Presentation made at the Regional Trade Forum for West and Central Africa on the fiscal impact of the AfCFTA. Work presented by David Laborde. IFPRI-IDEP-PIM collaboration.

1. The Fiscal Impact of the AfCFTA:
Quantification and Adjustment
options
Dr. David Laborde (IFPRI)
Regional Trade Forum for West and Central Africa
AfCFTA in motion: Taking Africa’s integration to the
next level for a prosperous continent
25th June 2019, Dakar, Senegal.

2. Defining the fiscal impact of a trade agreement
Net
Fiscal
Impact
Revenue
Effects
Custom
Duties
Direct Effects:
Duties on
African products
Indirect effects:
Trade Deviation
VAT &
Sales Tax
Tax Base
Volume of
imports
Income
Taxes
Expenditures
effects
Wages
Investment
goods
Services

3. First Order Impacts of removing Tariffs
Net
Fiscal
Impact
Revenue
Effects
Custom
Duties
Direct Effects:
Duties on
African products
Indirect effects:
Trade Deviation
VAT &
Sales Tax
Tax Base
Volume of
imports
Income
Taxes
Expenditures
effects
Wages
Investment
goods
Services
If not liberalized
Negative effects on Public Finance
Positive effects on Public Finance

4. But pro-growth outcomes can revert the initial effects
Net
Fiscal
Impact
Revenue
Effects
Custom
Duties
Direct Effects:
Duties on
African products
Indirect effects:
Trade Deviation
VAT &
Sales Tax
Tax Base
Volume of
imports
Income
Taxes
Expenditures
effects
Wages
Investment
goods
Services
Negative Growth effects on Public Finance
Positive Growth effects on Public Finance

5. Options for adjustment:
low ambition approach
Initial Net Fiscal
losses
Public
deficit
Domestic
Savings
Risk of eviction of
private investment
Foreign
capital flows
FDI and substitution
on capital markets
Sovereign Debt
Increased
Taxation
Income
Taxes
Households and
firms
Consumer
Taxes
VAT & Sales Taxes
Trade Taxes New Taxes on
Foreign imports
Improved
Collection
On Trade
Flows
Improved Duty
Collection Efficiency

6. Options for adjustment:
low ambition approach
Initial Net Fiscal
losses
Public
deficit
Domestic
Savings
Risk of eviction of
private investment
Foreign
capital flows
FDI and substitution
on capital markets
Sovereign Debt
Increased
Taxation
Income
Taxes
Households and
firms
Consumer
Taxes
VAT & Sales Taxes
Trade Taxes New Taxes on
Foreign imports
Improved
Collection
On Trade
Flows
Improved Duty
Collection Efficiency
“No Fiscal Adjustment”
Included in the model

7. Options for adjustment
Pro-Growth Strategy
Pro Growth strategy
Reduction in trade
costs
(Trade facilitation)
-25% intra Africa
-12.5% with other
partners
Increased Productivity
Find the
productivity gains
required to
balance account
Attract FDI
(same outcome
as previously)

8. Snapshot 1: Evolution on intra-Africa Trade
1.0
1.5
2.0
2.5
3.0
3.5
Africa ECOWAS ECCAS Africa ECOWAS ECCAS
All Goods Agri-food
MULTIPLIEROFTRADEFLOWS
COMPARETO2014
Trade with African Partners
Multiplier between 2014 and 2024
No AfCFTA Full liberalization With Exclusion List
Malabo Declaration

9. -8,000
-7,000
-6,000
-5,000
-4,000
-3,000
-2,000
-1,000
0
Africa ECOWAS ECCAS
MIOSCONSTANTUSD
Custom Duty Losses - Annual in 2024
with theoretical duty collection Full liberalization
With actual duty collection Full liberalization
With actual duty collection With Exclusion List
Fiscal impact by the numbers Losses are very limited in
percentage of GDP
Not real
-0.12 -0.12
-0.39
-0.10
-0.14
-0.45
-0.04 -0.05
-0.15
-0.04 -0.05
-0.18
-0.50
-0.45
-0.40
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
0.00
Africa ECOWAS ECCAS Africa ECOWAS ECCAS
Custom Duties - as Share of GDP Total Taxes - as Share of GDP
SHAREOFGDP
Fiscal Losses as share of GDP
Full liberalization With Exclusion List

10. Trade-off linked to the exclusion list
Full liberalization With Exclusion List
Household Real Income – Mios USD
Africa 5,833 2,146
ECOWAS 778 413
ECCAS 469 150
Real Value Added in Industry - Percentage
Africa 0.53 0.15
ECOWAS 0.59 0.19
ECCAS 1.36 0.48
Exports to Africa - Percentage
Africa 42.21 15.30
ECOWAS 50.90 25.78
ECCAS 12.30 1.60

11. Many options, Which Strategy?
Household Real Income
(Mios USD) Adjustment Variable
Scenario Africa ECOWAS ECCAS Adjustment category Africa ECOWAS ECCAS
"(1) Full liberalization without fiscal
adjustment" 5,833 778 469 Foreign Debt Adjustment 0.00 0.00 0.00
"(1a) Full liberalization with consumer tax
adjustment" 4,340 666 -348 Consumer Tax Adjustment 0.15 0.15 0.73
"(1b)Full liberalization with foreign capital
flows" 7,941 1,543 1,271 Foreign Debt Adjustment 0.13 0.14 0.46
"(2) Exclusion list based on political
economy without fiscal adjustment" 1,917 408 179 Foreign Debt Adjustment 0.00 0.00 0.00
"(2a) Exclusion list based on political
economy with consumer tax adjustment" 1,029 368 -340 Consumer Tax Adjustment 0.10 0.07 0.46
"(2c) Exclusion list based on political
economy with income tax adjustment" 821 170 -229 Income Tax Adjustment 0.09 0.08 0.35
"(2b) Exclusion list based on political
economy with foreign capital flows" 3,172 792 656 Foreign Debt Adjustment 0.07 0.07 0.29
"(4b) Exclusion list based on political
economy with increase in duty collection" 838 160 -233
Tariff Collection Efficiency
Adjustment 3.62 3.32 13.50
"(4c) Exclusion list based on political
economy with trade cost reduction (no fiscal
adjustment) 21,857 4,569 2,138 Foreign Debt Adjustment 0.00 0.00 0.00
"(4d) Exclusion list based on political
economy with trade cost reduction and
income tax adjustment 18,999 4,122 1,049 Consumer Tax Adjustment 0.37 0.30 0.93
"(4e) Exclusion list based on political
economy with productivity adjustment" 9,420 4,838 3,013 TFP Adjustment 0.38 0.64 1.35

12. “Restricted” Strategy
Household Real Income
(Mios USD) Adjustment Variable
Scenario Africa ECOWAS ECCAS Adjustment category Africa ECOWAS ECCAS
"(1) Full liberalization without fiscal
adjustment" 5,833 778 469 No adjustment 0.00 0.00 0.00
"(1a) Full liberalization with consumer tax
adjustment" 4,340 666 -348 Consumer Tax Adjustment 0.15 0.15 0.73
"(1b)Full liberalization with foreign capital
flows" 7,941 1,543 1,271 Foreign Debt Adjustment 0.13 0.14 0.46
"(2) Exclusion list based on political
economy without fiscal adjustment" 1,917 408 179 No adjustment 0.00 0.00 0.00
"(2a) Exclusion list based on political
economy with consumer tax adjustment" 1,029 368 -340 Consumer Tax Adjustment 0.10 0.07 0.46
"(2c) Exclusion list based on political
economy with income tax adjustment" 821 170 -229 Income Tax Adjustment 0.09 0.08 0.35
"(2b) Exclusion list based on political
economy with foreign capital flows" 3,172 792 656 Foreign Debt Adjustment 0.07 0.07 0.29
"(4b) Exclusion list based on political
economy with increase in duty collection" 838 160 -233
Tariff Collection Efficiency
Adjustment 3.62 3.32 13.50
"(4c) Exclusion list based on political
economy with trade cost reduction (no fiscal
asjustment) 21,857 4,569 2,138 No adjustment 0.00 0.00 0.00
"(4d) Exclusion list based on political
economy with trade cost reduction and
consumer tax adjustment 18,999 4,122 1,049 Consumer Tax Adjustment 0.37 0.30 0.93
"(4e) Exclusion list based on political
economy with productivity adjustment" 9,420 4,838 3,013 TFP Adjustment 0.38 0.64 1.35
Hidden Growth cost
Purchasing Power cost
Disposable Income cost

13. Adjustment Strategy
Household Real Income
(Mios USD) Adjustment Variable
Scenario Africa ECOWAS ECCAS Adjustment category Africa ECOWAS ECCAS
"(1) Full liberalization without fiscal
adjustment" 5,833 778 469 No adjustment 0.00 0.00 0.00
"(1a) Full liberalization with consumer tax
adjustment" 4,340 666 -348 Consumer Tax Adjustment 0.15 0.15 0.73
"(1b)Full liberalization with foreign capital
flows" 7,941 1,543 1,271 Foreign Debt Adjustment 0.13 0.14 0.46
"(2) Exclusion list based on political
economy without fiscal adjustment" 1,917 408 179 No adjustment 0.00 0.00 0.00
"(2a) Exclusion list based on political
economy with consumer tax adjustment" 1,029 368 -340 Consumer Tax Adjustment 0.10 0.07 0.46
"(2c) Exclusion list based on political
economy with income tax adjustment" 821 170 -229 Income Tax Adjustment 0.09 0.08 0.35
"(2b) Exclusion list based on political
economy with foreign capital flows" 3,172 792 656 Foreign Debt Adjustment 0.07 0.07 0.29
"(4b) Exclusion list based on political
economy with increase in duty collection" 838 160 -233
Tariff Collection Efficiency
Adjustment 3.62 3.32 13.50
"(4c) Exclusion list based on political
economy with trade cost reduction (no fiscal
adjustment) 21,857 4,569 2,138 No adjustment 0.00 0.00 0.00
"(4d) Exclusion list based on political
economy with trade cost reduction and
income tax adjustment 18,999 4,122 1,049 Income Tax Adjustment 0.06 0.04 0.37
"(4e) Exclusion list based on political
economy with productivity adjustment" 9,420 4,838 3,013 TFP Adjustment 0.38 0.64 1.35
FDI
FDI
Trade Costs
Trade Costs
Productivity