AfCFTA impact study conducted in Senegal is optimistic about the effects of the agreement on the economy

After the yesterday’s post on the KIPPRA analysis of the impact of the African Continental Free Trade Area (AfCFTA) on the Kenyan economy, a new study, this time from the Department of Planning and Economic Studies of the Senegalese Ministry of Trade, makes another analysis of the impact of the agreement on the national economy. This is not the first study conducted by the Senegalese Ministry of Trade on the AfCFTA. Exactly one year ago, a similar one was carried out to identify the products having the highest potential for being exported to other African countries within the context of the AfCFTA, based on the Senegal's comparative advantages in the manufacture of such goods and the countries where they are in higher demand in Africa. In line with the optimistic results of the previous study, the new one estimates that the entry into force of the AfCFTA will lead to a general grow of economic activity and consumption in the country mainly due to a reduction of prices and an increase in production in several sectors of the economy. This will cause an improvement, despite slight, in the well-being of households of about 0.4%.

In particular, the production in the oil refinery sector is expected to grow by 27.3%, followed by an increase in extractive and construction activities by 3.2% and 1.5% respectively. On the other hand, agriculture, others manufacturing activities and accommodation and restoration services should drop by 0.3, 1, and 1.3 percent respectively. With regard to the much-feared revenue loss (African countries, especially the least developed, are particularly dependent on customs and other trade taxes for funding their budgets), this should be contained to 0.4% in the short term. In the long term, public revenues should grow in the same proportion (0.4%), due to an increase in both indirect tax collection (in particular on goods and services, quantified at 1.5%), as well as in the direct taxation (taxes collected on wages will grow of 1.3%). The study also estimates a growth in customs duties on imports of 1.5%. However, it is not clear whether this growth refers to imports from third countries (the AfCFTA, once fully implemented, is expected to cause a reduction in this type of imports, vis-à-vis a growth in imports from other African countries), or is it rather due to the fact that before the complete abolition of duties, an increase in imports from other African states is expected, as the AfCFTA tariff reductions are progressive.

The report also points out that a condition for the production costs of the goods manufactured in the country to drop, will be the dismantling of non-tariff barriers (NTBs) on the movement of goods with other African States. Indeed, this removal, the study notes, will encourage domestic production and investments because of the acceleration of the flows of goods through the borders, which will favor  the creation of economies of scale that, in turn, will drive the production costs down.