On Jan. 1, the African Continental Free Trade Area (AfCFTA) formally took effect. The AfCFTA’s 55 countries make it one of largest free trade areas in the world, and it could increase the continent’s total real income by $445 billion by 2035, according to a World Bank estimate.
However, whether countries reap these benefits depends on how the agreement is implemented. In a Dec. 15 IFPRI virtual policy seminar, experts discussed the challenges and opportunities as January approaches. “It is… important to ensure that our governments put in place significant policy reforms and trade facilitation measures in order to ensure that this agreement achieves its full potential,” said Nalishebo Meebelo, Senior Program Coordinator at the Regional Network of Agricultural Policy Research and Institutes (ReNAPRI).
A World Bank study modeled an aspirational scenario in which past economic trends in the Africa continued from 2014 to 2035, said bank Senior Economist Maryla Maliszewska. In this scenario, countries ambitiously liberalized intra-African trade by implementing trade facilitation measures and reducing tariffs and non-tariff measures (NTMs).
The model suggests that AfCFTA could create huge economic benefits over the next 15 years. Total African trade could increase by 81% relative to trade without the agreement; 30 million people could be lifted out of extreme poverty (earning $1.90 per day or less) and 67.9 million more could be lifted out of moderate poverty ($5.50 per day). Wages for unskilled workers could increase by 10.3%.
But Maliszewska was careful to point out that this is just one potential scenario. “These are not projections,” she said.
In fact, as IFPRI Senior Research Fellow David Laborde discussed, such a scenario may be out of reach, since continuing negotiations may result in less trade liberalization than expected. “We are not going to see an elimination of all the tariffs, actually,” Laborde said. “We are going to have some sensitive product that will take time to be liberalized and a subset of product—actually 3% of the product and up to 10% of the value of trade can be just excluded.”
Agricultural products, which are generally more protected to begin with, are more likely to be included as “sensitive” products exempt from liberalization, he said. More than half of the protections on agricultural products could remain.
IFPRI modeling suggests tariff liberalization will have modest impacts on real income, Laborde said. Without the exclusion of sensitive goods, tariff liberalization will cause real incomes in Africa to increase by about 0.8%. But in a scenario where countries are allowed to keep tariffs on sensitive goods, this increase drops to only 0.3%. “A few sensitive products can really undermine the whole process,” he said.
In recent years, East Africa’s structural diversification has stalled, and in some cases even reversed, as the growth of many countries’ manufacturing sectors has nearly halted, and intra-regional trade has stagnated, said Andrew Mold, Chief of Regional Integration and AfCFTA Cluster at UNECA’s East Africa office. The AfCFTA will disrupt these trends, he said.
“We calculated approximately $1 billion in new intra-regional exports due to [the AfCFTA],” he said. “We calculated out of the model approximately 2 million additional jobs created by the AfCFTA, and other benefits would come through services and labor-intensive manufacturing.”
In general, participants stressed, the agreement’s benefits will not be evenly distributed. Countries will respond differently: Some will specialize in processed agricultural sectors, while reducing activity in industrial and primary agricultural sectors; others will see benefits from pursuing the opposite approach.
In addition, trade reform must be comprehensive to work: If it only concerns tariffs and does not include reforms of NTMs, trade facilitation measures, and a liberalization of services, then global gains (at the continental level) will be meager and some countries will lose in terms of GDP and real income.
IFPRI Senior Research Fellow Antoine Bouët concluded the discussion, emphasizing the importance of researching the AfCFTA’s implications for informal African trade, which is not counted at all in current data. AfCTA may help to formalize some trade, but it will take multiple regulatory changes to broadly bring informal traders into the formal trading system.
“We don’t have enough high-quality data, and this is really an investment we must take in coming years,” he said.
Timothy Karoff is a former IFPRI Communications Intern.
