The African Continental Free Trade Area (AfCFTA) that came into effect in January has opened opportunities for both African and non-African companies, and could help accelerate growth after the COVID-19 pandemic, according to a recent report. 

Covid’s impact in Africa has been spasmodic — with some regions suffering severe economic contractions, while others managed to record small growth rates, according to the latest economic outlook report for sub-Saharan Africa from trade credit insurer Atradius. The post-pandemic outlook varies among countries, but most are subject to high uncertainty. In the long run, AfCFTA could be pivotal to growth. 

Severe Downturn

The severe economic downturn last year coupled with the continuing spread of COVID-19 has resulted in moderate economic growth for sub-Saharan Africa this year. Additionally, most governments have had limited room to support their economies while vaccine distribution has been slow and new COVID-19 variants continue to spread. All these factors have jeopardized this year’s forecasted recovery for the region. 

Several fronts were hit by COVID-19 and subsequently affected economic growth. The drop in trade, low commodity prices, fewer tourist arrivals, lower remittances and lower foreign investments were all contributors. 

From the second half of 2020, the economic situation improved in many countries due to the recovery in global trade and more importantly, higher commodity prices. Many countries eased domestic COVID-19 restrictions because of the negative impact they had on their economies. Such factors have resulted in a lower-than-expected recession last year. Nevertheless, the contraction of 1% witnessed last year was the highest ever recorded for the region, compared to an average annual growth rate of 4.3% since 2010.

Some of the more diversified economies like Ghana and Kenya fared relatively well throughout the pandemic and will show a stronger recovery than most. Nonetheless, many will not return to the high pre-pandemic growth figures because of high government debt that constrains public investments. 

AfCFTA Benefits

In the short run, there are several challenges to the implementation of the AfCFTA. These challenges include protectionist tendencies, insufficient capacity to expand cross-border infrastructure, political instability and weak government finances. 

Countries with action plans and customs procedures in place will benefit the most. Large countries, particularly South Africa, with a diversified economy and well-established trade links, will likely benefit most from the AfCFTA. Other regional hubs like Kenya, Senegal and Cote d’Ivoire would also do well if the AfCFTA is to be implemented as currently planned. 

The AfCFTA could become the largest trade bloc in the world in terms of participating countries. Although the AfCFTA officially started on the first day of 2021, its full implementation has a long way to go. Many countries will first need to establish the necessary customs infrastructure and required procedures to trade. So far, only Egypt, Ghana and South Africa have accomplished this. 

Ultimately, most African economies are expected to benefit from the AfCFTA. This applies particularly to the elimination of non-tariff barriers that would accelerate trade and growth in the region. 

Bumpy Recovery

The economic recovery will be both moderate and uneven across the sub-Saharan region. Countries that were hit hard by the pandemic will recover slowly, particularly oil exporting countries like Nigeria and Angola will show modest growth figures. Small island economies that are very dependent on tourism, like Mauritius and Seychelles (most affected by the pandemic) will post one of the highest economic growth figures in Africa this year. Although one should bear in mind that this outlook is quite uncertain given the expected gradual recovery in tourism in the coming two years.

The more diversified countries such as Kenya, Ghana and Côte d’Ivoire fared relatively well through the pandemic. They recorded a minor contraction or a slightly positive economic growth last year. These countries will have a strong economic recovery this year thanks to their diverse economic structure and reasonable business environment. Although their rebound is expected to be strong, the high growth figures pre-pandemic are not expected to return. Many of these countries relied on high public investments as the main economic stimulus before the pandemic and now they will be forced to implement expenditure cuts to lower their budget deficit and bring down public debt to sustainable levels.

While an economic recovery this year will not be smooth sailing, many sub-Saharan economies are well-poised to end 2021 on a good note compared to last year’s downturn. The AfCFTA has introduced the possibility of an African Free Trade Area, a prospect that will largely benefit African economies once it reaches full implementation in the coming years. 

Afke Zeilstra is a senior economist at Atradius.

The African Continental Free Trade Area (AfCFTA) that came into effect in January has opened opportunities for both African and non-African companies, and could help accelerate growth after the COVID-19 pandemic, according to a recent report. 

Covid’s impact in Africa has been spasmodic — with some regions suffering severe economic contractions, while others managed to record small growth rates, according to the latest economic outlook report for sub-Saharan Africa from trade credit insurer Atradius. The post-pandemic outlook varies among countries, but most are subject to high uncertainty. In the long run, AfCFTA could be pivotal to growth. 

Severe Downturn

The severe economic downturn last year coupled with the continuing spread of COVID-19 has resulted in moderate economic growth for sub-Saharan Africa this year. Additionally, most governments have had limited room to support their economies while vaccine distribution has been slow and new COVID-19 variants continue to spread. All these factors have jeopardized this year’s forecasted recovery for the region. 

Several fronts were hit by COVID-19 and subsequently affected economic growth. The drop in trade, low commodity prices, fewer tourist arrivals, lower remittances and lower foreign investments were all contributors. 

From the second half of 2020, the economic situation improved in many countries due to the recovery in global trade and more importantly, higher commodity prices. Many countries eased domestic COVID-19 restrictions because of the negative impact they had on their economies. Such factors have resulted in a lower-than-expected recession last year. Nevertheless, the contraction of 1% witnessed last year was the highest ever recorded for the region, compared to an average annual growth rate of 4.3% since 2010.

Some of the more diversified economies like Ghana and Kenya fared relatively well throughout the pandemic and will show a stronger recovery than most. Nonetheless, many will not return to the high pre-pandemic growth figures because of high government debt that constrains public investments. 

AfCFTA Benefits

In the short run, there are several challenges to the implementation of the AfCFTA. These challenges include protectionist tendencies, insufficient capacity to expand cross-border infrastructure, political instability and weak government finances. 

Countries with action plans and customs procedures in place will benefit the most. Large countries, particularly South Africa, with a diversified economy and well-established trade links, will likely benefit most from the AfCFTA. Other regional hubs like Kenya, Senegal and Cote d’Ivoire would also do well if the AfCFTA is to be implemented as currently planned. 

The AfCFTA could become the largest trade bloc in the world in terms of participating countries. Although the AfCFTA officially started on the first day of 2021, its full implementation has a long way to go. Many countries will first need to establish the necessary customs infrastructure and required procedures to trade. So far, only Egypt, Ghana and South Africa have accomplished this. 

Ultimately, most African economies are expected to benefit from the AfCFTA. This applies particularly to the elimination of non-tariff barriers that would accelerate trade and growth in the region. 

Bumpy Recovery

The economic recovery will be both moderate and uneven across the sub-Saharan region. Countries that were hit hard by the pandemic will recover slowly, particularly oil exporting countries like Nigeria and Angola will show modest growth figures. Small island economies that are very dependent on tourism, like Mauritius and Seychelles (most affected by the pandemic) will post one of the highest economic growth figures in Africa this year. Although one should bear in mind that this outlook is quite uncertain given the expected gradual recovery in tourism in the coming two years.

The more diversified countries such as Kenya, Ghana and Côte d’Ivoire fared relatively well through the pandemic. They recorded a minor contraction or a slightly positive economic growth last year. These countries will have a strong economic recovery this year thanks to their diverse economic structure and reasonable business environment. Although their rebound is expected to be strong, the high growth figures pre-pandemic are not expected to return. Many of these countries relied on high public investments as the main economic stimulus before the pandemic and now they will be forced to implement expenditure cuts to lower their budget deficit and bring down public debt to sustainable levels.

While an economic recovery this year will not be smooth sailing, many sub-Saharan economies are well-poised to end 2021 on a good note compared to last year’s downturn. The AfCFTA has introduced the possibility of an African Free Trade Area, a prospect that will largely benefit African economies once it reaches full implementation in the coming years. 

Afke Zeilstra is a senior economist at Atradius.