Africa’s free trade area can provide considerable economic growth for continent
An African free trade area founded in 2018 could reduce COVID-19-induced recession, poverty and inequality and spur sustainable and inclusive growth on the continent if stronger support measures are implemented, according to a UN new report.
The report was published on December 8 by UNCTAD’s Economic Development in Africa Report 2021. The report shows that trade policies alone are unlikely to support inclusive economic growth on the continent.
“Other measures needed to increase potential distributional gains from regional integration and help ensure inclusive development are cooperation in promoting investment and competition policies, accelerating financing of infrastructure that facilitates rural-urban linkages and providing equal access to socioeconomic opportunities and productive resources,” the report said.
The AfCFTA, under which free trade officially commenced in January 2021, is one of the flagship projects of the African Union’s Agenda 2063, which includes various targets on sustainable and inclusive growth.
Economic growth can only be inclusive if it reduces both poverty and inequality, the report says.
“The AfCFTA has immense potential to spur economic growth and transform the continent's development prospects if additional measures are taken to realize and fairly distribute its many potential benefits, as these gains will not come automatically,” said UNCTAD Secretary-General Rebeca Grynspan.
“Poverty and inequality are not inescapable. They are products of political choices and public policy. This report will support African governments and development partners to better leverage the AfCFTA to tackle both poverty and inequality to ensure the expected gains from free trade are more inclusive.”
Inclusive growth elusive for most African countries
According to the report, growth has been inclusive in only 17 out of 49 African countries for which sufficient household data for between 2000 and 2020 is available. Africa’s economic growth has been poverty-reducing, the report says, but inequality-increasing in 18 African countries and non-inclusive on either dimension in 14 nations.
This finding raises the key question of how economic growth through regional integration can contribute to poverty reduction and foster inclusive development, a main objective of Agenda 2063.
Africa’s unprecedented growth in the 2000s has not translated into significantly improved livelihoods for most Africans, as the income gap between the rich and the poor has widened.
About 34% of African households live below the international poverty line ($1.9 per day), and around 40% of the total wealth is owned by approximately 0.0001% of the continent’s population, according to the report.
The COVID-19 pandemic has exacerbated inequalities and vulnerabilities of marginalized groups, resulting in an additional 37 million people in sub-Saharan Africa living in extreme poverty (at the poverty line of $1.9 per day).