Publication: Making the Most of the African Continental Free Trade Area: Leveraging Trade and Foreign Direct Investment to Boost Growth and Reduce Poverty
Loading...
Published
2022-06-30
ISSN
Date
2022-07-05
Editor(s)
Abstract
The creation of the African Continental Free Trade Area (AfCFTA) provides a unique opportunity to boost growth, cut poverty, and reduce Africa’s dependence on the boom and-bust commodity cycle. A World Bank (2020) report estimates that the AfCFTA has the potential to raise income in the continent by 7 percent by 2035 and lift 40 million people out of extreme poverty, mainly by spurring intraregional trade (termed the “AfCFTA trade scenario” for purposes of this analysis). Reductions in nontariff barriers on goods and services and improvements in trade facilitation measures will account for about two thirds of the US$450 billion in potential income gains by removing long delays across most of the continent’s borders and lowering compliance costs in trade, making it easier for African businesses to become integrated into regional and global supply chains. This report builds on that earlier study by including potential gains arising from greater flows of foreign direct investment (FDI), termed the “AfCFTA FDI broadscenario,” and from deeper integration beyond trade, the “AfCFTA FDI deep scenario.” FDI has traditionally been low in Africa. The AfCFTA is likely to attract cross-border investment by eliminating tariff and nontariff barriers and replacing the existing patchwork of bilateral and regional trade deals with a single, unified market. Investors in any one of 55 member countries will have access to a continent of 1.3 billion people with a combined GDP of US$3.4 trillion. Integration in global and regional value chains offers a further magnet for FDI and the jobs, investment, and know-how that FDI brings.
Link to Data Set
Citation
“Echandi, Roberto; Maliszewska, Maryla; Steenbergen, Victor. 2022. Making the Most of the African Continental Free Trade Area: Leveraging Trade and Foreign Direct Investment to Boost Growth and Reduce Poverty. © World Bank. http://hdl.handle.net/10986/37623 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Estimating the Economic and Distributional Impacts of the Regional Comprehensive Economic Partnership(Washington, DC: World Bank, 2022-02-15)This paper applies a top-down, macro-micro modeling framework that links a computable general equilibrium model with the survey-based global income distribution dynamics model to assess the economic and distributional effects of the implementation of the Regional Comprehensive Economic Partnership (RCEP). Reductions of tariffs and non-tariff measures, implementation of a rule of origin, together with productivity gains stemming from trade cost reductions can strengthen regional trade and value chains among Regional Comprehensive Economic Partnership members. The results of the analysis indicate that in an already deeply integrated region, tariff liberalization alone brings little benefit, with estimated real income gains of 0.21 percent relative to the baseline (without the RCEP) in 2035. With liberal rules of origin, the gains in real income could double to 0.49 percent. The biggest benefits accrue when the productivity gains are considered, increasing real income by as much as 2.5 percent for the trade bloc. In this scenario, trade among RCEP members increases by 12.3 percent in 2035 relative to the baseline. The RCEP also has the potential to lift 27 million additional people to middle-class status by 2035. It will also boost wages, with faster gains in sectors that employ larger shares of women. The aggregate effects mask large variety of outcomes across countries, with Vietnam expected to register the highest trade and income gains. Implementation of the RCEP help partially mitigate the negative economic impacts of COVID-19 in the East Asia and the Pacific region.Publication Changes in Cross-Border Trade Costs in the Pan-Arab Free Trade Area, 2001–2008(2009-08-01)The Pan-Arab Free Trade Area, negotiated under auspices of the Arab League, came into force in 1997. Under the agreement all tariffs on goods of Arab origin were to be removed by January 1, 2005. This paper summarizes the results of a firm-level survey in nine countries regarding the implementation of the Pan-Arab Free Trade Area. A majority of respondent companies report that tariffs on intra-regional trade have largely been removed, and that there has been a marked improvement in customs clearance-related procedures. Costs associated with administrative red tape and weaknesses in transport-related infrastructure services are ranked as the most important constraints to intra-regional trade. This suggests that from a policy perspective, efforts to reduce real trade costs deserve priority, including transportation and logistics services. Periodic monitoring and assessment of trade incentives and performance would help governments to benchmark performance and identify priority areas for action, at both the national and the sub-regional levels.Publication Poverty and Shared Prosperity Implications of Deep Integration in Eastern and Southern Africa(World Bank, Washington, DC, 2016-05)Evidence indicates that trade costs are a much more substantial barrier to trade than tariffs are, especially in Sub-Saharan Africa. This paper decomposes trade costs into: (i) trade facilitation, (ii) non-tariff barriers, and (iii) the costs of business services. The paper assesses the poverty and shared prosperity impacts of deep integration to reduce these three types of trade costs in: (i) the East African Customs Union–Common Market of East and Southern Africa–South African Development Community "Tripartite" Free Trade Area; (ii) within the East African Customs Union; and (iii) unilaterally by the East African Customs Union. The analysis employs an innovative, multi-region computable general equilibrium model to estimate the changes in the macroeconomic variables that impact poverty and shared prosperity. The model estimates are used in the Global Income Distribution Dynamics microsimulation model to obtain assessments of the changes in the poverty headcount and shared prosperity for each of the simulations for the six African regions or countries. The paper finds that these reforms are pro-poor. There are significant reductions in the poverty headcount and the percentage of the population living in poverty for all six of the African regions from deep integration in the Tripartite Free Trade Area or comparable unilateral reforms by the East African Customs Union. Further, the incomes of the bottom 40 percent of the populations noticeably increase in all countries or regions that are engaged in the trade reforms. The reason for the poor share in prosperity is the fact that the reforms increase unskilled wages faster than the rewards of other factors of production, as the reforms tend to favor agriculture. Despite the uniform increases in income for the poorest 40 percent, there are some cases where the share of income captured by the poorest 40 percent of the population decreases. The estimated gains vary considerably across countries and reforms. Thus, countries would have an interest in negotiating for different reforms in different agreements.Publication Free Trade Area Membership as a Stepping Stone to Development : The Case of ASEAN(Washington, DC: World Bank, 2001-02)This study investigates the economic impacts of accession to the ASEAN Free Trade Area (AFTA) by the new member countries of Cambodia, the Lao PDR, Myanmar, and Vietnam. The trade policies of these countries are examined, and a series of quantitative analyses were undertaken to evaluate the impacts of accession. The results showed that the static impacts of reducing tariffs against ASEAN members are beneficial, although the magnitude of the net gains is diminished by the trade diversion resulting from the discriminatory nature of the reforms. The binding commitments on protection rates under the AFTA plan provide an important initial step to more broader and more beneficial trade reforms. The study focuses on some of the key country-specific policy challenges associated with trade liberalization--such as declining tariff revenues in Cambodia, and the negative impacts on sensitive domestic industries in Vietnam. The study recommends that accession to AFTA be viewed as an important transitional step in the broader process of trade reform and institutional development needed for successful development and poverty alleviation.Publication Toward the African Continental Free Trade Area(World Bank, Washington, DC, 2021-02)This paper evaluates the role of economic integration and democracy in rationalizing differences in real exchange rate misalignments across exchange rate regimes in Africa. To this end, the paper derives competing indexes of misalignment using modern cointegration techniques while accounting for cross-sectional dependence. The findings indicate that fixed regimes per se are not prone to more misalignments, as institutional quality and economic links with foreign partners critically matter in explaining the observed discrepancies. Furthermore, when distinguishing between African and international partners in investment agreements, the extent of misalignment differs according to the level of democracy, as democratic countries can afford intermediate regimes, while for weak democracies, fixed regimes are required to curb disequilibria. Finally, membership in a regional economic community significantly reduces the magnitude of misalignments. The results imply that the quality of institutions, more than the type of the exchange rate regime, is called into question and should be the focus of efforts ahead of successful implementation of the African Continental Free Trade Area.
Users also downloaded
Showing related downloaded files
Publication Reboot Development: The Economics of a Livable Planet(Washington, DC: World Bank, 2025-09-01)“Reboot Development: The Economics of a Livable Planet” explores how the foundational natural endowments of land, air, and water—long taken for granted—are under growing threat, putting at risk the very progress they helped create. For generations, natural resources have powered development, supporting health, food, energy, and economic opportunity. Today, strains on these resources are intensifying. This report argues that failing to maintain a livable planet is not merely a distant environmental concern, but a present economic threat. Drawing on new data, the report shows that over 90 percent of the world is exposed to poor air quality, degraded land, or water stress. Loss of forests cuts rainfall, dries soils, and worsens droughts, costing billions of dollars. The nitrogen paradox emerges—fertilizers boost yields but overuse in some regions harms crops and ecosystems. Meanwhile, air and water pollution silently damage health, productivity, and cognition, sapping human potential. The report warns that these hidden costs are too large to ignore. Yet the message is not one of constraint but of possibility. Nature, when wisely stewarded, can drive growth, create jobs, and build resilience. The report shows that more efficient resource use—like better nitrogen management and forest restoration—yields benefits that far exceed the costs. It also urges a shift to cleaner sectors and producing “better things,” noting that these provide new sources of growth, creating more jobs per dollar invested. The findings are clear: Investing in nature is not only good for the planet, it is smart development.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication State and Trends of Carbon Pricing 2025(Washington, DC: World Bank, 2025-06-10)This report provides an up-to-date overview of existing and emerging carbon pricing instruments around the world, including international, national and subnational initiatives. It also investigates trends surrounding the development and implementation of carbon pricing instruments. Specifically, this includes the use of carbon taxes, emissions trading systems and crediting mechanisms.Publication The World Bank Group Annual Report 2025(Washington, DC: World Bank, 2025-10-09)The World Bank Group Annual Report 2025 presents on World Bank Group activities in fiscal 2025. The Annual Report is prepared by the Executive Directors of ICSID, IFC, MIGA, and the World Bank (IBRD/IDA) in accordance with the by-laws of the institutions. The President of the World Bank Group and Chairman of the Board of Executive Directors submit the Annual Report, together with the accompanying administrative budgets and audited financial statements, to the Board of Governors.Publication Forging Viet Nam's Semiconductor Future: Talent and Innovation Leading the Way(Washington, DC: World Bank, 2025-09-10)Vietnam has prioritized semiconductors as one of ten critical technologies and set explicit goals of becoming a global semiconductor talent hub by 2030, moving up the value chain toward higher value-added segments, and developing a complete semiconductor value chain by 2045. Delivering on that pledge hinges on strategic and urgent investment in top talent, science, and innovation. This report concentrates on the most urgent gap – cultivating a cadre of scientists and engineers (S&E). and, to the extent possible, tech entrepreneurs, to support Vietnam’s semiconductor and high-tech ambitions. The analysis and interventions focus on the highly skilled workforce and frontier talent development, and cover research, innovation, and university-industry linkages in relation to the talent challenges. The report recognizes that to unlock its semiconductor potential, Viet Nam must address other binding constraints, notably: weak linkages between FDI and domestic firms, emerging infrastructure gaps (e.g., energy and logistics), and intellectual property rights regulations, amid evolving geoeconomics conditions.