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A new report by the World Bank says the African Continental Free Trade Area (AfCFTA) has the potential to increase income on the continent by 7 per cent or $450 billion.
The report notes that if the trade agreement is implemented fully, it could also boost growth, reduce poverty, and broaden economic inclusion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035.
It further suggests that achieving these gains will be particularly important given the economic damage caused by the COVID-19, which is expected to cause up to $79 billion in output losses in Africa in 2020.
“The pandemic has already caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food,” it added.
It indicates that most of the AfCFTA’s income gains are likely to come from measures that cut red tape and simplify customs procedures.
“Tariff liberalization accompanied by a reduction in non-tariff barriers—such as quotas and rules of origin—would boost income by 2.4 percent, or about $153 billion. The remainder—$292 billion—would come from trade-facilitation measures that reduce red tape, lower compliance costs for businesses engaged in trade, and make it easier for African businesses to integrate into global supply chains,” the report said.
Commenting, Albert Zeufack, the World Bank’s Chief Economist for Africa said: “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,” he said.
The World Bank says this report is designed to help countries implement policies that can maximize the agreement’s potential gains while minimizing risks, adding that creating a continent-wide market will require a determined effort to reduce all trade costs.
The African Continental Free Trade Agreement came into force May 30, 2019. The Agreement which will establish the African Continental Free Trade Area (AfCFTA) will create a single continental market for goods and services, with free movement of business persons and investments, and is expected to speed up the establishment of the Continental Customs Union and the African customs union.
According to the African Union Commission it is expected to expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general, among others.
The decision for the AfCFTA was adopted at the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012. It was agreed that the deal should be reached by an indicative date of 2017. The Summit also endorsed the Action Plan on Boosting Intra-Africa Trade (BIAT) which identifies seven clusters: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and factor market integration.
The AfCFTA, projected to serve Africa’s 1.2 billion people could also grow the continent’s GDP to $4.5 trillion.