liberalization and reduction in NTBs, the real income gain would amount to 2.4% in 2035 at the continental level. However, the biggest boost would arise from the implementation of the TFA, which would raise a gain of 7% real income for AfCFTA members.