AfCTFA to help drive continent’s economic recovery from Covid-19 pandemic

22nd January 2021 By: Simone Liedtke - Writer

The African Continental Free Trade Area (AfCFTA) can help drive the continent’s economic recovery from the deadly coronavirus pandemic and spur transformation, says Economic Commission for Africa (ECA) regional integration and trade division director Stephen Karingi.

He says that, given that Africa does not have the fiscal space for trillion-dollar stimulus packages as it attempts to ‘build forward better’ from the impact of Covid-19, the AfCFTA, driven by the private sector, is going to be key in unlocking Africa’s potential.

Karingi stresses that Africa will have to look for innovative alternatives to push its recovery efforts, noting that quality infrastructure development is also crucial if the AfCFTA is to spur economic growth on the continent.

“ECA’s latest empirical analysis provides useful insights in terms of the trade-related impacts the implementation of the AfCFTA is expected to have on African economies,” he says.

Results from the liberalisation of trade in goods alone under the AfCFTA reform show that Africa's global gross domestic product (GDP) and exports will increase.

Overall, Africa’s GDP is forecast to increase by between $28-billion and $44-billion after full implementation in 2040, as compared with a baseline without tariff liberalisation.

As far as exports are concerned, the bulk of the benefits will be for intra-African trade, with intra-African exports expected to increase by between $50-billion and $70-billion.

“It is worth emphasising that two-thirds of latter gains would be realised in the manufacturing sector, providing invaluable opportunities for industrialisation. The supply chains are critical to diversification and inclusion, and, if deep, transformation. That is why we are all particular about rules of origin, and obedience to AfCFTA rules,” Karingi elaborates.

Post-implementation, the proportion of industrial products in additional intra-African trade would be larger for least developed countries (LDCs) than non-LDCs, ECA points out.

“Integration policies should lead to convergence of incomes and our findings are an important result,” says Karingi, emphasising the findings, focusing on the sole liberalisation of trade in goods, offered only a partial view of the economic impacts to be expected from the AfCFTA.

The AfCFTA Agreement instructs State parties to liberalise trade in services and remove some of the nontariff barriers (NTBs), along with adoption of trade facilitation measures.

Previous analyses by the ECA and the United Nations Conference on Trade and Development show that the reduction of NTBs and implementing trade facilitation reforms strongly amplify the benefits observed through the sole removal of tariffs, in terms of both exports and welfare, which could increase two- to four-fold.

Karingi says transformation through the AfCFTA will occur by unlocking manufacturing potential and facilitate industrialisation and that it will help build a robust and resilient private sector, which is vital for inclusiveness and sustainable growth.

He says the private sector will be key to the success of the AfCFTA and recovery from Covid-19, and that it will bring in enhanced regulations and improved environment; and huge deficits in infrastructure services could be addressed by the scale and competition that the AfCFTA provides, helping attract finance.

“In other words, the financial liberalisation on the continent foreseen in the AfCFTA will lead to financial integration and deepening,” explains Karingi, adding the long-term prospects that the AfCFTA brings cannot be underestimated.

“It will allow countries to accelerate reforms. It is also catalytic, acting as a platform for leapfrogging services liberalisation. The phase II segment of the AfCFTA makes this possible as it enhances competition, creates a common investment area, and rewards and protects innovators.”

“The Covid-19 pandemic has demonstrated the importance of efficient services, including those that are digitally delivered.” he adds.

“There is a two-way causality between infrastructure investments and AfCFTA contribution to the African economy. Infrastructure is a source of resilience, as we have seen in some sectors such as information and communications technology. The priority service sectors of the AfCFTA require infrastructure, and it is important that State parties realise that offensive strategies will be undermined by any lack of progress in the infrastructure services commitments.”

Climate change is seen as undermining enablers for industrialisation in Africa, including infrastructure, energy, water and raw materials, adding to the economic urgency of fast-tracking Africa’s green transition.