Figures of the week: AfCFTA implementation and key barriers to intra-regional trade in Africa

A soldier checks a truck loaded with goods at a military check point in Dapchi, Yobe state, Nigeria February 27, 2018. REUTERS/Afolabi Sotunde - RC19251521B0

Last month, the International Monetary Fund released its biannual Sub-Saharan Africa Regional Economic Outlook report. Like past editions, the report reviews macroeconomic developments in the region and includes two thematic chapters, this time on the economic costs of conflicts and the recently ratified African Continental Free Trade Area (AfCFTA). Reviewing macroeconomic developments, the report finds improving growth in sub-Saharan Africa, reaching almost 4 percent by 2020. However, headwinds remain, including elevated debt levels in some countries, slowing global growth, and increasing nonperforming loans in the domestic financial system.

The report’s third chapter reviews current trends around and analyzes the barriers to intra-regional trade in Africa. Intra-regional trade has almost tripled over the last two decades with its share in total trade increasing from 5 percent to 12 percent during this period. The report attributes the increase in intra-regional trade to the development of regional economic communities (RECs), where tariffs are close to zero, over the last several decades. In 2017, almost 75 percent of intra-regional trade occurred within Africa’s many RECs while trade between most non-REC countries was limited. Further, as Figure 3.6 shows, countries with higher levels of intra-regional trade also tend to have greater export sophistication. The report finds that lowering tariffs to zero on 90 percent of goods covered under the AfCFTA would increase intra-regional trade by $16 billion.

Regional trade integration and export sophistication, 2015 (source: Sub-Saharan Africa Regional Economic Outlook)

Source: Sub-Saharan Africa Regional Economic Outlook: Recovery Amid Elevated Uncertainty

Notably, the report finds that tariffs are not the most significant barrier to intra-regional trade in Africa. Results from an augmented gravity model, shown in Figure 3.15, highlight the role logistics, infrastructure, and access to credit play in constraining trade. Focusing only on nontariff barriers, the report finds trade logistics and infrastructure to be the two most important constraints. Recommendations to bridge this gap include improving customs services such as clearance procedures and the quality of operating services. According to the report, reducing nontariff barriers by half would double the impact of eliminating tariffs over the medium term.

Elasticity of intraregional trade (source: Sub-Saharan Africa Regional Economic Outlook)

Source: Sub-Saharan Africa Regional Economic Outlook: Recovery Amid Elevated Uncertainty