Quality research needed to help implement the AfCFTA

With a few more ratifications needed for the African Continental Free Trade Area (AfCFTA) to become effective, scholars meeting for the Economic Research Conference in Kigali pledged to produce good high-quality research papers to inform policymakers and help move the agreement forward.

The 5th Economic Research Conference was held on 12 March, organized by the Economic Policy Research Network (EPRN Rwanda) in collaboration with the UN Economic Commission for Africa (ECA), and in partnership with the United Nations Development Programme (UNDP) and the German Cooperation (GIZ).

Andrew Mold, Acting Director of ECA in Eastern Africa, said that AfCFTA may give the impression that the agreement is simply about free trade, but in reality it is much more ambitious than that. “The AfCFTA goes beyond trade.- It is about creating a continental market. It is about free movement of people and free movement of goods and services, it is about protocols on government procurement and intellectual property,” explained Mold.

Andrew Mold stressed that with the implementation of AfCFTA approaching, policymakers will need high-quality policy advice and research about the potential implications for their economies and where the opportunities reside, as well as where there may be potential vulnerabilities that need addressing.

Twenty-two ratifications are required for the Agreement to enter into force. So far 19 countries have ratified it.

Speaking also at the conference, Leonard Rugwabiza, the Economic Advisor at the Rwanda Ministry of Finance and Economic Planning said that in the face of changing global context and economic uncertainties, Africa must also change the ways it does business.

“It will be more difficult to govern if we cannot change the structure of our economies and create jobs for our youth. The AfCFTA and the African single market offer us more opportunities to do so than challenges”, said Rugwabiza.

The UNDP Rwanda Country Director, Stephen Rodrigues said that the implementation of the agreement needs to be done in a way that is inclusive and benefits small and medium-size SMEs on the continent.

“We should ensure that women and youth are included in implementing the AfCFTA. It is necessary to make policies that are inclusive and take into account people living with disability and those with low levels of education”.

Background

The Economic Policy Research Network is a Non-Governmental Organization aiming at strengthening the capacities of individuals and organizations active in or with an interest in economic policy research and analysis.  One of the flagship activities of EPRN is the Annual Economic Research Conference.

This year, the 5th Economic Research Conference convened more than 200 participants, including researchers, senior policy-makers, representatives of the development partners, civil society, private sector and the media.

During the conference, research papers and reports on the topic were presented and discussed. This year’s main theme was “The African Continental Free Trade Area: Challenges and Opportunities”, which was broken down into three sub-themes: i) Regional Integration; ii) Human Capital Development; and iii) Financial Sector.

The conference sought to provide a research platform and opportunity for economic researchers from a wide spectrum such as academics, government officials, representatives of development partners and international and local NGOs with interest on research topics related to African Continental Free Trade Area.

The purpose of the conference was to witness the current progress, evaluate the policy progress, suggest innovative policy solutions and, discuss strategies for achieving desired goals and targets. During the conference, Research Papers by EPRN Researchers and Reports by partner institutions were presented.

Key takeaways from the conference include the following:

• Policymakers will need good research on regional integration issues to formulate policies and how this can be implemented

• Human capital use and innovation must be tackled as a priority

• We need to enhance competitiveness and enterprise development for innovation and growth

• Transforming agriculture and food processing should be an engine of growth

• Capability and accountability of state institutions for economic growth is needed

• Government should put in place policies to help customers acquire long trade credit terms to boost sales and make profit

• There is a need for periodic and continuous policy dialogue around African market-related topics

The final papers with key policy recommendations will be published on the EPRN website.

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The Case for Implementing the AfCFTA in East Africa – Some New Estimates

When quantifying the potential benefits of the AfCFTA, different methodologies give different results: Gravity models tend to give larger effects of regional trade agreements, while Computable General Equilibrium (CGE) simulation models show relatively smaller effects of trade policy (Fosu and Mold, 2008).

Gravity model

How Much is the East African Community Currently Under-trading?

Based on a gravity model using a stochastic frontier approach, the bilateral export flows of the five EAC members States (Burundi, Kenya, Rwanda, Tanzania and Uganda) over the period 1995 to 2016 were examined. Intra-EAC trade is at around half of its potential: The ratio of actual/observed exports (US$ millions) to potential maximum exports (US$ millions) is 51% exports to the EAC and 56% to Africa.

Computable General Equilibrium Approach

The Potential Benefits of AfCFTA on East Africa

A Computable General Equilibrium model – Global Trade Analysis Project (GTAP) – was used to measure the static effects of the AfCFTA on East Africa, using 2014 baseline data with complete liberalisation (i.e. 100%) and standard closure, but fixing wages to reflect high unemployment rates prevalent on the continent.

Results suggest large potential gains from the AfCFTA:

• Increase intra-African exports of Eastern Africa by almost US$ 1 billion
• Chief beneficiary sectors are labour-intensive ones
• Job creation of 0.5 to 1.9 million
• Consumer welfare gain of US$ 1.4 billion

A Partial Equilibrium Model – World Integrated Trade Solution SMART – was also used to measure the impact of the AfCFTA on East African countries, with 2015 as the base year for most countries and using a complete liberalisation scenario.

Results suggest a significant increase in intra-African exports – for Rwanda, a 22% increase over the base year followed by Uganda (21%), Tanzania (17%) and Kenya (10%). Over one-third of the exports are in manufactured goods.

This presentation has been made available to download courtesy of the United Nations Economic Commission for Africa (UNECA) Office for Eastern Africa.