Assessing the Potential Impact of the African Continental Free Trade Area on Least Developed Countries: A Case Study of Malawi

Abstract

The agreement establishing the African Continental Free Trade Area (AfCFTA) has been touted as an important pillar and driver for economic growth, industrialisation and sustainable development in Africa. Among its expected key benefits is the promise to increase the level of intra-African trade by eliminating import duties and other tariffs among member countries, in addition to general trade expansion. However, unlocking the AfCFTA’s full potential will largely depend on how the continent is able to restructure its exports, which are poorly diversified and remain highly dependent on primary commodities. Moreover, intra-African trade remains dominated by a few big regional players. To this end, there have been growing fears that the AfCFTA’s anticipated gains, and associated losses, are likely to accrue unevenly. Countries with large productive capacities in manufacturing or stronger supply capacities in non-manufactured products may reap more rewards than weaker landlocked and smaller economies, particularly the least developed countries (LDCs). These concerns have led to a number of countries, including Malawi, pushing for special and differential treatment in the implementation of the AfCFTA’s provisions on the elimination of import duties and other tariffs. Many LDCs, including Malawi, rely heavily on international trade taxes as a source of government revenue. There is a legitimate concern that such economies are likely to be left grappling with the negative effects of tariff cuts in the form of substantial fiscal revenue loss. This article explores the potential impact of the AfCFTA on LDCs, with a focus on Malawi. It reviews Malawi’s intra-African trade position in terms of its export potential and examines the likely impact that the AfCFTA agreement would have on the country’s fiscal revenues.