WELFARE EFFECTS OF THE AFCFTA ON THE LEAST DEVELOPED COUNTRIES IN AFRICA: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS.

The objective of the study described in this paper is to evaluate the assertion that the Africa Continental Free Trade Agreement (AfCFTA) is expected to increase economic welfare among its member countries. The paper leverages the cross-sectional variation between least developed countries (LDCs) and non-LDCs to analyse output, trade, and welfare effects of the AfCFTA. The analysis employs a sectoral aggregation geared to detect the most salient features of the manufacturing industries in LDCs. LDCs in Africa face significant structural challenges to long-term development and are susceptible to economic shocks. Even though the World Bank and African Union have taken significant steps in addressing the main LDC challenges, it has not stopped LDC governments from being highly concerned about the rising adjustment costs that the AFCFTA agreement entails. Using data from the Version 10, Global Trade Analysis Project (GTAP) Data Base as well as macroeconomic projections on real GDP, population, physical capital, and labour force for LDC and non-LDC regional aggregations, the paper compares the African economy in 2035 with and without the AfCFTA in place. To this end, the computable general equilibrium (CGE model was used to simulate three scenarios that represent the AfCFTA: a percentage tariff elimination, a 50% reduction of (non-tariff measures) NTMs, and a combination of 97% tariff elimination and a 50% reduction of NTMs across all member states. The empirical evidence provided shows that the economic effects of the AfCFTA rely largely on trade defence instruments such as eliminating import tariffs, reducing non-tariff measures (NTM), and improving trade facilitation as the source of enhancement to welfare. The findings show that the agreement is expected to create an overall welfare gain of $17.7 billion by 2035. LDCs are expected to shift from a previously predominantly agricultural industry towards a more productive textile industry. Meanwhile, non-LDCs strongly shift towards the manufacturing and processed food industry while moving away from textiles. In LDCs, labour and capital significantly increase in textiles while they decrease in the manufacturing industry. In contrast, labour and capital in the non-LDCs increase in the manufacturing industry while reducing in the textile industry, thus allowing factors to reallocate to more productive sectors. As trade barriers are reduced, the price of imports falls, increasing the number of imports due to domestic demand. The results show that the elimination of tariffs has a slightly higher impact on LDCs, while the reduction of NTMs has a more significant impact on non-LDCs. [ABSTRACT FROM AUTHOR]