Africa’s economy to grow by more than 7% by 2040 due to AfCFTA
Africa’s economy is expected to grow by more than seven (7) percentage points by 2040 on the back of the implementation of the African Continental Free Trade Agreement (AfCFTA).
This is per a forecast scenario for the AfCFTA created by the Institute for Fiscal Studies (IFs) and contained in a book written by Dr Jackie Cilliers titled Challenges and Opportunities: The Future of Africa.
Per the forecast, Africa’s economy will grow by 1.1 percentage points more than the projected 5.9 percentage points without the implementation of the AfCFTA resulting in an increase in the size of the African economy to a massive $3.7 trillion by 2040.
Timewise the AfCFTA scenario assumes that the implementation of the agreement starts in earnest in 2025, hence allowing for the impact of COVID-19 and other factors, and that tariffs are reduced over the subsequent 10-year period in line with current expectations. The interventions within IFs therefore ramp up from 2025 to 2035 and then levels off to 2040.
This is, for sure, an exceptionally optimistic forecast for an agreement as complex and politically fraught as the AfCFTA. That said, if leaders do manage to stick to their commitments and take African citizens, business, labour and other stakeholders along with them, the impact will be very large.
By 2040 Africa’s economy should be steaming ahead at more than seven percent growth rate in the AfCFTA scenario compared to 5.9% in the Current Path. Across the entire forecast horizon, from 2020 to 2040, the average economic growth rate for Africa would be 0.5 percentage points above the Current Path.69 The result is that the African economy is about US$770 billion larger (in market exchange rates) in 2040 than it would be on the Current Path.
Even more impressive is that the cumulative increase in the size of the African economy from 2020 to 2040 is a massive US$3.7 trillion. This growth translates into almost 57 million fewer people living in extreme poverty by 2040 (using the US$1.90, US3.20 and US$5.50 extreme poverty lines for low, lower-middle and upper-middle-income countries explained in Chapter 7) or 45 million fewer persons living in extreme poverty using the US$1.90 income level for all 55 African countries.
By 2040, GDP per capita in Africa is US$470 on average more for each of Africa’s 2.081 billion people (Fig. 11.2). Since more intra-African trade benefits Africa’s manufacturing sector, the services and manufacturing sectors could, on average, be 0.7 and 0.4 percentage points larger in 2040 than in the Current Path scenario.
The contribution of the agriculture and energy sectors marginally decline as a portion of the total African economy, but not in absolute values since by 2040 the African economy is significantly larger than it would otherwise be. These sectoral shifts follow the natural and expected evolution of an economy that becomes more productive over time.
By 2040 the value of Africa’s exports have increased by US$148 billion and imports would have declined by US$124 billion with the greater part of the increase in exports benefitting Africa’s 21 lower-middle-income countries. South Africa, an upper-middle-income country with the continent’s most diversified economy gains more than double (US$27 billion) the amount from additional exports in 2040 compared to the next country, Egypt (US$14 billion in 2040).
Other countries that gain more than US$5 billion from additional trade in 2040 are Nigeria, Angola, Morocco, Ghana, Algeria and Tanzania. In general the current account improves, government debt reduces (by about 1.5 percentage points) and household saving rates improve.
The African Continental Free Trade Area (AfCFTA) serves as a vehicle to generally boost trade and assist in the transformation of African economies towards the production of higher value-added goods and decline in commodity dependence.
The AfCFTA has the potential to unlock significant value-added trade in goods and services.