Pan-African trade deal could boost income by US$450 billion

The new African Continental Free Trade Area (AfCFTA) represents a major opportunity for countries to boost growth, reduce poverty and broaden economic inclusion, a new World Bank report has found.

If implemented fully, the trade pact could boost regional income by 7% or US$450 billion, speed up wage growth for women and lift 30 million people out of extreme poverty by 2035, the Washington DC-based organisation says in a report released this week.

The problem, though, is that the July 2020 implementation date for the free-trade agreement has been pushed back due to the pandemic and may only become operable in 2021. Perhaps even beyond that if the global health crisis persists.

Create the world's largest free-trade zone

When it does become fully operable, AfCFTA will create the world's largest free-trade zone with a GDP of around US$2.5 trillion and a market of 1.2 billion people.

The World Bank report notes that achieving the economic gains that it outlines will be particularly important given the economic damage caused by the pandemic, which is expected to cause up to US$79-billion in output losses in Africa in 2020.

"AfCFTA would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs," the report states.

Big gains are from measures to cut red tape

Most of the income gains are likely to come from measures that cut red tape, simplify customs procedures and replace the patchwork of complicated, anti-competitive and constantly changing regional agreements.

"Tariff liberalisation accompanied by a reduction in non-tariff barriers – such as quotas and rules of origin – would boost income by 2.4%, or about US$153 billion," the World Bank says. 

"The remainder, US$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."

African countries will be more competitive

According to Albert Zeufack, the World Bank's Chief Economist for Africa, the agreement 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.

In a report issued in May, the non-profit Institute of Strategic Studies said the delay in instituting AfCFTA was "understandable, but must be accompanied by a commitment to restart the process as soon as conditions permit.

"This is not just to protect the deal's credibility, but to preserve the momentum and accountability of all signatories, and prevent nations from using COVID-19 as a reason to renege," the institute warned.

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