Nigeria and South Africa, the two largest economies in Africa will see their income grow by only 4 per cent from the African Continental Free Trade Area, the World Bank says in its recent “The African Continental Free Trade Area: Economic and Distributional Effects” report.
The report found that Côte d’Ivoire has one of the largest trade costs on the continent and the implementation of the free trade zone would increase the nation’s income by 14%, the biggest gain forecasted for all countries on the continent. Zimbabwe is expected to follow with an income increase of nearly 12%.
The AfCFTA came into force last year and has been touted for several years as the real future lever of African trade integration. Under the scenario developed by the World Bank, this zone could have financial, economic, and social impacts for the entire continent.
According to the report, if the implementation of the free trade zone is accompanied by significant policy reforms and trade facilitation measures, it could increase African countries’ revenues by $450 billion and lift 30 million people out of extreme poverty by 2035. While intra-continental trade currently accounts for only 15% of Africa’s total trade (one of the lowest ratios in the world), it is expected to jump by 81% while those of non-African countries increase by 19%.
Moreover, while the planned reduction in customs duties has raised concerns among tariff-dependent countries, the study estimates that short-term tariff revenues would fall by only about 1.5% or less for 49 of the 54 countries, and total tax revenues are projected to fall by less than 0.3% in 50 countries.
The World Bank explained this scenario by the fact that “only a small share of tariff revenues come from imports from African countries (less than 10% on average),” and also “exclusion lists can shield most tariff revenues from liberalization because these revenues are highly concentrated in a few tariff lines (1 percent of tariff lines account for more than three-quarters of tariff revenues in almost all African countries).”
As a reminder, the AfCFTA, whose agreement has been signed by all the member countries of the African Union, aims to create the largest free trade area in the world by its size, with a potential market of 1.2 billion people and a combined gross domestic product of $2.5 trillion. Previously scheduled to become operational on 1 July this year, the operationalization had to be postponed to 2021 due to the covid-19 pandemic.