An assessment of how Africa can inclusively benefit from its unexploited trade potential under the AfCFTA

The UNCTAD report on “Reaping the potential benefits of the African Continental Free Trade Area for inclusive growth” provides an assessment of how Africa can inclusively benefit from its unexploited trade potential under the African Continental Free Trade Area (AfCFTA).

The report starts with the observation that the share of Africa in world trade has declined steadily over the past 50 years, with the Continent accounting only for 2.8 per cent of world trade in 2019. The situation is even worse for intraregional trade, that in the same year accounted for only 14.4 per cent of total continental trade with, generally, countries with more diversified exports having greater shares in intra-African trade than countries with less diversified exports. African countries have a high level of dependence on imports and most of them rely on primary commodity and natural resource exports, representing about 70 per cent of the total extra-African exports.

The report also reveals that differently from extra-Africa trade (that as indicated, is mainly based on primary commodity exports), intra-Africa trade tends to be more diversified with relatively higher added content, being mainly characterized by the exchange of manufactured and agricultural products. With regards to this trade, the report warns on the existence in Africa of two largest constraints that can pose an obstacle to higher productivity of African manufacturers and competitiveness of African products: 1) access to electricity and 2) high transport costs.

For what concerns transport costs, the report argues that shipping goods from an African country to another can be much expensive than shipping them abroad, due to the poor conditions of the logistics infrastructure and long distance that products must travel, a situation that in most cases is exacerbated by the presence of many Non-Tariff Barriers that make intra-Africa transport operations particularly complicated and costly, especially when goods are exchanged between countries that are members of different Regional Economic Communities (RECs). Road, sea and airplane transport costs are indicated as particularly high in the IGAD and EAC regions (railway transport is not considered in the UNCTAD analysis because little used in Africa due to the poor condition of rail networks).

In conclusion, the report notices that trading within Africa can be in many cases more expensive than trading with foreign markets. This is mainly the result of the combination of two factors: the high tariffs applied by African countries, that on average are higher than in the rest of the world, and the existence of preferential trading arrangements such as the African Growth and Opportunity Act (AGOA) of the United States of America and the Everything but Arms (EBA) scheme of the European Union that offer unilateral duty-free access of African products to the US and EU markets. These preferential trade arrangements also include the Economic Partnership Agreements (EPAs) that the EU has concluded with individual (e.g. Cameroun, Ghana, Cote d'Ivoire) or groups of States in Africa (e.g. the SADC-EPA or the ESA-EPA) that offer reciprocal duty-free access of African products to the EU markets and vice-versa.

The AfCFTA, with its tariff liberalization objective, will act on the first factor by removing customs duties and other equivalent taxes in intra-Continental exchanges. This objective is expected to generate a trade-creation effect due to the reorientation of part of the trade that currently Africa has with foreign markets, towards the internal market (trade diversion). In this regard, the report also observes that currently many economies in Africa still trade on a most-favoured nation basis because they are not members of the same Free Trade Area or Customs Union and therefore apply duties on their respective imports, which makes their products expensive on the counterparts’ market.

The report concludes with a series of policy recommendations, such as the acceleration of the streamlining of trade rules and practices, including their digitalization.