Reforms driven by the adoption of the African Continental Free Trade Area (AfCFTA) could lead to an increase in foreign direct investment (FDI) that would increase the continent’s income by 9% by 2035, according to new report from the World Bank.
It AfCFTA is an ambitious project to establish the world’s largest free trade area by creating a single market for goods and services across Africa – 54 of the continent’s 55 countries are signatories.
Restricted trade under the AfCFTA begins in January 2021, but reaching its full potential hinges on significant policy reforms and trade facilitation measures across signatories, negotiations for which are still ongoing.
Benefits of expanding the AfCFTA agreement
In 2020, a World Bank report estimates that AfCFTA has the potential to increase the continent’s income by 7% by 2035 and lift 40 million people out of extreme poverty, primarily by spurring intraregional trade.
This new report builds on previous studies by adding to the potential benefits arising from greater FDI flows under two possible scenarios – the “broad FDI AfCFTA scenario” and the “AfCFTA deep FDI scenario”.
The broad scenario incorporates the expected benefits of increased FDI resulting from trade reforms in goods and services. The in-depth scenario examines the additional benefits that could result from expanding the agreement to align investment, competition, e-commerce, and intellectual property policies.
Africa could register an 111% increase in FDI under the broad scenario and 159% under the deep scenario, the report said. Extreme poverty could drop an additional 5m under the broad scenario and an additional 10m under the deep scenario.
Other potential benefits of AfCFTA highlighted by the report include:
- Higher-paying, better-quality jobs, with wage increases of 11.2% for women and 9.8% for men by 2035, although with regional variations depending on which industry is most developed in a given country.
- Under deep integration, African exports to the rest of the world could increase by 32% by 2035, while intra-African exports could grow by 109%, led by manufactured goods.
“The conclusion of the negotiations is very important,” the report said. “Increasing the role of the African private sector and generating greater grassroots support for AfCFTA, beyond government leadership, is also important.”
Afreximbank renews $1 billion facility for AfCFTA
In related news, on 13 June 2022, the board of directors of the African Export-Import Bank (Afreximbank) renewed their approval of a $1 billion facility to operationalize the AfCFTA Adjustment Fund.
It AfCFTA Adjustment Fund support AfCFTA member states in adjusting to the new liberalized and integrated trade environment established under the AfCFTA. It consists of basic funds, general funds and credit funds.
The basic fund will consist of contributions from States parties, grants and technical assistance funds to address tariff revenue losses as tariffs are phased out.
It will also support countries to implement the various provisions of the AfCFTA agreement, its protocols and annexes. Afeximbank also approved a $10 million grant to seed the base fund.
The public fund will mobilize concessional funding, while the credit fund will mobilize commercial finance to support the public and private sectors, enabling them to adapt and take advantage of the opportunities created by AfCFTA.
Funds required under the Adjustment Fund are estimated at $8-10bn.
“The approval by the Affreximbank Council brings the continent closer to operationalizing the AfCFTA Adjustment Fund before the end of 2022. We urge development partners and other financial institutions to provide additional resources as needed under the Adjustment Fund to support the implementation of the AfCFTA,” commented Wamkele Mene, secretary general AfCFTA Secretariat.
AfCFTA could increase Africa’s revenue by 9%, World Bank report says
Source link AfCFTA could increase Africa’s revenue by 9%, World Bank report says