Distributional impact on Poverty Reduction and Employment in Sub-Sahara Africa-GITFiC: AfCFTA

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June 30th 2021

By: Norvisi Mawunyegah

Africa is the only region where poverty has worsened over the last three decades, despite a steady rise in real GDP over the last ten years. This is in stark contrast to the global trend, which shows that poverty rates are declining. Africa has a poverty rate of 17 percent greater than South Asia, the world’s second poorest geographical area. This was made known by the Lead Research Fellow of GITFiC; Gerald Woode at the June briefing.

AfCFTA is expected to have a significant influence on intra-regional commerce (estimated to expand by more than 80%) with a rise in African exports by $60 billion. As tariffs are gradually removed, industries will be able to reap the benefits of the huge market created by the Free Trade Area. This will reduce unemployment while also enhancing wellbeing through a multiplier effect.

According to a recent poll conducted by the Ghana Statistical Service (GSS), roughly 76 percent of Ghanaian businesses are positive about the AfCFTA’s prospects and transformational impact. The agreement’s effects are expected to be felt at both the macro and microeconomic levels, particularly in terms of increased job opportunities, as predicted by the African Development Bank’s African Economic Outlook of 2018, which predicted that the AfCFTA would add over 7.5 million jobs to Sub-Saharan Africa.

According to a World Bank research report published in 2018, 415 million people on the African continent (57 percent of the global total) live in extreme poverty, with 60 percent of those living in unstable countries. According to baseline models, Africa’s extreme poverty headcount ratio will reduce from 34.7 percent to 10.9 percent by 2035. AfCFTA has the potential to elevate 67.9 million people out of poverty by 2035, or 3.6 percent of the continent’s population, at the moderate poverty line of US$5.50 per day (World Bank Group, 2020).

Under current conditions, the headcount ratio for extreme poverty in Africa is expected to fall to ten by 2035. This would not only strengthen Africa’s place and voice in the global trading system, but it will also bring together commercial interests and stimulate intra-continental trade. Governments must concentrate on facilitating a smooth and inclusive transition by fostering competitive labor markets, strengthening intra-country connectivity, and ensuring robust macroeconomic policies and an attractive business climate for foreign direct investment (FDI).

 Policymakers must analyze the distributional implications of the AfCFTA on industry, employment, and the micro private sector on a regular basis. A major focus should be on trade facilitation. It is proposed that customs and administrative entry processes, trade obstacles, and sanitary and phytosanitary precautions be lowered to the barest minimum. Governments should increase direct and policy support to local small businesses so that they are not disadvantaged unfairly under the AfCFTA’s liberalized plan.