Economic Outcomes

are the top product traded within the continent, accounting for about 18 percent. Although Africa has almost half the world’s uncultivated arable land and high demand for food, only 11 percent of its food products and only 7 percent of its vegetables were traded within the continent. This suggests that intraregional trade could increase the diversification of traded goods as well as production activities in the region.

The Promise of the AfCFTA: Evaluation of Its Impact on Economic Outcomes

The potential impacts of various agreements under the AfCFTA could only be estimated ex ante. Though ex ante estimations have their own limitations in terms of tracking long-term dynamic effects, they provide important insights about the directions of the potential gains and losses.

Table 6.4 summarizes a review of recent studies that estimate the potential impact of implementing the AfCFTA. The gains in total income range from a low of 0.1 percent to a high of 2.24 percent, reaching much higher when other complementary reforms such as reduction of NTMs and trade facilitation programs are included in the analysis. The studies also highlight the disparity in gains across countries, suggesting a role for the African Union to preemptively address the expected disparities in the gains and losses from such trade arrangements, both across countries and within countries.

Because the AfCFTA would boost economic growth relative to baseline GDP projections, greater openness among these countries would result in greater GDP growth in the long run. In the short run, however, there would be some economic costs, particularly in the scenario in which NTMs in goods and transaction costs are reduced intraregionally. The different scenarios for implementing the AfCFTA would also lead to important disparities in economic growth rates across African countries. The elimination of intra-Africa tariffs is not crucial to boost growth for most African countries, but the reduction in NTMs and complementary policies that facilitate trade are the key drivers for trade-led economic growth for most of them in the long run.

A review of studies that evaluate the AfCFTA’s impact show that the immediate gains in income are expected to be relatively moderate, reaching a high of 4.2 percent and going as low as 0.1 percent in some studies. The largest gains accrue from a significant rise in trade, particularly exports, which are expected to rise significantly. Though estimates vary significantly, gains in exports could reach a high of 51.1 percent (AfDB 2019). And the biggest share of these trade gains is associated with the reduction of NTMs and improvements in trade facilitation rather than elimination of tariffs.

Table 6.4 Summary of Key Findings on the AfCFTA’s Economic Impact

Source Scenario for tariff and/or NTB removal

Removal of tariffs on intra-AfCFTA trade GDP gain Estimated impactsa

Intra-African trade Total exports Total imports

AfDB (2019) Removal of all tariffs on intra-AfCFTA trade 0.10% 14.60% 1.00% 0.90% (US$2.8b) (US$10.1b) (US$5.8b) (US$5.8b)

Mevel and Karingi (2012) Removal of all tariffs on intra-AfCFTA trade by 2017 + CET 0.20% 52.3% 4.00% —

Jensen and Sandrey (2015) Removal of all tariffs on intra-AfCFTA trade 0.70% 4.30% 3.11% — Saygili, Peters, and Knebel (2018) Removal of all tariffs on intra-AfCFTA trade 0.97% 32.80% 2.50% 1.80% Abrego et al. (2019) Removal of all import tariffs 0.037%–0.053%b — — — World Bank (2020) Gradual removal of 97% of tariffs on intraAfCFTA trade 0.13% 21.76% 1.78% 2.31% (US$12.0b) (US$131.0b) (US$35.0b) (US$41.0b)

Removal of tariffs and NTBs on intra-AfCFTA trade

AfDB (2019) Removal of all tariffs on intra-AfCFTA trade; removal of NTBs

1.25% 107.20% 44.30% 33.80% (US$37.0b) (US$74.3b) (US$107.2b) (US$214.1b)

Jensen and Sandrey (2015) Removal of all tariffs on intra-AfCFTA trade; 50% reduction in NTBs 1.60% 7.26% 6.28% —

Abrego et al. (2019) World Bank (2020) Removal of all tariffs; 35% reduction in NTBs 7.60%–1.89%–2.11%b 8.40% — —

Gradual removal of 97% of tariffs on intraAfCFTA trade 2.24% 51.85% 18.84% 19.58%

Removal of tariffs and NTBs on intra-AfCFTA trade and implementation of TFA

AfDB (2019) Removal of all tariffs on intra-AfCFTA trade; removal of NTBs; implementation of TFA

World Bank (2020) Gradual removal of 97% of tariffs on intraAfCFTA trade; 50% reduction in NTBs; implementation of TFA

3.50% 132.70% 51.10% 46.20% (US$100.0b) (US$92.0b) (US$295.6b) (US$292.8b) 4.20% 92.07% 28.64% 40.61% (US$413.0b) (US$556.0b) (US$560.0b) (US$714.0b)

Source: Adapted from World Bank 2020. Note: AfCFTA = African Continental Free Trade Area; b = billions; CET = common external tariff; NTBs = nontariff barriers; TFA = trade facilitation agreement; — = not available. a. Relative to baseline projections of GDP and trade volumes without the AfCFTA. b. Values expressed in terms of welfare gain as equivalent variation, measured as the expenditure to attain utility in year t in any given simulation using base year prices.