AfCFTA: Tariff liberalization to lower tariff revenues by $12.2 billion
Tariff liberalization entailed by the African Continental Free Trade Area [AfCFTA] agreement is expected to lower tariff revenues by an estimated $2 billion by 2025.
The reduction in tariff revenues for member countries is expected to increase to $12.2 billion by 2040.
This, according to a study by the African Export–Import Bank [Afrieximbank], although not negligible, is not a gigantic loss either for the continent as a whole
and is dwarfed by the expected $55 billion increase in GDP and $133 billion increase in intra-African trade.
Per the study, Africa’s least developed economies, in particular, will be able to delay tariff revenue losses the most given their more lenient liberalization schedules (which extend up to 2033).
Governments also have other sources of revenues at their disposal which could be acted upon to compensate such losses and the Afreximbank has already set up the AfCFTA Adjustment Facility which is to serve as a mechanism to provide short- to medium-term financing to vulnerable countries.
Afreximbank has also committed $8 billion with the understanding that additional funds would need to be primarily raised from the markets, as required.
Liberalizing tariffs helps to create demand, increasing market size and enabling economies of scale. However, it is the tariff on inputs that is equally, if not more, important.
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The average tariff on intermediates across African countries is around 10%, having fallen slowly over the past 15 years, but this figure is still roughly twice the average for other developing country regions, being a legacy of a historic pursuit of inward-looking industrialization strategies.
For sectors such as iron and steel and the automotive sector, high tariffs on intermediate goods (e.g. wires, bars, rods) prevent greater regional manufacturing and processing, being undermined by competition from cheaper imports.
Touching on Non-Tariff Barriers [NTBs], the study asserts that the full benefits of the AfCFTA will depend to a large degree on the extent to which NTBs are addressed under the Agreement, stating that Non-Tariff Measures [NTMs] could be multiplied by 2–4, compared with a situation where only tariffs are liberalized and depending on how ambitious the reduction in those actionable non-tariff measures (NTMs) may effectively translate on the ground under the AfCFTA reform.
“More ambitious cuts in NTMs are also particularly conducive to stimulating industrial trade. More globally, reducing NTMs within the African continent is most important for maximizing the gains beyond trade and in terms of Africa’s GDP, output and welfare,” adds the report.
Removal of Non-Tariff Barriers
The AfCFTA specifically addresses NTBs and the effect they have on competitiveness, cost and transit times for intra-African trade.
A meaningful in the prevalence of NTBs would have a significant and positive impact for AfCFTA State Parties.
The UNECA 2019 ARIA Report illustrates the high costs of NTBs and TBT in Africa’s manufacturing sectors. Addressing these barriers will go a long way in establishing Regional Value Chains [RVCs].
