WHO WINS AND WHO LOSES UNDER THE AFCFTA? A SIMULATION ANALYSIS ACROSS ECOWAS COUNTRIES

- 15 October 2020

Trade topics: Regional Integration, Trade Modelling

Globalisation has become an unavoidable incidence with almost every country involved in some new form of economic integration arrangement. In Africa, the largest trade agreement, the African Continental Free Trade Agreement (AfCFTA) was recently signed in order to boost intra-trade and to increase not only economic welfare, but also living standards. However, when such trade arrangements occur, some economic sectors are likely to gain while others shrink due to changes in trade dynamics. The effects are structural changes within the economy of the respective countries. Consequently, this paper employs a World Bank developed simulation analysis using WITS-SMART procedures to determine the likely changes that are likely to happen when the AfCFTA is implemented. All even standard HS product classifications were used to compute the results. These are raw materials, intermediate goods, capital goods, consumer goods, agricultural sector, industrial sector and petroleum sector. The simulation results indicate that there will be overall positive gains since trade creation outweighs trade diversion. Secondly, tariff revenue losses were estimated indicating that larger and/or previously closed economies would lose more than smaller and/or previously open economies. Trade data indicates that larger economies include Ghana, Mali, Nigeria, Senegal and Togo. The study also indicated positive consumer surplus and welfare effect values for all ECOWAS economies. Therefore, the study recommends acceleration of the implementation of AfCFTA due to overall positive gains derived from various angles. Secondly, implementation should be complemented by the removal of non-tariff barriers in order to extent the possibility frontier, thereby maximising the likely economic gains.
 
Authors:
Michael Takudzwa Pasara
Steven Henry Dunga
North-West University
 

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