On 27 July 2020 the World Bank issued a report on the economic and distributional effects of the African Continental Free Trade Area (AfCFTA). The AfCFTA agreement will connect 1.3 billion people across 55 countries with a combined GDP of USD 3.4 trillion.
The report indicates that, if fully implemented, the Free Trade Agreement could increase regional income by 7% or USD 450 billion. This could be particularly important following the economic disruption during the COVID-19 crisis which is estimated to cause output losses of USD 79 billion in Africa in 2020.
The gains will be made by simplification of customs procedures and by saving time and costs in administrative procedures. The agreement will lead to the liberalisation of trade and a reduction in non-tariff barriers such as quotas and rules of origin. These measures are predicted to increase income by 2.4% or USD 153 billion.
The trade facilitation measures are expected to reduce compliance costs for traders and reduce administrative barriers, facilitating the integration of African businesses into global supply chains. This could increase income by another USD 292 billion. The countries benefiting most would be those where trade costs are currently the highest in the region.
The report suggests that the agreement would reshape markets and economies in Africa, facilitating the creation of new industries and leading to the expansion of important business sectors. AfCFTA would also boost intraregional trade in manufacturing. The report estimates that intra-continental exports would increase by 81% percent and exports to non-African countries would increase by 19%.
In terms of distributional effects the report estimates that the Free Trade Agreement could speed up wage growth for women and lift 30 million people out of extreme poverty by 2035. Wages would increase for both skilled and unskilled workers.
The report supports the implementation of policies to make the most of the potential gains from the Free Trade Agreement, while also minimizing any risks arising. To create a continent-wide market countries will need to reduce all types of trade costs. Legislation is needed to allow goods, capital, and information to flow freely across borders. This will permit countries to attract foreign investment and increase competition, leading to an increase in productivity and innovation by domestic firms. Workforces will need to be flexible enough to take advantage of new opportunities and this will require policies aiming at reduction of the costs of job-switching.
