THE AFRICAN CONTINENTAL FREE TRADE AREA (Economic and Distributional Effects)
This analysis comes with several caveats. On the one hand, the results may underestimate the impacts of AfCFTA because they do not capture (1) informal trade flows or new trade flows in sectors and countries that are not trading in the baseline; (2) dynamic gains from trade (such as productivity increases, economies of scale, and learning by doing); and (3) foreign direct investment (FDI)—improving market conditions, competitiveness, and business sentiment will likely stimulate FDI in Africa, thereby leading to higher investment and accelerating imports of higher-technology intermediate and capital goods and improved management practices. Therefore, FDI inflows could boost regional income well above the gains predicted in this analysis. On the other hand, the results may overestimate the impacts of AfCFTA because the analysis does not capture (1) the costs of lowering nontariff barriers and trade facilitation measures; and (2) the transitional costs associated with trade-related structural change such as employment shifts and potentially stranded assets such as capital. Furthermore, the results are based on a new data set on gender-disaggregated employment and wages, which requires further vetting by country experts.
AfCFTA offers big opportunities for development in Africa, but implementation will be a significant challenge. This analysis identifies key priorities for African policy makers. Lowering and eliminating tariffs will be the relatively easy part—even if it comes, in some cases, with the challenge of how to replace tariff revenues. The hard part will be enacting the nontariff and trade facilitation measures, which is where the analysis predicts the largest potential economic gains. Such measures will require substantial policy reforms at the national level, indicating a long road ahead. Achieving AfCFTA’s full potential depends on agreeing to ambitious liberalization and implementing it in full. Partial reforms would lead to smaller effects.