AfCFTA, main benefits in the industrial and agricultural sectors, but do not neglect services, UNECA notes

A new report published by the United Nations Economic Commission for Africa (UNECA) argues that the African Continental Free Trade Area (AfCFTA) will be particularly beneficial for trade in agrifood, services and industry sectors, that are expected to increase by 49%, 38% and 36% by 2045, respectively. Hence, it concludes that these sectors will be those that will gain more from the implementation of the agreement than others. On the other hand, the traditional extractive and energy sectors (that historically represent the primary sources of exports of most of African countries), will increase only of 19%. This is not surprising, considering that such goods are mainly traded outside Africa, while the AfCFTA is expected to lead to an increase of intra-Africa trade.

Particularly interesting is the case of Ethiopia, that in countertendency with other African countries, will obtain the main benefits from the agricultural sector (84.2%), while industry and services will generate earnings of 11.1 and 3.8%, respectively. In all the other African countries the main gains will be in the industrial sector. This includes Kenya and Nigeria, for instance, as shown in figure 1.

Figure 1: Distribution of absolute gains by main sectors in African countries’ exports to Africa with the AfCFTA implemented (compared with the absence of the AfCFTA)

Regarding services, the UNECA report also notes that intra-African investment (differently from investment from outside the continent) tends to currently privilege mainly the service sector, particularly insurance, retail banking and telecommunications. The report observes that in order to fully realize the potential of the AfCFTA, such investors will have to target high-return priority sectors such as transportation, communication, food and tobacco, financial services, business services, renewable energy, industrial equipment, automotive components and software and IT services. African countries, according to UNECA, have a relative comparative advantage to engage in trade in services, which could be elevated in collaborations to create frontier services through regional IT-hubs.

Importantly, as the AfCFTA negotiations are close to an end (currently only the Protocols on Digital Trade and on Women and Youth in Trade are not yet adopted, moreover discussions are ongoing for developing a specific regulation on Special Economic Zones), African states need to take immediate action in order to ensure that the AfCFTA and all its additional Protocols are correctly implemented. This will require considerable efforts in regulatory harmonization, since national laws and rules of each African state will need to be revisited and aligned with such framework. An activity this - we add - that these states probably will not be able to conduct alone, without technical and financial support from external partners or donors.

Finally, UNECA recognizes that still considerable efforts are required to raise awareness of the AfCFTA. This conclusion is in line with the findings of the last PAFTRAC report that we analysed here. For the agreement to work effectively, authorities should ensure that all stakeholders (both from the public and the private sectors) are aware of it, and that they know the rights and entitlements that the AfCFTA confers, with the corresponding obligations and duties. This, also, will require massive awareness and sensitization campaigns with great financial efforts. Lacking the resources in their national budgets and other endogenous funds in Africa to support all these activities, it is not surprising that such states, once again, will have to knock to the door of developed countries.