Africa Trade Pact Could Counter Mounting Global Tensions Shock

David Herbling
·2 min read

(Bloomberg) -- Africa’s continent-wide free-trade area if successfully implemented could significantly boost economic growth and improve living standards at a time of rising geopolitical tensions and climate change, the International Monetary Fund said in a study.

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“Greater trade openness would help countries adapt to climate change and to strengthen food security, including by improving the availability and affordability of food supplies,” the IMF said in its Trade Integration in Africa – Unleashing the Continent’s Potential in a Changing World report. “More diversified and broad-based trade would reduce the impact of disruptions in specific markets and products that could result from shifts in global trade patterns.”

The lender warned earlier this week that Africa could suffer a permanent economic hit if tensions splinter the global economy into opposing trading blocs around the US and China. It estimated that sub-Saharan Africa could see a 4% decline in gross domestic product after 10 years under a severe version of this bipolar world.

Read more: Africa to Be Biggest Loser If Global Tensions Mount, IMF Warns

To obtain the full benefits of AfCFTA, which could be the world’s biggest free-trade zone by area when the treaty becomes fully operational by 2030, large cuts in tariff and nontariff trade barriers among African nations will be needed, the IMF said in the report. “These reductions could increase the median merchandise trade flow between African countries by 15% and median real per-capita GDP by 1.25%,” or more if combined with substantial improvements in the trade environment, the lender said.

The IMF also found that comprehensive reforms along with the AfCFTA implementation could increase the median merchandise trade flow between African countries by 53% and the rest of the world by 15%. That could raise the median per-capita GDP in Africa by more than 10% and lift as many as 50 million people in the world’s poorest continent from extreme poverty by 2035, it said.

Policy actions recommended in the report include a modernized social safety net that supports the most vulnerable during the transition to a higher growth trajectory and investment in human capital.

All but one of 55 nations recognized by the African Union have signed to join the AfCFTA and 46 have ratified the accord. Eritrea, which has a largely closed economy, is the holdout.

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