Trade, revenue, and welfare effects of the AfCFTA on the EAC: An application of WITS‐SMART simulation model

Abstract

The paper estimates the likely effects of the AfCFTA on the east african community(EAC) countries. The paper adopts two approaches. First, a trend analysis of the EAC exports and imports to and from the rest of Africa and the world at large using data from the Trade Map database. Second, we use the WITS‐SMART analytical framework. It is established that the EAC countries mainly export agricultural commodities and products, and minerals, which are not likely to be readily imported by the rest of Africa. This is because between 2001 and 2018, the African continent heavily relied on external markets for exports and imports. Therefore, signing the AfCFTA agreement is a welcome step, but it may not necessarily increase EAC trade with the rest of African and intra‐African trade. Results for the trade effects suggest a mixed effect among the EAC countries. All the EAC countries incur tariff revenue losses, although this varies in absolute amounts and proportions. Whereas Uganda and Burundi experience positive welfare effects, Kenya, Tanzania, and Rwanda experience negative welfare effects. The policy implications include: a need to build capacity for production; pursue product diversification and sophistication; innovate and attract investments; adopt high international products standards; and target industrialization as a must.

How Can Tariff Elimination and Trade Facilitation Affect East African Economies?

“…These benefits include increased foreign trade, household consumption and production in most sectors. Overall, these results corroborate those found by Geda and Yimer (2022); Nechifor et al (2021) and Shinyekwa et al (2020). These results reaffirm the role of economic and regional integration as an important driver of development.…”

“…In sum, under all scenarios, we find that the implementation of the AfCFTA would bring socio-economic benefits to East Africa. These benefits include increased (2021) and Shinyekwa et al (2020). These results reaffirm the role of economic and regional integration as an important driver of development.…”

“…The results of the few existing studies are mixed. Indeed, Shinyekwa et al (2020) use the World Integrated Trade Solution-Single Market Partial Equilibrium Tool (WITS-SMART) to examine the impacts of the AfCFTA on five EAC countries. They find varying results across EAC countries in terms of trade and welfare.…”

“…Other empirical studies focus on a single country, such as the studies on Malawi (Masiya, 2019), Ghana (Bayale et al, 2022), Togo (Wonyra & Bayale, 2022) or a group of countries, such as Central Africa (Fouda Ekobena et al, 2021). As for analyses of the impacts of the AfCFTA on the East African subregion, there are empirical studies on Kenya (Nechifor et al, 2021), Tanzania, the East African Community (EAC) (Shinyekwa et al, 2020) and the common market for Eastern and Southern Africa (COMESA) region (Wanyonyi & Chemnyongoi, 2020). However, the results of these working papers are mixed due to the simulation assumptions, methodology and choice of variables.…”

Assessing sustainable agriculture and food systems in Africa: Thematic areas and indicators of progress

“…This is expected to create a single market with over 1.3 billion people, generating an output of $2.2 trillion and contributing to improvement in the welfare of inhabitants of Africa (UNCTAD, 2019). However, the expected differential welfare effects of the AfCFTA should necessitate the building of capacity for increase agricultural production, pursuit of product diversification and sophistication, innovative investments, adoption of high international products standards, and strategic industrialisation (Shinyekwa, Bulime, & Nattabi, 2021).…”