Pages: 11

In June 2019, African heads of state and governments launched in fanfare the African Continental Free Trade Agreement (AfCFTA), a “historic” initiative. The Agreement is already in force among many African Union members, and works are currently going on to support its implementation. They are focused on defining the set of rules that each participant’s country will use at customs and on which goods trade should be based.

Pages: 11

This chapter documents secular shifts in the trade patterns of Africa post-independence. It sheds some light on growing intra-Africa trade, contrasting the experiences of its various sub-regional blocs. We argue that Africa’s economy is greater than the sum of its parts and that there is ample scope for African nations to reap the continent’s unique demographic premium, including through increased intra-trade in food and manufacturing as the middle class expands.

Pages: 22

This chapter explores the AfCFTA’s potential economic impact. Existing simulations indicate that the Agreement could significantly contribute to long-term growth in Africa. Its full implementation could make the continent’s GDP in 2035 or around then, 5.5% higher than the level expected without the AfCFTA. Moreover, in the 10 years preceding the full implementation of the agreement as well, the level of GDP could be increased by 0.5 to 5% each year. Other economic impacts include an increase in intra-Africa’s exports, an increase in Africa’s exports to the rest of the world, job creation, welfare gains and poverty reduction. The realization of these gains is strictly conditional on substantial efforts in favor of trade facilitation and the removal of NTBs. The chapter takes stock of Africa’s growth performance over the past three decades to assess whether it is realistic to believe that Africa can experience long-term growth in the years to come through the AfCFTA. It concludes that the AfCFTA has immense potential to accelerate long-term growth and development in Africa.

Pages: 15

This chapter assesses the potential impact of the AfCFTA on poverty reduction in Africa. It documents that Africa’s performance in poverty reduction over the past three decades has been unsatisfactory and much lower than the rest of developing regions. The number of people living below the $1.90 international poverty line continues to rise in Africa, due to a slow decline in the poverty rate and a high population growth. Consequently, more than half the total poor in the world currently live in Africa. It estimates that the AfCFTA could reduce by up to 1/3 of the poor in an optimistic scenario and about 10% in a pessimistic scenario. This stems from the capacity of the agreement to generate long-term growth, boost intra-African trade, foster value addition and expansion in the agriculture and manufacturing sectors and enhance market access. The benefits of the AfCFTA will only be effective if governments strive to enhance the productive capacities in the agriculture sector.

Pages: 27

This chapter explores how the AfCFTA could accelerate trade between Africa and East Asia. It argues that the rising wage in East Asia and their advance to more complex production processes make Africa a reasonable choice to take over low-end manufacturing tasks. Asia’s economic success over the last few decades created a strong aspiration among African countries and encouraged them to take bold measures. Africa and Asia have gone through colonization and share some similarities, making Asia a natural choice to draw lessons from. By utilizing the current opportunities created by the AfCFTA and the RCEP, Africa should apply lessons from Asia to participate in global value chains to advance the trade relationship between the two regions and the rest of the world. The AfCFTA and the RCEP are very timely and can potentially transform the trade and investment relations between Africa and Asia.

Pages: 25

This chapter draws lessons upon challenges and success of the eight Regional Economic Communities (RECs) to infer guidance for the success of the African Continental Free Trade Area (AfCFTA). It evaluates the trade creation and trade diversion impacts of each of the eight RECs and examines their performance with the goal of drawing lessons and identifying challenges for the success of the AfCFTA. It establishes that despite significant heterogeneities, there is more trade creation than trade diversion and a generally positive impact on within-REC trade. Given that the AfCFTA is a much larger FTA compared to the existing RECs, it is important that economies use regional integration to create agglomeration economies to expand supply/production which in turn provides greater impetus to engage in GVCs. Given the costs of distance and the benefits of already existing strong trade corridors, it is imperative that integration efforts start with a focus on selected high-density corridors of trade. Expanding trade on an African level is a daunting task but is achievable and feasible if sub-regional corridors of trade and production integration are strengthened to build regional value chains that serve as key hubs of GVCs. However, there are many challenges that African countries and regional and global entities need to address to realize the objectives of the AfCFTA and transform the continent. Learning from the regional economic communities is central. But, given the scope of the African Continental Free Trade Area, there is also a need to examine the transition from regional economic communities to the African Continental Free Trade Area, which is expected to be a sticky transition.

Pages: 22

Under the AfCFTA agreement, goods and services are allowed to move in and out of participants’ countries without duties fees with the condition that the local content is at least 30%. Although the AfCFTA is a necessary first step toward greater integration and prosperity in Africa, there is no guarantee that it will provide the momentum for further integration steps. Relevant fiscal policies are among other necessary conditions for the success of the AfCFTA. We argue that the AfCFTA should harmonize external tariffs to facilitate trade. This should be complemented by reviewing the tax policy to mobilize more revenue through indirect taxes and expand the tax base. These additional resources are needed to build connectivity infrastructure to integrate the continent physically.

Pages: 10

This chapter assesses relevant monetary policies to a successful implementation of the AfCFTA. It first considers the practicality of a common currency in Africa, contrasting the potential trade benefits of a currency union against the monetary policy constraints imposed by currently unsynchronized business cycles across the continent. While a common currency could significantly boost intra-Africa trade, African nations would, at the minimum, need to diversify their economies to ensure that centralized monetary policy by a supranational central bank—as entailed by a common currency—does not overwhelm those potential trade benefits, which is not yet the case. Moreover, the chapter advocates for broader policy coordination among member states.

Pages: 36

Despite both the substantial infrastructure gaps and the overall deficit in financing for infrastructure, especially in transport, continental integration remains a critical ingredient that must be reconciled to ensure increased intra-Africa trade through the successful implementation of the AfCFTA. Roads, ports, airways, waterways, and other intermodal connectors serve as crucial links for this trade and play an important role in boosting countries’ economic growth. This chapter assesses the existing and the necessary transport policies required for successful implementation of the AfCFTA and the continent's economic transformation. It asks whether, by reforming existing transport policies, tackling inefficiencies, and addressing the political economy and the transport infrastructure gap, African countries can realize the full potential of the AfCFTA. Specifically, it analyzes three sets of transport/infrastructure-related questions. These analyses guide us through the central question of the optimal integrated transport policy for a successful AfCFTA. It concludes by recommending the need to solve inefficiencies, to leverage on national and regional savings, revive private financing and Private-Public Partnerships in transport infrastructure financing, the importance of prioritizing the construction of trans-African highways, and the benefit of increasing the collaboration with Latin America and Southeast Asia regions.

Pages: 17

The rhetoric on the need for Africa to industrialize while leveraging its natural resources’ endowment has had mixed outcomes so far. The bulk of Africa’s export is still dominated by unprocessed commodities. Yet, continental markets provide opportunities for value addition in resource-rich countries and the establishment of regional value chains (RVCs) in various sectors ranging from agricultural food to mining value-added products. The COVID-19 pandemic has increased the continent’s vulnerability to foreign markets, meaning Africa needs to produce more of what it consumes. The African Continental Free Trade Area is expected to address fragmentation of African economies and therefore improve their competitiveness. These will provide businesses with new and expanded opportunities to invest in higher value-added segments of regional and continental value chains, unlocking the potential of African resource-rich countries to catalyze the continents’ industrial development. Yet, such an outcome will not be automatic. Deliberate efforts are required to establish wide-reaching RVCs. Effective implementation of the AfCFTA should be complemented by concerted efforts to address non-tariffs barriers to production and trade, especially infrastructure bottlenecks. The urgent need to match labour force with required skills, promote integrated special economic and industrial zones, enhance access of businesses, to low-cost financing cannot be overemphasized.

Pages: 36

This chapter assesses critical skills needed for the AfCFTA to be a game changer for the continent’s economic integration and transformation. Free movement of goods and services across the continent following the suppression of tariffs and non-tariffs barriers will create opportunities for further participation in backward global value chains (GVCs) or new continental and regional value chains development. Indeed, most of the African economies produce primarily commodities for further processing in other countries and a limited number of countries are engaged in the production of limited manufacturing products. Participating in and positioning through these value chains depends critically on countries’ workforce skills level. The chapter provides an analysis of the skills supply and gaps relative to skills requirements for backward GVC participation for agribusiness, manufacturing, the digital economy, and logistics. The chapter documents substantial skills gaps but also cross-countries disparities in several critical technical advanced skills necessary for the positioning into the higher segments of the value chains, specifically in STEM and ICT. Going forward, African leaders both at country and at the AU levels should take a series of interrelated policy interventions to upgrade and close the existing skills gap. Policies should aim to improve access and outcomes of education and training systems, harmonize education systems, ensure recognition of academic credentials, and ease skilled workforce mobility across the continent through the implementation of the African passport and putting in place incentives to attract the skilled African diaspora.

Pages: 21

The African Continental Free Trade Area (AfCFTA) brings new opportunities to industrialize Africa. The large, and growing, size of the free trade area market should incentivize investment and development of manufacturing productive capabilities within the continent (whether local entrepreneurs or foreign direct investment) to service this market, supporting structural transformation and job creation. However, it is not a ‘fait accompli’ that the benefits of the AfCFTA will be fully realized. That is dependent on African policy makers developing and implementing industrial, competition and trade policies that support manufacturing value addition in the continent and intra-Africa trade; and developing appropriately empowered institutions (e.g., providing political muscle to key continental institutions such as the African Union Commission) to develop and implement supra-national policies. The AfCFTA must avoid past mistakes made in the regional economic communities. In particular, narrow national interests should not be allowed to trump the continental interests.

Pages: 17

The purpose of this chapter is to discuss intellectual property (IP) that is currently under negotiation in phase II of the African Continental Free Trade Area (AfCFTA) from a public health perspective to come out with solutions to protect African countries. Section I of the chapter presents a background about the international pharmaceutical market and Africa’s situation, the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and patents on drugs, and the arguments for and against IP protection. Section II discusses what African countries should do by presenting some solutions to protect these countries such as compulsory licenses, generic drugs and parallel imports. Section III concludes and summarizes the recommendations.