If fully implemented, AfCFTA could speed up wage growth for women and lift 30 million people out of extreme poverty by 2035, the World Bank report has found.
An article by Namibia Economist, dated July 29, 2022, suggests that achieving these gains will be particularly important given the economic damage caused by the COVID-19 pandemic, which is expected to cause up to US$79 billion in output losses in Africa from 2020.
- Real income gains from full implementation of the AfCFTA agreement could increase by 7 per cent, or nearly US$450 billion by 2035.
- AfCFTA would significantly boost African trade, particularly intra-regional trade in manufacturing.
- Manufacturing exports would gain the most, 62 per cent overall, with intra-Africa trade increasing by 110 per cent and exports to the rest of the world rising by 46 per cent.
COVID-19 has caused major disruptions to trade across the continent, including critical goods such as medical supplies and food. By increasing regional trade, lowering trade costs, and streamlining border procedures, full implementation of AfCFTA would help African countries increase their resiliency in the face of future economic shocks and help usher in the kinds of deep reforms that are necessary to enhance long-term growth.
The African Continental Free Trade Area is an initiative by Africa’s Heads of State to help boost intra-Africa trade and create a new developmental trajectory through regional integration and industrialization. The establishment of AfCFTA, one of the flagship projects of Agenda 2063, represents a critical step toward the operationalization of an integrated African market that is meant to culminate in the formation of an African economic community following the Abuja Treaty.
There is no doubt that AfCFTA provides a unique opportunity for countries in the region to competitively integrate into the global economy, reduce poverty and promote socio-economic transformation. The agreement will create the largest free trade area in the world measured by the number of countries participating. It will connect 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion.
“The African Continental Free Trade Area 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,” said Albert Zeufack, Chief Economist, World Bank Country Director for Angola, Burundi, the DRC and Sao Tome and Principe.
According to an article published by Newsday on March 17, 2022, there is a myriad of anticipated benefits from the successful implementation of AfCFTA. The major ones are catalyzing the structural transformation of member countries from resource and low-technology-based economies to more diversified knowledge-based economies in line with international developments, especially the 4th industrial revolution.
Added to this is the aim to encourage and hopefully increase intra-African and external direct capital inflow to African countries and stimulate cooperation in other areas such as technology transfer, innovation, investment, and continent-wide infrastructural development. This will also entail the need to eliminate some challenges associated with multiple and overlapping trade agreements between Africa and external countries or economic blocs.
The Economic and Distributional Effects report of 2020 by the World Bank gives projections of the potential macro-economic impacts of a successful AfCFTA.
In a related article by World Bank published July 27, 2020, the anticipated macro-economic impact to be felt directly by member States include lowering costs for consumers and producers, increasing the competitiveness of local production, seeing production shifts to the most competitive sectors which will lead to productivity gains, expansion of trade and faster economic growth, attracting more foreign direct investment and more importantly, an estimated increase in real incomes by 7 per cent by 2035.
Reductions in trade costs brought about by trade facilitation measures are captured as iceberg trade costs. With the implementation of trade facilitation reforms, such as improving border infrastructure and reducing the cost of administrative procedures, the price of exports and imports declines, and transporting a unit of exports or imports requires fewer trade and transportation services.
According to the World Bank, AfCFTA would significantly boost intra-regional trade in manufacturing. The volume of total exports would increase by almost 29 per cent by 2035 relative to the baseline. Intracontinental exports would increase by over 81 per cent, while exports to non-African countries would rise by 19 per cent. Intra-AfCFTA exports to AfCFTA partners would rise especially fast for Cameroon, Egypt, Ghana, Morocco, and Tunisia, with exports doubling or tripling to the baseline. Under the AfCFTA scenario, manufacturing exports would gain the most, 62 per cent overall, with intra-Africa trade increasing by 110 per cent and exports to the rest of the world rising by 46 per cent. Smaller gains would be observed in agriculture, 49 per cent for intra-Africa trade and 10 per cent for extra-Africa trade. The gains in the services trade are more modest, about 4 per cent overall and 14 per cent within Africa.
In volume terms, manufacturing exports dominate the export picture for Africa. Of the US$2.5 trillion in exports projected in 2035 for Africa, US$823 billion are in manufacturing, US$690 billion in natural resources, US$191 billion in agriculture, and the remaining US$256 billion in services. Of the total growth in exports of US$560 billion, the increase in exports of manufactures represents some US$506 billion—an increase of US$220 billion within Africa and US$286 billion with the rest of the world.
For manufacturers, the relevant increase is from 24 per cent to almost 32 per cent. Exports to AfCFTA members expand with very little trade diversion because of the decline in exports to non-AfCFTA.
AfCFTA is a major opportunity for Africa, but implementation will be a significant challenge. However, the agreement’s opportunities can be used to help policymakers overcome these challenges and implement the substantive reforms that are needed to make Africa as competitive as any other region in the world.