## wpiea2019124

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---

### Overview of the AfCFTA
- On March 21, 2018 representatives of over 40 (out of 55) member countries of the African Union (AU) signed the African Continental Free Trade Area (AfCFTA) agreement.
- Once fully implemented, the AfCFTA is expected to cover all 55 African countries, with an estimated combined current GDP of US$2.5 trillion, and a population of over one billion, 60 percent of whom are below the age of 25 years.
- The AfCFTA builds on prior regional arrangements and is intended to support higher productivity, higher investment, increased income levels, and poverty reduction across the continent.
- Phase I provides a framework for the liberalization of trade in goods and services, a mechanism for dispute settlement, and sets the path for eliminating tariffs on 90 percent of product categories with possible longer implementation for sensitive goods and maintain existing tariffs for the remaining 10 percent of product categories (tariff lines).
- The protocol on trade in goods includes annexes on tariff concessions, rules of origin, customs cooperation, trade facilitation, non-tariff barriers, technical barriers to trade, sanitary and phytosanitary measures, and transit and trade remedies.
- Annex 4 provides institutional structures for the progressive elimination of NTBs and tools for reporting, monitoring, and facilitating resolution of identified NTBs.
- On services, member countries agreed a request-and-offer approach based on seven priority sectors: logistics and transport, financial services, tourism, professional services, energy services, construction, and communications.
- Phase II will cover competition policy, investment, and intellectual property rights; negotiations for Phase II are scheduled to begin soon with an expected conclusion date of 2020.
- Phase I of the AfCFTA came into force on May 30, 2019, 30 days after the 22nd ratification instrument was deposited with the Chairman of the African Union Commission.

### Purpose and scope of the paper
- Objectives:
  - assess the size of changes in welfare and income and their main sources;
  - understand the international distribution of potential gains and what countries can do to fully reap them.
- Coverage:
  - Estimates for 45 African countries and other world regions.
  - Model simulations use a comprehensive database covering output, trade flows, and import tariff and non-tariff barriers (NTBs) for 26 sectors in all countries considered.
  - Simulations include full elimination of import tariffs and a 35 percent reduction in NTBs.

### Methodology
- A global, multi-sector general equilibrium model developed by Costinot and Rodriguez-Clare (2014) is used.
- Two main market structures are considered:
  - perfect competition;
  - monopolistic competition (as in Krugman (1980) and Melitz (2003)).
- The model is calibrated predominantly with data from 2014-16.
- The model is flexible enough to include features of Krugman (1980), Eaton and Kortum (2002), and Melitz (2003).
- Extensions include incorporation of intermediate goods and input-output linkages (results noted but not reported in full).

### Contextual trade facts (selected)
- Intra-regional trade:
  - In 2017, 17 percent of Africa’s total trade was conducted within the continent, rising from 9 percent in 2000.
  - In Europe and Asia, intra-regional trade was over 50 percent.
  - Since 2000, Africa’s direction of trade shifted from the USA and Europe to China and Asia more generally.
  - Existing intra-African effectively applied tariffs fell from over 20 percent in 1997 to 11.8 percent in 2016.
- Composition:
  - During 2000-17, intra-African trade was dominated by manufactured goods and food.
  - Exports to the rest of the world were dominated by primary products (~60 percent of total exports to the rest of the world).
  - Imports from the rest of the world concentrated in chemicals, other manufactured goods, machinery, and transport equipment (~70 percent of total imports from the rest of the world).
- Structural obstacles:
  - NTBs are high and prevalent and classified into: (i) non-tariff trade measures (NTMs); (ii) infrastructure gaps; and (iii) other trade-related transactions costs.
  - Reduction in ground transportation costs is especially critical given Africa’s geographic configuration.
  - Enabling business environment and financial depth and inclusion are highlighted as facilitators of intra-regional trade.

### Key simulation findings (aggregate)
- Welfare gains from combined tariff elimination and NTB reduction are about 2 to 4 percent, depending on:
  - the model structure used (perfect vs. monopolistic competition);
  - the extent of NTB reduction considered.
- Because existing intra-African tariffs are generally low, overall gains from tariff elimination are modest; the bulk of gains stems from NTB reduction.
- Continent-wide results (imperfect competition vs perfect competition):
  - Welfare increases by 1.9 percent in the scenario that includes both tariff removal and NTB reduction under imperfect competition, compared to 2.1 percent under perfect competition.
- Trade flow changes:
  - Intraregional trade expands by about 82 percent in the baseline scenario (perfect competition) and by 78 percent under imperfect competition.
  - Overall trade in the continent would increase by about 8.4 percent (perfect competition) and 7.6 percent (imperfect competition).
- Fiscal revenue:
  - Estimated revenue losses for the continent from elimination of import tariffs in the baseline model amount to 0.03 percent of GDP.
  - When NTB reduction is included, tax revenue increases for virtually all countries as higher consumption and income offset modest tariff revenue losses.

### Welfare under imperfect competition and model extensions
- Simulated scenarios: full tariff elimination and 35 percent reduction in NTBs under imperfect competition (Krugman and Melitz cases).
- Main points:
  - Estimated welfare gains under imperfect competition are lower than in the baseline for most countries.
  - Under imperfect competition, prices are not equal to marginal costs; by the theory of second best, reduction in import tariffs does not necessarily raise welfare regardless of terms-of-trade effects.
  - For most African countries, scale effects are not very strong because comparative advantage is not always in sectors with strong returns to scale.
  - Some larger economies (e.g., South Africa, Nigeria) gain more from NTB reduction under imperfect competition—especially under the Krugman model—due to scale effects.
  - Extensions that include intermediate goods and input-output linkages suggest higher welfare gains (not reported in detail).

### Quantitative welfare changes under imperfect competition (selected figures from Table 7)
- Scenario A: Tariff elimination only
  - Weighted SSA: Increase Welfare (MC) 0.06 percent; Increase Welfare (MLZ) 0.05 percent
  - Weighted Africa: Increase Welfare (MC) 0.05 percent; Increase Welfare (MLZ) 0.04 percent
  - Weighted Rest of World: Increase Welfare (MC) 0.00 percent; Increase Welfare (MLZ) 0.00 percent
  - Weighted World: Increase Welfare (MC) 0.00 percent; Increase Welfare (MLZ) 0.00 percent
- Scenario B: NTB reduction 35%
  - Weighted SSA: Increase Welfare (MC) 2.00 percent; Increase Welfare (MLZ) 1.50 percent
  - Weighted Africa: Increase Welfare (MC) 1.54 percent; Increase Welfare (MLZ) 1.20 percent
  - Weighted Rest of World: Increase Welfare (MC) 0.01 percent; Increase Welfare (MLZ) 0.01 percent
  - Weighted World: Increase Welfare (MC) 0.04 percent; Increase Welfare (MLZ) 0.03 percent
- Scenario C: Tariff elimination and NTB reduction
  - Weighted SSA: Increase Welfare (MC) 2.48 percent; Increase Welfare (MLZ) 2.41 percent
  - Weighted Africa: Increase Welfare (MC) 1.92 percent; Increase Welfare (MLZ) 1.89 percent
  - Weighted Rest of World: Increase Welfare (MC) 0.01 percent; Increase Welfare (MLZ) 0.01 percent
  - Weighted World: Increase Welfare (MC) 0.05 percent; Increase Welfare (MLZ) 0.05 percent

### Effects on non-AfCFTA members and distributional patterns
- Global outcome:
  - The world as a whole is better off with the AfCFTA across all market structures, implying increased global efficiency.
- Distributional effects vary by model:
  - Under perfect competition, some regions outside Africa show very small welfare losses consistent with trade diversion effects.
  - In the combined tariff and NTB reduction case in the baseline, all regions outside Africa lose, with South Asia, Central Asia, Europe, and the Middle East being primary losers.
  - Under imperfect competition, some non-African regions show tiny welfare gains driven by scale effects from increased imports from AfCFTA countries whose incomes rise.

### Relation to existing studies (comparative quantitative points)
- Traditional CGE literature reports long-run welfare gains from elimination of intra-Africa tariffs in the range 0.1 to 0.5 percent; including NTB reductions raises gains by 1.3 to 2.2 percent—broadly comparable to these simulations.
- Existing literature reports lower growth in intra-regional trade from AfCFTA barrier reductions (33 to 52 percent) compared to roughly 80 percent found here.
- On fiscal revenue impact, existing CGE studies find tax revenue losses in the range 0.14 to 0.22 percent of GDP for the continent—larger than the 0.03 percent of GDP loss estimated here for tariff elimination alone.

### Policy recommendations (priorities to realize welfare benefits)
- Adopt a well-articulated and phased program for reducing all NTBs to the maximum extent feasible; address infrastructure gaps and improve the business environment.
- Improve quality of ports, air transportation, and ground transportation to lower transport costs critical for intraregional trade.
- Overhaul customs efficiency and other administrative procedures required for international trade.
- Create an enabling business environment by reducing the cost and time to create new businesses, and increase financial depth and inclusion as well as access to trade financing or bank funding.
- Limit the extent and scope of carve outs for tariff reductions; liberalize 100 percent of tariff lines (even if phased) to fully realize welfare benefits.
- Support structural transformation to lower commodity dependence and move up the value chain, including worker training programs to facilitate reallocation of labor and capital to growth sectors such as manufacturing.

### Areas for future research
- Develop dynamic models to capture supply-side responses, public and private investment, and foreign direct investment flows that could raise welfare and income gains.
- Analyze domestic income distribution effects within countries.
- Extend models to capture informal economy and informal trade, and imperfect factor mobility across sectors.

### Appendix 1: List of Countries That Are Signatories to AfCFTA (as listed)
- Algeria — √
- Angola — √
- Benin — √
- Botswana — √
- Burkina Faso — √
- Burundi — √
- Cameroon — √
- Cape Verde — √
- Central African Republic — √
- Chad — √ — 1/7/2018
- Comoros — √
- Congo, Republic — √ — 12/2/2019
- Cote d' Ivoire — √ — 16/12/2018
- Democratic Republic of Congo — √
- Djibouti — √ — 19/2/2019
- Egypt — √ — 8/4/2019
- Equatorial Guinea — √
- eSwatini — √ — 1/7/2018
- Ethiopia — √ — 10/4/2019
- Gabon — √
- Ghana — √ — 10/5/2018
- Guinea — √ — 1/7/2018
- Guinea Bissau — √
- Kenya — √ — 10/5/2018
- Lesotho — √
- Liberia — √
- Libya — √
- Madagascar — √
- Malawi — √
- Mali — √ — 19/2/2019
- Mauritania — √ — 11/2/2019
- Mauritius — √
- Morocco — √
- Mozambique — √
- Namibia — √ — 19/2/2019
- Niger — √ — 8/6/2018
- Republic of Saharawi — √ — 29/4/2019
- Rwanda — √ — 26/5/2018
- São Tomé and Principe — √
- Senegal — √ — April, 2019
- Seychelles — √
- Sierra Leone — √ — 29/4/2019
- Somalia — √
- South Africa — √ — 12/2/2019
- South Sudan — √
- Sudan — √
- The Gambia — √ — 16/4/2019
- Togo — √ — April, 2019
- Tunisia — √
- Uganda — √ — 28/11/2018
- Zambia — √
- Zimbabwe — √
- Approved — Totals5223
- 32

### Appendix 2: Select country and aggregate welfare-change excerpts (Increase Welfare, percent; notation: PC = perfect competition, MC = monopolistic competition (Krugman), MLZ = Melitz)
- Examples of individual-country reported values (as presented):
  - Algeria — 0.0060.0040.0030.4890.5470.5460.6920.8800.765
  - Angola — 0.0600.007-0.0101.3371.5340.7191.6932.0102.058
  - Benin — 0.1520.0740.0642.3512.2781.3292.8652.9092.238
  - Botswana — 0.0540.0290.0307.7628.0865.5499.0829.1438.844
  - Burkina Faso — 0.0540.0320.0191.2901.6701.0411.6612.2571.939
  - Kenya — 0.1460.1160.0764.6732.0752.3185.6532.6192.985
  - Nigeria — 0.0120.0060.0040.7420.8810.7200.9741.2061.138
  - South Africa — 0.1040.1350.1222.2102.3841.7432.7572.9412.733
  - Zambia — 0.2590.2470.0946.8024.8762.9267.9955.5815.314
- Aggregate and regional excerpts (Increase Welfare, percent):
  - Average SSA — 0.0820.0650.0483.1922.6062.0823.8703.1683.042
  - Median SSA — 0.0570.0440.0322.0502.0121.6072.5922.4712.289
  - Average Weighted SSA — 0.0700.0630.0492.1021.9971.4962.5992.4772.408
  - Average Africa — 0.0740.0620.0462.9202.3461.8873.5492.9122.756
  - Average World — 0.0650.0540.0412.5762.0711.6653.1312.5712.433
  - Average Weighted World — 0.0010.0020.0010.0340.0420.0330.0430.0510.052

*Source: wpiea2019124 - Authors’ model simulations and IMF staff analysis as presented in the provided PDF content.*

### 1. INTRODUCTION

### 1. INTRODUCTION

### Overview of the AfCFTA
- On March 21, 2018 representatives of over 40 (out of 55) member countries of the African Union (AU) signed the African Continental Free Trade Area (AfCFTA) agreement.
- Once fully implemented, the AfCFTA is expected to cover all 55 African countries, with an estimated combined current GDP of US$2.5 trillion, and a population of over one billion, 60 percent of whom are below the age of 25 years.
- The AfCFTA builds on prior regional arrangements and is intended to support higher productivity, higher investment, increased income levels, and poverty reduction across the continent.

### Purpose and scope of the paper
- The paper provides estimates of the potential welfare impact of the AfCFTA to:
  - assess the size of changes in welfare and income and their main sources;
  - understand the international distribution of potential gains and what countries can do to fully reap them.
- Coverage:
  - Estimates for 45 African countries and other world regions.
  - Model simulations use a comprehensive database covering output, trade flows, and import tariff and non-tariff barriers (NTBs) for 26 sectors in all countries considered.
  - Simulations include full elimination of import tariffs and a 35 percent reduction in NTBs.

### Methodology
- A global, multi-sector general equilibrium model developed by Costinot and Rodriguez-Clare (2014) is used.
- Two main market structures are considered:
  - perfect competition;
  - monopolistic competition (as in Krugman (1980) and Melitz (2003)).
- The model is calibrated predominantly with data from 2014-16.
- The model is flexible enough to include features of Krugman (1980), Eaton and Kortum (2002), and Melitz (2003).

### Key simulation findings
- Welfare gains from combined tariff elimination and NTB reduction are about 2 to 4 percent, depending on:
  - the model structure used (perfect vs. monopolistic competition);
  - the extent of NTB reduction considered.
- Because existing intra-African tariffs are generally low, overall gains from tariff elimination are quite modest; the bulk of gains stems from the reduction in NTBs.

### Policy-relevant facts about the AfCFTA agreement (from the paper)
- Phase I provides a framework for the liberalization of trade in goods and services, and a mechanism for dispute settlement.
- For trade in goods, the agreement sets the path for eliminating tariffs on 90 percent of product categories; countries can implement tariff reductions over a longer period for sensitive goods or maintain existing tariffs for the remaining 10 percent of product categories (tariff lines).
- The protocol on trade in goods includes annexes on tariff concessions, rules of origin, customs cooperation, trade facilitation, non-tariff barriers, technical barriers to trade, sanitary and phytosanitary measures, and transit and trade remedies.
- Annex 4 provides institutional structures for the progressive elimination of NTBs and tools for reporting, monitoring, and facilitating resolution of identified NTBs.
- On services, member countries agreed to a request-and-offer approach, based on seven identified priority sectors: logistics and transport, financial services, tourism, professional services, energy services, construction, and communications.
- Phase II will cover competition policy, investment, and intellectual property rights; negotiations for Phase II are scheduled to begin soon with an expected conclusion date of 2020.
- Phase I of the AfCFTA came into force on May 30, 2019, 30 days after the 22nd ratification instrument was deposited with the Chairman of the African Union Commission.

### Contextual trade facts cited in the introduction
- The paper notes increased global skepticism about multilateral trade agreements but emphasizes African policymakers’ view of trade integration as a mechanism for raising potential growth and reducing poverty.
- Existing intra-African effectively applied tariffs have fallen over two decades from over 20 percent in 1997 to 11.8 percent in 2016.
- Non-tariff barriers (NTBs) are high and prevalent in Africa and represent a critical obstacle to trade; NTBs are classified into: (i) non-tariff trade measures (NTMs); (ii) infrastructure gaps; and (iii) other trade-related transactions costs.
- The reduction in ground transportation costs is especially critical to encouraging intra-regional trade given Africa’s geographic configuration.
- The paper highlights the role of an enabling business environment and financial depth and inclusion in facilitating intra-regional trade and realizing AfCFTA benefits.

### Structure of the paper
- Section 2 presents the basic elements of the AfCFTA.
- Section 3 describes the current state of trade and factors likely to impact potential benefits from the AfCFTA.
- Sections 4 and 5 discuss the model and present the data used.
- Section 6 presents the estimates of the effects of the AfCFTA.
- Section 7 discusses results from related studies and compares them to the paper’s own findings.
- Section 8 concludes and presents policy implications.

*Source: wpiea2019124 - 1. INTRODUCTION*

### 3.3 Intra-regional trade

### 3.3 Intra-regional trade

### Patterns and trends
- In 2017, 17 percent of Africa’s total trade was conducted within the continent, rising from 9 percent in 2000.
- In other regions such as Europe and Asia, intra-regional trade was over 50 percent.
- Since 2000, Africa’s direction of trade has shifted from the USA and Europe to China and Asia more generally.
- The expansion of intra-regional trade in Africa has been supported by an increase in commodity exports, stronger macroeconomic conditions and institutions, and the establishment of RTAs (Arizala et al, 2018).
- Much of the intra-regional trade expansion was driven by the SADC and the EAC, which had the highest levels of intra-union trade (over 20 percent of total trade).

### Composition of intra-regional vs external trade
- During 2000-17, intra-African trade was dominated by manufactured goods and food.
- Exports to the rest of the world were dominated by primary products, which accounted for about 60 percent of total exports to the rest of the world.
- Imports from the rest of the world were concentrated in chemicals, other manufactured goods, machinery, and transport equipment, representing close to 70 percent of total imports from the rest of the world.
- Figures referenced in the source show sectoral averages and compositional breakdowns (e.g., Intra-Africa Exports: Averages; Intra-Africa Imports: Averages; African Exports to the Rest of the World Averages; African Imports from the Rest of the World Averages).

### Lack of a continent-wide trading hub and value-added networks
- Africa lacks a continent-wide trading hub comparable to hubs in Asia, Europe, and North America.
- Apart from South Africa, which operates somewhat as a trading hub for Southern Africa, Africa lacks a systemic global exporter that imports value added from within Africa.
- South Africa is a key supplier of value added to economies in Southern Africa (Figure 5).
- South Africa also absorbs a large portion of value added from economies in Sub-Saharan Africa (SSA) (Figure 6).
- Network-mapping figures (2015) indicate notable country-to-country value-added export and import linkages within the region, with thresholds used in the maps: exporter’s perspective flows represent at least an average of 4 percent of total imported value-added by each country in the region; importer’s perspective flows represent at least an average of 15 percent of the total exported value added.

*Source: IMF staff analysis as presented in the chapter 3.3 text of the provided PDF content.*

### 6.2 Welfare gains under imperfect competition and other model extensions

### 6.2 Welfare gains under imperfect competition and other model extensions

### Welfare under imperfect competition
- Simulations consider full tariff elimination and 35 percent reduction in NTBs under imperfect competition (Krugman and Melitz cases).
- Estimated welfare gains under imperfect competition are lower than in the baseline for most countries (Appendix Table 2, and Table 7).
- Rationale:
  - Under imperfect competition, prices are not equal to marginal costs; by the theory of second best, a reduction in import tariffs does not necessarily raise welfare, regardless of terms-of-trade effects.
  - For most African countries, overall scale effects are not very strong, reflecting that countries do not always have a comparative advantage in sectors with strong returns to scale.
- Continent-wide results:
  - Welfare increases by 1.9 percent in the scenario that includes both tariff removal and NTB reduction under imperfect competition, compared to 2.1 percent under perfect competition.
  - As in the perfectly competitive case, welfare increases for all countries from reducing NTBs under imperfect competition.
  - Some larger economies (e.g., South Africa, Nigeria) gain more from NTB reduction under imperfect competition—especially under the Krugman model—compared to the baseline due to scale effects.
- Extensions:
  - Perfect and monopolistic competition models were extended to incorporate intermediate goods and input-output linkages.
  - Results (not reported) suggest welfare gains would be higher under this specification for both market structures because lower trade barriers allow firms to import more intermediate goods to produce final goods at a lower cost and expand product margins and varieties.

### Quantitative welfare changes under imperfect competition (Table 7)
- Scenario A: Tariff elimination only
  - Weighted SSA: Increase Welfare (MC) 0.06 percent; Increase Welfare (MLZ) 0.05 percent
  - Weighted Africa: Increase Welfare (MC) 0.05 percent; Increase Welfare (MLZ) 0.04 percent
  - Weighted Rest of World: Increase Welfare (MC) 0.00 percent; Increase Welfare (MLZ) 0.00 percent
  - Weighted World: Increase Welfare (MC) 0.00 percent; Increase Welfare (MLZ) 0.00 percent
- Scenario B: NTB reduction 35%
  - Weighted SSA: Increase Welfare (MC) 2.00 percent; Increase Welfare (MLZ) 1.50 percent
  - Weighted Africa: Increase Welfare (MC) 1.54 percent; Increase Welfare (MLZ) 1.20 percent
  - Weighted Rest of World: Increase Welfare (MC) 0.01 percent; Increase Welfare (MLZ) 0.01 percent
  - Weighted World: Increase Welfare (MC) 0.04 percent; Increase Welfare (MLZ) 0.03 percent
- Scenario C: Tariff elimination and NTB reduction
  - Weighted SSA: Increase Welfare (MC) 2.48 percent; Increase Welfare (MLZ) 2.41 percent
  - Weighted Africa: Increase Welfare (MC) 1.92 percent; Increase Welfare (MLZ) 1.89 percent
  - Weighted Rest of World: Increase Welfare (MC) 0.01 percent; Increase Welfare (MLZ) 0.01 percent
  - Weighted World: Increase Welfare (MC) 0.05 percent; Increase Welfare (MLZ) 0.05 percent

### Effects on trade flows and tax revenue
- Trade flows:
  - Intraregional trade expands by about 82 percent in the baseline scenario (perfect competition) and by 78 percent under imperfect competition.
  - Because initial intraregional trade levels are modest, overall trade in the continent would increase by about 8.4 percent, and 7.6 percent respectively under the two scenarios.
  - Cross-country variation: countries with initially higher trade barriers generally experience larger expansions in trade flows.
- Tax revenue:
  - Estimated revenue losses for the continent from elimination of import tariffs in the baseline model amount to 0.03 percent of GDP.
  - Once NTB reduction is included, tax revenue increases for virtually all countries, as modest revenue losses from import tariff removal are more than offset by increases in overall revenues due to higher consumption and income.
  - In the combined scenario, revenue increases tend to be proportional to welfare gains and show relatively large differences across countries.

### Effects on non-AfCFTA members
- Global outcome:
  - In all cases, the world as a whole is better off with the AfCFTA, implying increased global efficiency across all market structures.
- Distributional effects:
  - Under perfect competition, disaggregation shows very small welfare losses in some regions outside Africa, consistent with trade diversion effects.
  - In the combined tariff and NTB reduction case in the baseline, all regions outside Africa lose, with South Asia, Central Asia, Europe, and the Middle East being primary losers.
  - Models with imperfect competition reveal welfare gains for these regions, but these gains are a tiny fraction of those experienced by African countries; gains for other regions appear driven by scale effects (via increased imports from AfCFTA countries whose incomes rise), which can dominate traditional trade diversion effects.

### Relation to other studies and quantitative comparisons
- Compared to traditional CGE literature:
  - Long-run welfare gains from elimination of intra-Africa tariffs reported in CGE studies are within the range of 0.1 to 0.5 percent; once NTB reductions are considered, gains increase by 1.3 to 2.2 percent—broadly in line with these simulations but with some differences due to model structure and data.
  - Existing literature reports lower growth in intra-regional trade from AfCFTA barrier reductions: reported expansions range from 33 to 52 percent (compared to roughly 80 percent in these results).
  - On fiscal revenue impact, existing CGE studies find tax revenue losses in the range of 0.14 to 0.22 percent of GDP for the continent—larger than the 0.03 percent of GDP loss estimated here for tariff elimination alone.

### Conclusion and policy implications
- Key conclusions:
  - Estimated welfare gains for Africa from the AfCFTA are significant across scenarios, with most gains coming from NTB reductions; greater NTB reductions could raise gains substantially.
  - Gains depend critically on openness, initial trade barriers, and strength of initial intra-African trade ties; smaller, more open countries often experience large welfare gains.
  - Manufacturing and agriculture are the largest contributors to estimated income gains for most countries.
  - Under monopolistic market structures, gains are lower than under perfect competition for most countries, suggesting limited overall scale effects.
  - AfCFTA is beneficial for global welfare, though some non-African regions may experience very small welfare losses.
- Policy recommendations (priorities to realize full welfare benefits):
  - Adopt a well-articulated and phased program for reducing all NTBs to the maximum extent feasible; include addressing infrastructure gaps and improving the business environment.
  - Improve quality of ports, air transportation, and ground transportation to lower transport costs critical for intraregional trade.
  - Overhaul customs efficiency and other administrative procedures required for international trade.
  - Create an enabling business environment by reducing the cost and time to create new businesses, and increase financial depth and inclusion as well as access to trade financing or bank funding.
  - Limit the extent and scope of carve outs for tariff reductions; liberalize 100 percent of tariff lines (even if phased) to fully realize welfare benefits.
  - Support structural transformation to lower commodity dependence and move up the value chain, including worker training programs to facilitate reallocation of labor and capital to sectors likely to grow, such as manufacturing.
- Areas for future research:
  - Develop dynamic models to capture supply-side responses, public and private investment, and foreign direct investment flows that could raise welfare and income gains.
  - Analyze domestic income distribution effects within countries.
  - Extend models to capture informal economy and informal trade, and imperfect factor mobility across sectors.

*Source: wpiea2019124 - Authors’ model simulations.*

### Appendix 1: List of Countries That Are Signatories to AfCFTA

### Appendix 1: List of Countries That Are Signatories to AfCFTA

### List of Signatory Countries and Ratification Dates
- Algeria — √
- Angola — √
- Benin — √
- Botswana — √
- Burkina Faso — √
- Burundi — √
- Cameroon — √
- Cape Verde — √
- Central African Republic — √
- Chad — √ — 1/7/2018
- Comoros — √
- Congo, Republic — √ — 12/2/2019
- Cote d' Ivoire — √ — 16/12/2018
- Democratic Republic of Congo — √
- Djibouti — √ — 19/2/2019
- Egypt — √ — 8/4/2019
- Equatorial Guinea — √
- eSwatini — √ — 1/7/2018
- Ethiopia — √ — 10/4/2019
- Gabon — √
- Ghana — √ — 10/5/2018
- Guinea — √ — 1/7/2018
- Guinea Bissau — √
- Kenya — √ — 10/5/2018
- Lesotho — √
- Liberia — √
- Libya — √
- Madagascar — √
- Malawi — √
- Mali — √ — 19/2/2019
- Mauritania — √ — 11/2/2019
- Mauritius — √
- Morocco — √
- Mozambique — √
- Namibia — √ — 19/2/2019
- Niger — √ — 8/6/2018
- Republic of Saharawi — √ — 29/4/2019
- Rwanda — √ — 26/5/2018
- São Tomé and Principe — √
- Senegal — √ — April, 2019
- Seychelles — √
- Sierra Leone — √ — 29/4/2019
- Somalia — √
- South Africa — √ — 12/2/2019
- South Sudan — √
- Sudan — √
- The Gambia — √ — 16/4/2019
- Togo — √ — April, 2019
- Tunisia — √
- Uganda — √ — 28/11/2018
- Zambia — √
- Zimbabwe — √
- Approved — Totals5223
- 32

### Sources
- African Union webpage: https://au.int/.../list-african-countries-signed-establisment-african-continental-free-trade-agreement
- Tralac webpage: https://www.tralac.org/resources/infographics/13795-status-of-a fcfta-ratification.html

*Appendix 2. Welfare Gains for Individual Countries — select results from authors’ model simulations.*

### Welfare Gains for Individual Countries (Increase Welfare, percent)
Note: PC denotes the perfect competitive case. MC denotes the monopolistic competition case (Krugman). MLZ denotes the Melitz case.
- Algeria — 0.0060.0040.0030.4890.5470.5460.6920.8800.765
- Angola — 0.0600.007-0.0101.3371.5340.7191.6932.0102.058
- Benin — 0.1520.0740.0642.3512.2781.3292.8652.9092.238
- Botswana — 0.0540.0290.0307.7628.0865.5499.0829.1438.844
- Burkina Faso — 0.0540.0320.0191.2901.6701.0411.6612.2571.939
- Burundi — 0.0090.0360.0211.2181.2841.1721.5971.7651.540
- Cameroon — 0.0210.0400.0341.1491.1231.3181.4951.6711.599
- Cape Verde — 0.1770.2540.2432.4310.9120.8033.0172.4631.167
- Central African Republic — 0.0220.0340.0231.4561.2941.5981.9011.5601.689
- Chad — 0.0030.0290.0260.6761.1121.1370.9831.6831.764
- Congo — 0.0190.0190.0041.4661.5611.0501.9222.1202.042
- Cote dIvoire — 0.0190.0640.0561.2180.9370.9851.5701.2791.278
- DR Congo — 0.0880.013-0.0212.6382.6582.0853.2353.3703.971
- Egypt — 0.0150.0030.0020.8360.2610.4461.0310.1860.431
- Eritrea — 0.0050.0280.0230.7410.9830.8431.0381.2100.686
- Ethiopia — 0.0080.0230.0200.8891.2531.4101.2491.5871.475
- Gabon — 0.0130.0140.0070.7900.6750.6611.0960.6840.765
- Gambia — 0.0390.0600.0561.5631.1341.3032.0212.1451.444
- Ghana — 0.0540.0550.0551.9521.9561.6222.4872.4432.373
- Guinea — 0.0180.0300.0181.4881.5891.1731.9282.1111.840
- Kenya — 0.1460.1160.0764.6732.0752.3185.6532.6192.985
- Lesotho — 0.0610.0260.0244.0241.6093.2454.8681.8831.962
- Liberia — 0.0060.1070.1171.1620.9571.1851.5131.1001.110
- Madagascar — 0.004-0.148-0.1172.0242.4241.3982.6302.4782.400
- Malawi — 0.2320.1160.0147.3645.0064.3458.9065.8995.507
- Mali — 0.0590.0330.0181.9812.3391.7262.5542.7142.612
- Mauritania — 0.0380.1730.1471.9910.1610.3062.6382.6880.663
- Mauritius — 0.1270.1410.1286.0014.9183.2437.2765.7515.699
- Mozambique — 0.1630.0530.0056.1764.1872.4257.1985.2045.154
- Namibia — 0.3990.2030.20410.9439.1876.61112.3829.0979.589
- Niger — 0.0900.0680.0422.6812.3202.4963.3682.5622.583
- Nigeria — 0.0120.0060.0040.7420.8810.7200.9741.2061.138
- Rwanda — 0.0340.0310.0061.8662.1982.1452.3262.7962.602
- Sao Tome and Principe — 0.0640.0880.0893.3932.0681.9874.3002.6132.341
- Senegal — 0.1140.0610.0661.5870.6680.6461.9421.2500.756
- Seychelles — 0.1410.2730.2324.0373.7802.0424.9954.8565.235
- Sierra Leone — 0.0420.0460.0342.0761.3681.6172.5512.1521.836
- Somalia — 0.0050.0040.0030.3740.3470.2950.5230.4900.451
- South Africa — 0.1040.1350.1222.2102.3841.7432.7572.9412.733
- Sudan — 0.0000.0010.0010.0160.0420.0410.0290.0680.067
- Swaziland — 0.098-0.262-0.27713.39410.1618.01015.24211.48611.095
- Togo — 0.1470.2730.2415.4923.6742.9466.3623.9603.925
- Uganda — 0.1040.0890.0813.7832.2042.4024.7512.9932.937
- Tanzania — 0.0520.0410.0372.8512.9111.2923.4203.1843.441
- Zambia — 0.2590.2470.0946.8024.8762.9267.9955.5815.314

### Aggregate and Regional Welfare Statistics (Increase Welfare, percent)
- Average SSA — 0.0820.0650.0483.1922.6062.0823.8703.1683.042
- Median SSA — 0.0570.0440.0322.0502.0121.6072.5922.4712.289
- Average Weighted SSA — 0.0700.0630.0492.1021.9971.4962.5992.4772.408
- Average Africa — 0.0740.0620.0462.9202.3461.8873.5492.9122.756
- Median Africa — 0.0540.0400.0261.9811.6091.3982.5512.4432.042
- Average Weighted Africa — 0.0530.0470.0371.6971.5411.2042.1071.9181.886
- East Asia and Pacific — 0.00000.00020.0002-0.0010.0060.004-0.0020.0060.007
- Europe and Central Asia — -0.00020.00110.0014-0.0060.0130.011-0.0070.0130.017
- LATAM and Caribbean — -0.00030.00080.0007-0.0020.0050.003-0.0020.0040.006
- Middle East — -0.00030.00090.0009-0.0050.0170.010-0.0060.0180.018
- North America — -0.00010.00010.0003-0.0020.0050.005-0.0020.0060.007
- South Asia — -0.0003-0.0009-0.0009-0.0050.0050.008-0.0060.0050.007
- Average Rest of World — 0.0000.0000.000-0.0040.0080.007-0.0040.0090.010
- Median Rest of World — 0.0000.0000.001-0.0040.0060.007-0.0040.0060.007
- Average Weighted RoW — 0.0000.0000.001-0.0030.0080.007-0.0040.0080.010
- Average World — 0.0650.0540.0412.5762.0711.6653.1312.5712.433
- Median World — 0.0390.0330.0231.5871.5341.3032.0212.1451.840
- Average Weighted World — 0.0010.0020.0010.0340.0420.0330.0430.0510.052

C. Tariff elimination and NTB reduction
B. NTB reduction 35%
A. Tariff elimination only

*Source: Authors’ model simulations (as presented in Appendix 2 of the PDF).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019124.pdf_