The new pan-African free trade zone will help the continent boost economic growth, which is expected to remain stuck below 3% for the fourth consecutive year, Albert Zeufack, chief economist for the Africa region at the World Bank, has told GlobalMarkets.
All African countries bar one — Eritrea — have thrown their weight behind the African Continental Free Trade Area Agreement (AfCFTA), which commits countries to remove tariffs on 90% of goods and boost intra–regional trade. Such trade currently accounts for less than 20% of African exports.
The World Bank has revised down its growth forecast for this year by 0.2 percentage points to 2.6%. But regional trade could become an engine of growth if AfCFTA is implemented in the coming years. “The success of the African Continental Free Trade Agreement would certainly contribute to higher growth in Africa,” said Zeufack.
He said the success of the AfCFTA also hinged on Africans’ capacity to integrate value chains. “That’s how jobs will be created — when companies can actually manufacture some African products,” he said.
The African Union, which has sponsored the project, also intends to promote a mentality change. For historic reasons, a former Portuguese colony would have zero tariffs on exports to Portugal, a former British colony on those to the UK, explained Joy Kenewendo, Botswana’s minister of investment, trade and industry.
“It became like foreign countries within a continent, and we are just breaking down those walls,” she said. “Some of it is historical and you find that the trade infrastructure has been more outward-looking than inwards-looking.”
Richard Randriamandrato, finance minister of Madagascar, said: “This is a new chapter in history, we have to commit ourselves to it and get involved.”
Nevertheless, African countries will need to reduce non-tariff barriers, according to IMF officials. “If it is solely a matter of decreasing tariffs, it will have a positive effect, but it will not be as much of a game changer if a set of complementary policies are not implemented,” said Reda Cherif, a senior economist in the Africa department of the IMF.
Those policies include measures to improve the business environment.The huge infrastructure gap is a clear handicap.
“The quality of infrastructure on the continent has been a hurdle for trade. There are countries with pretty good infrastructure, in north Africa and in South Africa, or less so,” said Cherif.
Such contrasts have prompted concerns that there will be winners and losers if the AfCFTA is implemented. IMF officials have denied this. “All countries win on aggregate,” said Reda. “Some industries may close. But other industries will do much better and will start exporting more.”