How African Economies can Achieve higher incomes under the AfCFTA

How  African Economies can Achieve higher incomes under the AfCFTA

One of the objectives of the African Continental Free Trade Agreement (AfCFTA) is to “create a single market, deepening the economic integration of the continent” There is empirical evidence that the attainment of economic integration among a group of nations brings about a closing up of income gaps among the poor and richer nations participating in such an arrangement.

The majority of countries in Africa are classified as low-income countries and few in the middle-income group, hence, the successful implementation of the  AfCFTA could lead to convergence to higher national incomes among the participating countries. The success of the European Economic Community in attaining a convergence at a higher GDP per capita among its country members is evidence that AfCFTA could replicate similar success.

An Example of Economic integration and Income Convergence: The European Economic Community

An example of income convergence in a regional common market is the European Economic community created in 1957. The goal of attaining economic and social cohesion in the EEC is contained in Article 130a of the Single European Act of 1986 which reads “To promote its overall harmonious development the community shall develop and pursue its actions leading to the strengthening of its economic cohesion”. A Study by Cinzia Alcidi- Director Center for European Policy Studies- reveals that there has been commendable income convergence at higher income per capita among the EEC member countries. For instance, member countries from Central Eastern Europe such as Romania, Estonia, Latvia, and Slovakia witnessed income growths of up to 30% and 40%  in 2000 (compared to their pre membership incomes). However, countries along Southern Europe such as Greece, Spain, Cyprus, and Portugal witnessed a decrease in income growth rates. While the North-western member states also grew in incomes. Overall, data reveals good economic cohesion in the EEC.

How African Nations can achieve convergence at higher income under the AfCFTA

While the  creation of a Common market in Africa presents     an opportunity for economic integration which could help the poorer countries in Africa to catch up  with the richer countries, certain structures must be built to make this objective a reality:

Reducing the barrier to the movement of goods and people

Although the AfCFTA seeks to eliminate tariffs on over 90% of traded goods with pending negotiations for trade in services, tariffs are not the only barrier to trade. There are several non-tariff barriers that include the high cost of transport of goods across Africa. Although these costs are sometimes lower for intra-regional trade where road transport is an option, they are higher for inter-regional trade. Also, the fact that not all African countries provide visa-free or visa-on-arrival access to travellers means that the movement of people is restricted. There is however a pending Protocol on the Free Movement of People by the African Union.

 Enhanced Access to Capital

Capital is needed to build the economy, by providing physical and social infrastructure which will support the creation of new businesses as well as sustaining economic activities. The African Union should be committed to providing financial support for poorer countries to develop critical infrastructure in the areas of transport and power. The presence of infrastructure will improve the chances of attaining economic integration in the continent and consequently stimulating growth among all countries.

Reduced protectionism

Protectionism may hurt the attainment of economic integration in the continent.

While protectionism may protect infant firms and preserve jobs, it prevents firms from attaining efficiencies made available only through competition. Protectionism can also encourage retaliation from other countries which could lead to economic loss to the countries involved. As such governments should support the growth of firms by providing grants and access to technical support which will enable their growth in the market.

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