Africa: AfCFTA to Have Short-Term Impact On Tax Revenue for Most Countries - Report

19 December 2019

The African Continental Free Trade Area's short-term impact on tax revenue will be small for most countries, a new report says.

The report, presented to African trade ministers and senior trade officials in Accra, Ghana, ahead of its official launch, says tariff revenues would decline by less than 1.5 per cent for most countries except for the DR Congo (3.4 per cent), Gambia (2.7 per cent), Republic of Congo (2.1 per cent), and Zambia (1.6 per cent).

The agreement, which experts say will create the largest free-trade area in the world measured by the number of countries participating, was first signed by 44 African leaders on March 21, 2018, in Kigali.

An executive summary of the World Bank report states total tax revenues would seldom decline by more than 0.3 percent except for Djibouti (0.5 percent), Republic of Congo (0.6 percent), Gambia (0.9 percent), and the DR Congo (0.9 percent).

Two factors, it is noted, help explain these "small revenue impacts," the first being that only a small share of tariff revenues come from imports from African countries - which are less than 10 percent on average.

The second reason is that "exclusion lists can shield most tariff revenues from liberalization because these revenues are highly concentrated in a few tariff lines (1 percent of tariff lines account for more than three-quarters of tariff revenues in almost all African countries).

"In the medium to long run, tariff revenues would grow by 3 percent by 2035 relative to the baseline as imports rise and as tariff liberalization is accompanied by reduction of NTBs [Non-Tariff Barriers] and implementation of trade-facilitation measures," the report states.

The elimination of NTBs - a wide range of restrictive regulations and procedures, other than tariffs, that make trade difficult and, or costly - is identified as one of the main objectives of the pact.

The agreement's legal instruments contain provisions dealing with the progressive elimination of NTBs, one of the main roadblocks to trade on the African continent, which include customs clearance delays, restrictive licensing processes and rules of origin.

The reduction of NTBs in the AfCFTA, experts say, could double intra-Africa trade, and increase the benefits of AfCFTA three to four-fold.

The agreement which Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa (UNECA), calls an investment blueprint for the continent, connects 1.3 billion people across 54 countries with a combined GDP valued at $3.4 trillion.

Furthermore, the new report notes that even though the AfCFTA offers large opportunities for development in Africa, implementation will be a significant challenge. In the past, experts have stressed that its successful implementation will involve good political will.

"This study identifies key priorities for African policymakers. Lowering and eliminating tariffs will be the easy part-even if it comes, in some cases, with the challenge of how to replace tariff revenues," reads a section of the summary.

"The hard part will be enacting the non-tariff and trade-facilitation measures, which is where the analysis predicts the largest potential economic gains."

Such measures, it is noted, will require substantial policy reforms at the national level, indicating a long road ahead.

"Achieving AfCFTA's full potential depends on agreeing to ambitious liberalization and implementing it in full. Partial reforms would lead to smaller effects."

The operational phase of the AfCFTA was launched during the 12th Extraordinary Session of the Assembly of the AU in Niamey, Niger on July 7. The Niamey meeting made a number of important decisions, including that: the AfCFTA be hosted by Ghana; and that July 1, 2020, be the date to start trading within the AfCFTA regime.

So far, 28 countries have deposited their instruments of ratification with the AUC, and therefore became state parties.



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