Workers arrange pieces of fabric inside the Indochine Apparel PLC textile factory in Ethiopia November 17, 2017. Reuters / Tiksa Neger
Eastern Africa could gain about two million jobs from increased economic activity if a continent-wide free-trade agreement is successfully implemented, starting July 1.
The region will earn an extra $1.1 billion in increased "exports of processed foods, textiles, clothing and light manufacturing,” according to estimates in a report on the impact of the African Continental Free Trade Area published on Thursday.
Manufacturers in the region currently operate at as much as 40% below potential, according to the document co-authored by the United Nations Economic Commission for Africa and Trade Mark East Africa, an aid-for-trade organization.
The report comes as countries weigh potential gains and benefits from the agreement that could create the single-largest trading bloc in the world, covering a market of 1.2 billion people with a combined gross domestic product of $2.5 trillion. South Africa, which has the continent’s most-industrialized economy, estimates forfeiting tariffs on about 70 billion rand ($4.5 billion) worth of trade when the agreement kicks in.
The accord requires member states to gradually lower or eliminate tariffs on 90% of goods to facilitate the movement of capital and people, and create a liberalized market for services.
Ratify Deal
Kenya, Rwanda, Uganda and Ethiopia in eastern Africa are among 29 countries that have ratified the deal against a threshold of 22 for it to become operational. All but one of the African Union’s 55 member states signed the initial-step documents of the deal.
The AfCFTA, as it’s known, "will allow our business community to access a much wider market of other African countries,” Kenya’s East African Community Cabinet Secretary Adan Mohamed said in a statement after publication of the report in Nairobi. "With the advanced integration of EAC, we’ve witnessed first-hand the benefits of trading more with each other.”
However, the agreement is also likely to lead to loss of some tax earnings. Kenya, the region’s largest economy, is at risk of losing 3.2% tariff revenue after the continental agreement kicks in, according to Andrew Mold, UNECA’s head of the eastern Africa office. A total tariff-revenue loss for Kenya, Uganda, Ethiopia, Tanzania and Rwanda is estimated at $248 million in the report.
The revenue loss might be an acceptable price to pay for the wider economic benefits from the trade pact, according to the report. Immediate losses "could be regarded as redistribution of income from governments to consumers and producers,” it read.
East Africa should create job opportunities for its working-age population that’s expected to rise to 8.6 million people in the next 15 years, according to Trade Mark East Africa Chief Executive Officer Frank Matsaert.
"Through our trade facilitation work across East Africa, we have seen how eliminating barriers to trade, boosts regional businesses and grows returns for investors, employment for citizens and revenue for governments,” Matsaert said.
