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

Abstract

AbstractThe 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.