African Continental Free Trade Area could boost regional income by $450bn by 2035

14th August 2020

By: Terence Creamer

Creamer Media Editor

     

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The African Continental Free Trade Area (AfCFTA) could, a new World Bank report asserts, boost regional income by 7%, or $450-billion, by 2035 and help offset the negative effects of the Covid-19 pandemic, which is expected to cause up to $79-billion in output losses in Africa this year.

If fully implemented, the arrangement also has the potential to lift 68-million people out of moderate poverty and 30-million people out of extreme poverty over the same period.

The AfCFTA, trading under which has been delayed from July 1 this year to 2021 as a result of the pandemic, will also be the largest free trade area in the world, as measured by the number of countries participating, which stands at 55.

The pact connects 1.3-billion people across Africa and includes countries with a combined gross domestic product of $3.4-trillion.

The agreement reduces tariffs among member countries, but also covers policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.

Tariff liberalisation accompanied by a reduction in nontariff barriers, such as quotas and rules of origin, could boost income by 2.4%, or about $153-billion, the report avers.

The $292-billion remainder would arise as a result of trade-facilitation measures that reduce red tape, lower compliance costs for firms engaged in trade and make it easier for African businesses to integrate into global supply chains.

“By 2035, the volume of total exports would increase by almost 29% relative to business as usual. Intracontinental exports would increase by more than 81%, while exports to non-African countries would rise by 19%,” the authors assert.

Overall economic gains would vary, however, with the largest gains going to countries that currently have high trade costs. Countries such as Côte d’Ivoire and Zimbabwe, where trade costs are among the region’s highest, would see the biggest gains, with each increasing income by 14%.

The AfCFTA would also significantly boost African trade, particularly intraregional trade in manufacturing, which is a priority for South Africa.

In fact, Trade, Industry and Competition Minister Ebrahim Patel said on July 24 that South Africa was well positioned to become a major supplier of industrial goods and value-added services to the continent.

South Africa, he added, was working to build the AfCFTA “as the foundation for our long-term growth”.

Patel reported that, together with Deputy Ministers Nomalungelo Gina and Fikile Majola, he had held recent meetings with other African Union Ministers to consider the terms of “this vast new market and to propose a switch-on date for the new agreement”.

In addition, the AfCFTA secretariat had been established in Ghana and was headed by Wamkele Mene, who is a South African.

In May, Mene described the AfCFTA as the only realistic stimulus option available for reigniting growth in response to Covid-19.

“The only economic relief package is the AfCFTA and implementing it in such a way that we significantly boost intra-Africa trade,” Mene said, noting that intra-Africa trade currently stood at about 15%, far below the intraregional trade levels of other territories.

The World Bank report warns that the implementation of the AfCFTA will pose significant challenges, however.

“Lowering tariffs is only the first step. Reforming nontariff and trade facilitation measures will require substantial policy reforms at the national level. These reforms may require politically difficult decisions in some cases.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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