How AfCFTA will strengthen the economies of East Africa

by Business Times
0 comment

The World Bank indicates that the African Continental Free Trade Area (AfCFTA) has been well-designed to strengthen the economies of East Africa.

This will be accomplished, among other things, by lowering trade expenses related to trade facilitation, as well as decreasing the costs of non-tariff policies and non-tariff obstacles.

East African Business Council (EABC) Executive Director Mr. John Bosco Kaliisa noted that the implementation of AfCFTA’s policies is to boost the East African economy. “The continental trade protocol is projected to increase real income for East Africans,” he said.

For the East African Community (EAC) group, swift implementation of the continental trade agreement would be advantageous. Real income is anticipated to rise by 10% in Tanzania, the second-largest economy in the area, between 2021 and 2035.

According to the World Bank, real income will rise by 11.8%, 3.8%t, and 3.6% in Kenya, Uganda, and Rwanda, respectively. For three further EAC member states, Burundi, South Sudan, and the Democratic Republic of the Congo, no statistics were available (DRC). This information was relayed by Mr. Kalisa last week during a private sector sensitization workshop on the AfCFTA agreement, in Nairobi, Kenya.

What are the predicted economic benefits of the AfCFTA?

In a 2020 report, the World Bank estimated that by 2035, real income gains from full implementation of AfCFTA could increase by 7 percent or nearly US$450 billion (in 2014 prices and market exchange rates).

But the aggregate numbers mask the heterogeneity of impacts across countries and sectors. At the very high end are Côte d’Ivoire and Zimbabwe with income gains of 14 percent each.

The bank notes that at the low end, a few countries would see real income gains of around 2 percent—including Madagascar, Malawi, and Mozambique.

“Real income gains from tariff liberalization alone are small, about 0.2 percent at the continental level, although some countries would record gains of more than 1 percent. Constraints to African trade are largely attributable to the high costs of that trade. As a result, the big gains would come from the reduction in NTBs and implementation of the TFA. Under combined tariff liberalization and reduction in NTBs, the real income gain would amount to 2.4 percent in 2035 at the continental level. The biggest boost would arise from implementation of the TFA, which would raise the gains for AfCFTA members to 7 percent of income,” reads the report in part.

In addition, AfCFTA would significantly boost African trade, particularly intraregional trade in manufacturing. The volume of total exports would increase by almost 29 percent by 2035 relative to the baseline.

“Intracontinental exports would increase by over 81 percent, while exports to non-African countries would rise by 19 percent. IntraAfCFTA exports to AfCFTA partners would rise especially fast for Cameroon, the Arab Republic of Egypt, Ghana, Morocco, and Tunisia, with exports doubling or tripling with respect to the baseline. Under the AfCFTA scenario, manufacturing exports would gain the most, 62 percent overall, with intra-Africa trade increasing by 110 percent and exports to the rest of the world rising by 46 percent. Smaller gains would be observed in agriculture—49 percent for intra-Africa trade and 10 percent for extra-Africa trade. The gains in the services trade are more modest—about 4 percent overall and 14 percent within Africa,” reads an excerpt from World Bank report

The AfCFTA agreement would also boost regional output and productivity and lead to a reallocation of resources across sectors and countries. By 2035, total production of the continent is projected to be almost US$212 billion higher than the baseline.

Output would increase the most in natural resources and services (1.7 percent), with manufacturing seeing a 1.2 percent rise. But output in agriculture would contract 0.5 percent (relative to the baseline in 2035) at the continental level.

By 2035, agricultural output would decline by US$8 billion relative to the baseline. As compared with the baseline in 2035, agriculture is growing faster in all parts of Africa except for North Africa, which under AfCFTA is shifting toward manufacturing and services. The aggregate numbers, however, mask the heterogeneity of impacts across countries and sectors.

AfCFTA’s short-term impact on tax revenues is small for most countries. Tariff revenues would decline by less than 1.5 percent for 49 out of 54 countries. Total tax revenues would decline by less than 0.3 percent in 50 out of 54 countries.

Two factors, according to the report explain these small revenue impacts. First, only a small share of tariff revenues come from imports from African countries (less than 10 percent on average). Second, 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).

AfCFTA is expected to lift an additional 30 million people from extreme poverty (1.5 percent of the continent’s population) and 68 million people from moderate poverty (figure O.2).

In 2015, the latest year for which detailed World Bank estimates are available, 415 million people in Africa lived in extreme poverty (at US$1.90 a day in purchasing power parity, PPP, terms).

“Implementation of AfCFTA would increase employment opportunities and wages for unskilled workers and help to close the gender wage gap. The continent would see a net increase in the proportion of workers in energy-intensive manufacturing. Agricultural employment would increase in 60 percent of countries, and wages for unskilled labor would grow faster where there is an expansion in agricultural employment. By 2035, wages for unskilled labor would be 10.3 percent higher than the baseline; the increase for skilled workers would be 9.8 percent. Wages would grow slightly faster for women than for men as output expands in key female labor–intensive industries. By 2035, wages for women would increase 10.5 percent with respect to the baseline, compared with 9.9 percent for men,” reads the report.

EABC Vice Chairman presents private sector continental priorities to AfCTA secretary general

 The Ministry of Foreign Affairs and International Cooperation-Rwanda, the AfCFTA Secretariat launched the AfCTA Adjustment Fund aimed at supporting all initiatives geared towards the implementation of the AfCFTA.

The launch was hosted by the Hon. Minister of Foreign Affairs and International Cooperation Dr. Vincent Biruta together with the Hon. Minister of Trade and Industry Prof. Ngabitsinze Jean Chrysostome, Ms. Kanayo Awani, Executive VP of the Intra Africa Trade Bank, Ms. Clare Akamanzi the CEO- Rwanda Development Board, Mr. Dennis Karera the EABC Vice Chairman, Ms. Francoise Mubiligi the Chairperson, Rwanda Private Sector Federation and many other senior of officials from both the government and the private sector.

Ms. Kanayo mentioned that the fund will be operationalized immediately and the AfreximBank has committed $1 billion towards the operationalization of AfCFTA and the private sector.

Mr. Dennis Karera the EABC Vice Chairman applauded AfCFTA Secretariat, Afreximbank and the Government of the Republic of Rwanda for launching the AfCFTA Adjustment Fund. The Fund will support AfCFTA State Parties to adjust to the new liberalised and integrated trading environment established under the AfCFTA Agreement.

Alongside the launch, Mr Karera hosted H.E Wamkele Mene the AfCFTA Secretary General and his team to discuss various continental integration initiatives and engagement related to partnership in the successful implementation of the AfCFTA and how the agreement is poised to benefit the private sector in the EAC region.

The Vice Chairman appreciated the Secretary-General for his continued involvement of the private sector in the AfCFTA implementation process and most importantly championing the roll-out of the AfCFTA Guided Trade Initiative that has practically enabled businesses to trade and called upon the private sector in the EAC region to take up the opportunity presented by the initiative. 

Among continental priorities presented to the AfCFTA Secretary General include:

1. The AfCFTA Secretariat to support the regional Business Councils including EABC, SADC, COMESA, ECOWAS Business Councils and any other that would want to join, in establishing a formal engagement platform with the AfCFTA Secretariat and implementation of the agreement jointly.

2. The AfCTA Secretariat and the EABC to work on a joint AfCFTA Awareness Strategy aimed at scaling up sensitization of the private sector on the AfCFTA protocols and its benefits to the private sector. The Strategy is to be launched at the forthcoming AfCFTA Business Forum slated to take place in. Cape Town tentatively from 15th-19th April 2023

3. On mobilizing resources to support regional Business Councils to raise awareness on matters pertaining to the AfCFTA, the Secretary-General committed to supporting the EABC – AfCFTA promotion programmes through the private sector support programmes at AfCFTA Secretariat (Technical Assistance Facilitation) as well as the AFDB support programme

4. Convening Regional Business Councils Summit to engage governments on the status of the AfCFTA implementation 

5. Establishment of One Stop Centre to create efficiency in doing business across the continent 

6. Establish data centers to access market-related information across the continent. The Secretary-General committed to supporting the EABC in its efforts to establish regional a Regional Data Center with outlets in all Partner States to enable the private sector to access market information on product availability and access while trading through the AfCFTA 

7. Regular engagement with the BMOs: The Secretary-General committed to hosting the private sector from the RECs in the Annual Business Forum to discuss the private sector priorities at the continental level.

About AfCFTA Adjustment Fund

The Fund headquartered in Kigali, Rwanda, will support AfCFTA State Parties to adjust to the new liberalised and integrated trading environment established under the AfCFTA Agreement. It was established by the AfCFTA Secretariat and Afreximbank following a mandate from the African Union (AU) Summit of Heads of State and Government and the AfCFTA Council of Ministers responsible for Trade. Critical instrument in the realisation of the African Continental Free Trade Area, the Adjustment Fund addresses among other things, potential tariff revenue losses, infrastructure deficits to facilitate trade growth and possible supply chain disruptions that States Parties may face in the implementation of the African Continental Free Trade Agreement.

The AfCFTA Adjustment Fund consists of three sub-Funds namely, the Base Fund, the General Fund, and the Credit Fund. The Base Fund will utilise contributions from AfCFTA State Parties as well as grants and technical assistance to address tariff revenue losses that would result from the implementation of the AfCFTA Agreement.

The General Fund will finance the development of trade-enabling infrastructure while the Credit Fund will be used to mobilise commercial funding to support both the public and private sectors enabling them to adjust and take advantage of the opportunities created by the AfCFTA. The Fund for Export Development in Africa (FEDA), the impact investment arm of Afreximbank, has been selected as the Fund Manager of the AfCFTA Adjustment Fund.

ALSO READ: Why SMEs are facing difficulties taking advantage of the AfCFTA.

You may also like

Leave a Comment

About Us

Business Times Uganda, is a leading Business news website focusing on Finance, Energy, Infrastructure and Technology. 

Feature Posts


Subscribe our newsletter for latest news. Let's stay updated!

Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?
error: Content is protected !!