A report released on Monday by the World Bank highlights the benefit of the African free trade deal. If fully implemented, the deal could boost income across the continent, solve poverty and cushion against the negative impact of coronavirus (COVID-19).
The African Continental Free Trade Area (AfCFTA) was to commence on July 1, but was actively delayed by the COVID-19 pandemic. The virus which led to forced widespread border closures, also halted talks between governments over the removal of tariffs. As a result, the deal may become fully operational from the start of 2021.
According to the World Bank, the pandemic is expected to cost Africa up to $79 billion in lost economic output this year, with rise in unemployment rate.
This led to the bank’s decision that a successful implementation of the AfCFTA would be crucial as it is a major opportunity for Africa. However, implementation will be a major challenge as lowering tariffs is only the first step.
Additionally, the trade deal will create an opportunity to connect 1.3 billion people across 55 countries with a combined gross domestic product of $3.4 trillion.
According to World Bank researchers, the trade deal would lift 30 million Africans out of extreme poverty and 68 million from moderate poverty by 2035.
It could also increase real income in Africa by 7 percent, or nearly $450 billion, mainly by reducing the cost of trade through the elimination of tariffs and red tape. Countries with the highest costs of trade such as Ivory Coast and Zimbabwe could see income gains of 14 percent.
More so, the volume of total exports would increase by almost 29 percent, with exports between African nations rising to 81 percent while exports to non-African countries would increase by 19 percent.
Based on the report, “implementing AfCFTA would lead to an almost 10% increase in wages, with larger gains for unskilled workers and women.”
The AfCFTA entered into force on May 30 2019 for the 24 countries that had deposited their instruments of ratification. It is aimed at boosting intra-African trade by 52.3 percent, eliminating import duties, and to double trade if non-tariff barriers are also reduced.
The main objectives of the AfCFTA is to create a single continental market for goods and services, with free movement of business persons and investments in Africa.
It also sought to expand intra-African trade through better harmonization and coordination of trade freedom while facilitating instruments across the RECs and across Africa in general.
The AfCFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources. Thus creating a free market and a unified continent.