The African Continental Free Trade Area (AfCFTA) represents a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion, a new World Bank report has said.
On March 21, 2018 an agreement was signed in Kigali to allow for the acceleration of intra-African trade and boost Africa’s trading position in the global market by strengthening the continent’s common voice. The AfCFTA provides a unique opportunity for signatories to the deal to competitively integrate into the global economy, reduce poverty, and promote inclusion. Although Africa has made substantial progress in recent decades in raising living standards and reducing poverty, increasing trade can provide the impetus for reforms that boost productivity and job creation, and further reduce poverty.
World Bank estimates that by 2035, implementing the agreement would contribute to lifting an additional 30 million people (1.5 percent of the continent’s population) from extreme poverty and 68 million people from moderate poverty.
Also Read: Micro financing out of poverty
Real income gains from full implementation of the agreement could increase by 7 percent, or nearly US$450 billion. As African economies struggle to manage the consequences of COVID-19, AfCFTA can provide an anchor for long-term reform and integration.
“AfCFTA would significantly boost African trade, particularly intra-regional trade in manufacturing. By 2035, the volume of total exports would increase by almost 29 percent relative to the baseline. Intracontinental exports would increase by more than 81 percent, while exports to non-African countries would rise by 19 percent. This would create new opportunities for African manufacturers and workers,” the report reads.
According to World Bank’s Chief Economist for Africa, Albert Zeufack, the AfCFTA has the potential to increase employment opportunities and incomes, helping to expand opportunities for all Africans.
“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,” he said.
Intra-AfCFTA exports to partners would rise especially fast for Cameroon, Egypt, Ghana, Morocco, and Tunisia, with exports doubling or tripling with respect to the baseline. Under the AfCFTA scenario, manufacturing exports would gain the most, 62 percent overall, with intra-Africa trade increasing by 110 percent and exports to the rest of the world rising by 46 percent. Smaller gains would be observed in agriculture—49 percent for intra-Africa trade and 10 percent for extra-Africa trade. The gains in the services trade are more modest—about 4 percent overall and 14 percent within Africa.
In 2015, the latest year for which detailed World Bank estimates are available, 415 million people in Africa lived in extreme poverty (at US$1.90 a day in purchasing power parity, PPP, terms).
“Across the continent, however, poverty rates vary widely by region—for example, from 41.1 percent in Sub-Saharan Africa to less than 3 percent in North Africa. By country, the poverty rate is 77.7 percent in the Central African Republic, but just 0.4 percent in Algeria and Egypt. Under baseline simulations, the headcount ratio of extreme poverty in Africa is projected to decline to 10.9 percent by 2035 from 34.7 percent in the latest estimate (2015),” the study reads in part.
Currently, the COVID-19 pandemic has taken a toll on human life and brought major disruption to economic activity across the world.
Despite arriving later in Sub-Saharan Africa, the virus has spread rapidly across the continent. Economic growth in the region is projected to decline from 2.4 percent in 2019 to -2.1 percent to -5.1 percent in 2020, the first recession in the past quarter century (World Bank 2020). It will cost the region between US$37 billion and US$79 billion in terms of output losses for 2020.
World Bank however, is at the forefront taking action to help developing countries strengthen their pandemic response.
“We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans,” said the Bank in a statement.
In this context, therefore, the World Bank predicts that a successful implementation of AfCFTA would be crucial. In the short term, the agreement 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 allow countries to anchor expectations by providing a path for integration and growth-enhancing reforms. Furthermore, the pandemic has demonstrated the need for increased cooperation among trading partners.