A team of economic and financial experts from the International Monetary Fund IMF has projected that between 30-50million Africans could be lifted out of extreme poverty if the 54-member nation signatories to the African Continental Free Trade Area AfCFTA embark on reforms to improve trade environment to boost merchandise trade within the region.

Recall that the AfCFTA, created in 2018 but took off in 2020, established the world’s largest free trade area with a population of 1.3billion and with a combined Gross Domestic Product GDP of $3 trillion as at 2022.

According to a report entitled: “Trade Integration in Africa: Unleashing the Continent’s Potential in a Changing World” prepared by a team from the IMF led by Asmaa ElGanainy, the AfCFTA presents its members with an opportunity to take advantage of expanding trade to lift growth and living standards across the entire continent.

The report however observed that, if accompanied by complementary improvements in the trade environment, the median merchandise trade flow between African economies could rise by 53 per cent and with the rest of the world by 15 per cent, raising real GDP per capita in the median country by more than 10 per cent.

The World Bank estimates of a broadly similar growth scenario suggest that this would help 30–50 million people in Africa emerge from extreme poverty.

The report further notes that Africa’s recorded cross-border trade has grown relatively modestly in recent decades, with limited growth in merchandise trade and an unchanged share of services trade in GDP. It argued that the continent’s exports to the rest of the world are dominated by commodities, while trade within the region is more diversified and includes a larger share of processed goods.

“These trade patterns are consistent with the continent’s limited integration in global value chains (GVCs), reflecting its fragmented trade policy landscape marked by multiple regional economic communities, a challenging trade environment with gaps in structural factors such as transport networks, customs and border processes, and access to finance.

“At the same time, there appears to be significant informal cross-border trade although it is hard to measure. These patterns, including the more diversified nature of intra-African trade, reflect the potential for significant gains for African trade from building regional value chains, unifying the trade policy landscape, and strengthening the trade environment.

“AfCFTA implementation will entail large reductions in tariff and nontariff trade barriers among African countries. These reductions could increase the median merchandise trade flow between African countries by 15 per cent and median real per capita GDP by 1.25 per cent. If the reductions in tariff and nontariff barriers are combined with substantial improvements in the trade environment, the payoff to countries would be significantly higher”, the report said.

The IMF team therefore believes that comprehensive reforms combined with the AfCFTA implementation could increase the median merchandise trade flow between African countries by 53 per cent and with the rest of the world by 15 per cent, and as a result raise the real per capita GDP of the median African country by more than 10 per cent. This result resonates with findings in the literature that trade reforms could help reduce extreme poverty by an additional 30–50 million people across the continent.

The report said: “The creation of the AfCFTA comes at a time when a changing global environment creates both opportunities and challenges for Africa. Greater trade integration can help the continent take advantage of the opportunities provided by technological change and demographic trends and enhance its resilience to shocks such as climate change and geopolitical fragmentation. In particular, greater trade openness would help countries adapt to climate change and to strengthen food security, including by improving the availability and affordability of food supplies.

“More diversified and broad-based trade would reduce the impact of disruptions in specific markets and products that could result from shifts in global trade patterns. Trade is the principal means through which the emergence of new technologies and digitalisation, in combination with a rapidly growing labour force, could create new and higher paying jobs.

“Seizing these opportunities will require investment in physical and human capital, a robust macroeconomic and business environment conducive to private sector-led growth, and a modernised social safety net that supports the most vulnerable during the transition to a higher growth trajectory.

“Regarding merchandise trade, a lowering of tariffs and NTMs between African countries as planned under the AfCFTA would lead to notable increases in trade and incomes. These gains would be amplified considerably if complemented with improvements in the trade environment, for example, transport and telecommunications infrastructure, access to finance, and domestic security, to bring them to levels comparable to those in other regional free trade agreements (FTAs). More concretely, a cut in tariffs on intra-African trade by 90 per cent and Nontariff measure NTMs by half could increase the median merchandise trade flow between African countries by 15 per cent and real per capita GDP in the median country by 1.25 per cent.”