Africa free-trade agreement highlights FX disparities
Increased intracontinental trade in Africa is a laudable objective, but may serve to highlight disparities in exchange-rate regimes that could further widen the gap between winners and losers.
Since the start of this year, those countries whose parliaments ratified the African Continental Free Trade Area (AfCFTA) agreement and deposited a schedule of tariffs under which 90% of goods and services are traded freely have been permitted to trade under the rules of the agreement.
According to the World Bank, if fully implemented, AfCFTA would boost Africa’s income by $450 billion by 2035, while adding $76 billion to the income of the rest of the world.
[It] will reduce dependence on the dollar by allowing payments between countries to be made in local currencies
But as anyone who has followed the fallout from the UK's exit from the European Union will know, there is rarely consensus on the value of free-trade agreements. In addition, research published by law firm Baker McKenzie and economic forecasting specialist Oxford Economics acknowledged that the agreement would unlock ‘uneven’ growth opportunities on the African continent.
The Brookings Institution published a blog earlier this year by two World Bank economists that described the mix of exchange-rate regimes across sub-regional markets as an impediment to free trade in much of Africa, resulting in substantial misalignments and growth disparities.