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Trade: A study to identify the impact of the AfCFTA

Published in July, a report by ITFC and SESRIC assesses the possible economic consequences of the entry into force of the African Common Market on six countries of the continent, members of the Organization of Islamic Cooperation. 

By DBM 

Conducted jointly by the International Islamic Trade Finance Corporation (ITFC) and its partner, the Statistical, Economic and Social Research and Training Centre for Islamic Countries (SESRIC), the study aims to “assess the extent of the impact of the African Continental Free Trade Area (AfCFTA) on the (27) African countries members of the Organization of Islamic Cooperation (OIC)”, explain its authors. They also specify that their survey focused specifically on six countries, namely Côte d’Ivoire, Egypt, Guinea, Mozambique, Tunisia and Uganda.

Zlecaf, which came into effect on January 1 of this year, aims to economically integrate all 55 countries of the African Union, a community space of 1.3 billion people with a nominal GDP of $2.5 trillion ($6.8 trillion in purchasing power parity [PPP]). In fact, this announced trade liberalization, which foresees the lifting of tariffs on 90% of products within five to ten years, should boost the development of intra-African trade: this currently represents only 15% of the continent’s exports, compared with 68% in Europe, 61% in Asia and 20% in Latin America. 

“The greatest impact among the six OIC countries is expected in Côte d’Ivoire”

This movement of openness  should particularly benefit Côte d’Ivoire, according to the above-mentioned report. ITFC and SESRIC estimate that the leading French-speaking economic power in West Africa could “export an additional $1.7 billion worth of goods and services to [other] African countries,” thus recording “the largest impact among the six countries [studied].  Egypt, the second largest estimated beneficiary of the Zlecaf, is expected to export an additional $790 million in goods and services to the rest of the continent, followed by Guinea (+$570 million) and Tunisia (+$550 million). In comparison, African exports from Mozambique and Uganda are expected to increase slightly (+$40 million and +$128 million respectively). 

These disparities, far from being expected only at the country level, should also be observed at the level of “certain sectors, companies and workers [who] will be negatively affected,” the report warns, adding that this contrasting situation “will require government interventions to mitigate the negative effects in the short and medium term. Similarly, “the COVID-19 pandemic may delay the effective implementation of the FTAA and hinder economic integration due to restrictions on cross-border travel and increased protectionism for strategic health products,” the study’s authors fear.

“Trade liberalization as a result of the AfCFTA is expected to boost trade among African countries and create significant welfare gains”

Nevertheless, the report’s projections on the impact of the African Continental Free Trade Area (AfCFTA) are broadly positive, with “trade liberalization following the AfCFTA [expected] to boost trade among African countries and [create] significant welfare gains,” according to the ITFC and SESRIC teams. To fully realize this “opportunity to create cross-border value,” in the words of ITFC Director General Hani Salem Sonbol, the document emphasizes the effective implementation of several points essential to the proper functioning of the FTAA. Among them, “the facilitation of investment in production infrastructure, the creation of regional value chains, the improvement of connectivity … or the protection of vulnerable segments of society to achieve a more balanced growth. All of these “… tools and resources are needed to effectively implement these policies,” notes SESRIC Director General Nabil Daboor, for whom “the African continental free trade area is a critical step in improving economic cooperation and integration among countries [on the continent]. 

While governments are putting in place national regulations for the FTAA – as is already the case in Ghana, Egypt and South Africa – the private sector is already poised to take advantage. Within days of the launch of the common market in January, two Ghanaian companies – beverage manufacturer Kasapreko and cosmetics producer Ghandour – were shipping their first goods to other countries on the continent, making them among the first beneficiaries of the new free trade agreements. And to further facilitate intra-African trade, the FTAA secretariat, in collaboration with the African Export and Import Bank (Afreximbank), has set up a Pan-African Payment and Settlement System (PAPSS) to address currency convertibility issues. 

To view the report: https://www.itfcidb.org/sites/default/files/potential_impacts_of_the_afcfta_on_selected_oic_countries_digest_version.pdf