AfCFTA can deliver considerable inclusive economic growth: UNCTAD

The report shows that trade policies alone are unlikely to support inclusive economic growth on the continent. Other measures needed to increase potential distributional gains from regional integration and help ensure inclusive development are cooperation in promoting investment and competition policies, accelerating financing of infrastructure that facilitates rural-urban linkages and providing equal access to socioeconomic opportunities and productive resources.

The AfCFTA, under which free trade officially commenced in January 2021, is one of the flagship projects of the African Union’s Agenda 2063, which includes various targets on sustainable and inclusive growth. Economic growth can only be inclusive if it reduces both poverty and inequality, the report says.

“The AfCFTA has immense potential to spur economic growth and transform the continent's development prospects if additional measures are taken to realize and fairly distribute its many potential benefits, as these gains will not come automatically,” said UNCTAD secretary general Rebeca Grynspan.

“Poverty and inequality are not inescapable. They are products of political choices and public policy. This report will support African governments and development partners to better leverage the AfCFTA to tackle both poverty and inequality to ensure the expected gains from free trade are more inclusive,” he was quoted as saying in an UNCTAD press release.

According to the report, growth has been inclusive in only 17 out of 49 African countries for which sufficient household data for between 2000 and 2020 is available. Africa’s economic growth has been poverty-reducing, the report says, but inequality-increasing in 18 African countries and non-inclusive on either dimension in 14 nations.

This finding raises the key question of how economic growth through regional integration can contribute to poverty reduction and foster inclusive development, a main objective of Agenda 2063.

Africa’s unprecedented growth in the 2000s has not translated into significantly improved livelihoods for most Africans, as the income gap between the rich and the poor has widened.

About 34 per cent of African households live below the international poverty line ($1.9 per day), and around 40 per cent of the total wealth is owned by approximately 0.0001 per cent of the continent’s population, according to the report.

The report says trade liberalisation, whether bilateral, regional or multilateral, entails some losses of tariff revenues and has redistributional effects. However, more international trade can also generate interregional knowledge spillovers, which could increase efficiency, diffuse technology and redistribute wealth.

Intra-African trade is currently low at 14.4 per cent of total African exports. It is comprised of 61 per cent processed and semi-processed goods, suggesting higher potential benefits from greater regional trade for transformative and inclusive growth, the report finds. 

Informal cross-border trade can account for up to 90 per cent of official trade flows in some countries and contribute to up to 40 per cent of total trade within regional economic communities such as the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA).

The report says that the continent’s current untapped export potential amounts to $21.9 billion, equivalent to 43 per cent of intra-African exports. It says an additional $9.2 billion of export potential can be realised through partial tariff liberalisation under the AfCFTA over the next five years.

Long-term cooperation in investment and competition policies will be essential to overcoming market dominance by a few actors and to reducing structural and regulatory barriers to market entry, the report adds.

ALCHEMPro News Desk (DS)