Monday July 26, 2021

Economic and Distributional Effects of The African Continental Free Trade Area.

Feb 19, 2021
2 min read
Economic and Distributional Effects of The African Continental Free Trade Area.

The African Continental Free Trade Area (AfCFTA) agreement, which may create the largest free trade area, will lead to the free movement of over 1.35 billion people and their goods and services across 55 countries. It may even increase income through low tariffs and non-trade movements.

Once implemented, the AfCFTA will lift about 30 million Africans out of poverty, shifting the poverty baseline from 10.9% to 9.3%. It will also boost the income of nearly 68 million Africans who live on less than $5.50 a day, reducing poverty within the continent.

Overall, the implementation will boost Africa’s income by $450 billion in 2035, leading to a 7% gain. However, about 65% of the $450 billion would come from stronger trade facilitation like simplifying customs procedures to improve the free movement of people, goods, and services. Moreover, the AfCFTA may even add up to $76 billion to the rest of the world’s income.

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According to the World Bank, there may even be a multi-sector improvement for intra-regional trade in Agriculture (23%), Manufacturing (27%), and Services (12%). Africa’s exports will also increase by $560 billion, mostly through manufacturing, since the economic policy will make countries and investors pump more money into the manufacturing sector to produce African-oriented Fast Moving Consumer Goods (FMCGs).

As for the government, the implementation will initially lead to a decline in tariffs by 1.5% and total tax revenue by 0.3% in most countries, but in the long run, it will increase by at least 3%. In terms of employment and remuneration, there will be an increase in demand for workers in energy-intensive manufacturing, trade services, and public and recreational services. There will also be an increase in wages for skilled and unskilled workers of both genders.

Although the COVID-19 pandemic has delayed AfCFTA’s implementation, the economic realities after the pandemic make it imperative for AfCFTA to become operational in order to subside the pandemic’s impact and prevent most African states from plunging into dire economic recession.

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