Africa trade pact gets $1 billion to offset revenue losses

The African Export-Import Bank has mobilized $1 billion for an adjustment facility to offset revenue losses for countries that lower cross-border tariffs as part of an Africa-wide free-trade area, according to the zone’s most senior official.

“We will be able to go to global capital markets and we will be able to go to development finance institutions to mobilize more resources, but at the moment, it is a fund of a facility of $1 billion,” Wamkele Mene, secretary-general of the African Continental Free Trade Area said in an interview Thursday.

Officials are making “very, very good progress” on the facility, and countries may be able to draw on it by year-end, he said.

The world’s biggest free-trade area was implemented Jan 1. It aims to bolster intra-African trade by lowering or eliminating cross-border tariffs on 90% of goods, facilitating the movement of capital and people, promoting investment and paving the way for a continent-wide customs union.

The planned reduction in duties has raised concerns from countries that rely on them for income. However, a World Bank report shows that short-term tariff revenues would decline by less than 1.5% for 49 out of 54 African countries, with total tax revenues set to decrease by less than 0.3% in 50 countries under the deal.

That’s because only a small share of tariff revenues come from intra-African trade, according to the Washington-based lender. The bulk is from a few tariff lines and that would enable some protectionist measures to be maintained even if countries liberalize, it said.

Mene said last week that AfCFTA officials are considering several options, including an escrow account to reimburse exporters trading under the pact, even as their countries are still working to implement the necessary customs infrastructure.