Ghana’s tariffs on imported goods is expected to take a hit of 1.5 per cent on the back of the implementation of the African Continental Free Trade Agreement (AfCFTA).
According to the World Bank in its report which analyzes the gains to be made from the trade pact when fully rolled-out, the reduced tariffs will result in a marginal reduction in government’s tax revenues.
Compared to recent tariff revenues of Ghs 1.2 billion attained by the Ghana Revenue Authority (GRA), a 1.5 per cent reduction in tariffs due to the AfCFTA will result in a Ghs 18,000,000 revenue shortfall.
The slight reduction in government’s tax revenues is only for the short-term as as in the long-term, tax revenues is expected to increase by 3 per cent of the $450 billion real income gains to be realized by 2035 on the back of increased imports.
“AfCFTA’s short-term impact on tax revenues is small for most countries. Tariff revenues would decline by less than 1.5 percent for most countries. In the medium to long term, the overall impact on import tariff revenue is expected to be positive in the AfCFTA scenario at the regional level. Although tariffs decline, the increase in the volume of imports leads to higher tariff revenue collection, with an increase of 3 percent at the continental level compared with the baseline in 2035,” said the World Bank.
A 3 per cent increase in tariff revenues of the $450 billion real income gains to be realized from AfCFTA at the Continental level will be $13.5 billion.
The World Bank further notes the slight reduction in tariff revenues will be caused by a high concentration in few tariff lines.
“First, imports from African countries account for a small share of tariff revenues for most countries (less than 10 percent on average). Second, most tariff revenues can be shielded from liberalization with exclusion lists because these revenues are highly concentrated in a few tariff lines (1 percent of tariff lines account for more than three-quarters of intra-Africa tariff revenues in almost all African countries),” explained the World Bank.
In a related development, Ghana, per the World Bank stands to gain a little over 6 per cent in real income from the $450 billion expected earnings from the trade pact.
“Real income gains from full implementation of the agreement could increase by 7 percent, or nearly $450 billion, but the aggregate numbers mask the heterogeneity of impacts across countries and sectors. At the very high end are Côte d’Ivoire and Zimbabwe with income gains of 14 percent each. At the low end, a few countries would see real income gains of around 2 percent—including Madagascar, Malawi, and Mozambique,” said the World Bank.
According to the World Bank, the AfCFTA would significantly boost African trade, particularly intra-regional trade in manufacturing.
The volume of total exports would increase by almost 29 percent by 2035. Intra-continental exports would increase by over 81 percent, while exports to non-African countries would rise by 19 percent.
Intra-AfCFTA exports to AfCFTA partners, the World Bank predicts, would rise speedily, especially for Cameroon, Egypt, Ghana, Morocco, and Tunisia, with exports doubling or even tripling.
Of the real sectors of the economy, the manufacturing sector is expected to gain the most with 62 per cent increment in production activities followed with modest gains in the services sector and smaller gains in agriculture.
The African Continental Free Trade Area (AfCFTA) agreement will create the largest free trade area in the world measured by the number of countries participating. The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion.
It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures, says the World Bank.
