The African Continental Free Trade Area (AfCFTA) could bring significant economic and social benefits to the region, raising incomes, reducing poverty and accelerating economic growth, according to a new report from the world Bank developed in partnership with the AfCFTA Secretariat.
Once fully implemented to harmonize investment and competition rules, the trade deal could boost regional revenues by 9%, or $571 billion.
18 million additional jobs
According to the report published Thursday, June 30, this agreement would also create nearly 18 million additional jobs, many of which would be better paid and of better quality, with women enjoying the greatest benefits.
By 2035, the resulting job and income growth could help lift up to 50 million people out of extreme poverty. Implementing the trade deal would also lead to greater wage benefits for women and skilled workers. Women’s wages are projected to be 11.2% higher in 2035 than the wage level in the absence of the deal, outpacing the 9.8% growth in men’s wages. “The AfCFTA comes at a critical time when regional cooperation is needed to address heightened risks and build the resilience of supply chains, in order to support green, resilient and inclusive growth in Africa,” said the Chief Executive Officer in in charge of development policies and partnerships at the world Bank, Let’s Pangestu. She said that it is “now up to Member States to combine their efforts to make the AfCFTA a reality and benefit from its many advantages, particularly in reducing barriers to trade and investment, enhancing competition and ensuring that markets operate fairly and efficiently through clear and predictable rules”.
A combined GDP of $3.4 trillion
Titled “Making the Most of the African Continental Free Trade Area,” the report expands on work done in 2020, when the World Bank first assessed the economic potential of the AfCFTA. Under its first phase, which entered into force in January 2021, the AfCFTA will gradually eliminate tariffs on 90% of goods and reduce barriers to trade in services. The new report examines the effects of a larger trade market on the continent’s ability to attract investment – both from within and outside Africa – and the resulting economic impact. It examines two scenarios to assess the benefits for a market of over 1.3 billion people with a combined GDP of $3.4 trillion. Key findings indicate that the AfCFTA has the potential to encourage the foreign direct investment needed for Africa to diversify into new industries, such as agribusiness, manufacturing and services, and reduce the vulnerability of the region to commodity boom and bust cycles. Deeper integration, beyond trade and trade facilitation measures, which harmonizes policies on investment, competition, e-commerce and intellectual property rights, could boost the efficiency and competitiveness of the market, reduce regulatory risks and attract even more foreign direct investment.
9% revenue increase from trading
By 2035, this integration would increase incomes by 9%, or $571 billion, and create 18 million new jobs, with 2.5% of the continent’s workers moving into new industries. This would bring the number of people out of extreme poverty to 50 million. According to the report, increased FDI could grow African exports by up to 32% by 2035, with a 109% increase in intra-African exports, especially in the manufacturing sectors. With reduced barriers to trade and investment, the export sectors likely to experience the strongest growth are textiles and apparel, chemicals, rubber and plastics, and processed foods. Deeper integration would reduce trade costs and increase capital inflows, which would boost exports of service sectors such as transport, communications and hospitality. “Today, Africa is one of the least integrated regions in the world, African countries trade more with the outside world than with each other. This agreement can help countries simplify and harmonize trade and transit procedures, improve infrastructure, transport and logistics, and boost the flow of goods, services, capital and people that are so essential to the development”, indicated the Secretary General of the Secretariat of the ZLECAf, Welcome Mene. To unlock these potential trade, investment and jobs benefits, countries must first successfully conclude the negotiations and each country must achieve the most ambitious goals of the treaty. The report highlights several other areas that countries could reform to maximize the economic benefits of trade.