Assessing the potential effects of the AfCFTA on togolese economy: An application of partial equilibrium model

• Published date: 01 February 2022
• Author: Kwami Ossadzifo Wonyra,Nimonka Bayale
• Date: 01 February 2022
• DOI: http://doi.org/10.1002/pa.2377

ACADEMIC PAPER

Assessing the potential effects of the AfCFTA on togolese

economy: An application of partial equilibrium model

Kwami Ossadzifo Wonyra

1

| Nimonka Bayale

1,2

1

Department of Economics, University of Kara,

Kara, Togo

2

Macroeconomic and Governance Division

(MGD), United Nations Economic Commission

for Africa (UNECA), Addis Ababa, Ethiopia

Correspondence

Nimonka Bayale, Macroeconomic and

Governance Division (MGD), United Nations

Economic Commission for Africa (UNECA),

Addis Ababa, Ethiopia.

Email: nimonka.bayale@un.org

Togo is one of the African countries to join spontaneously the African Continental

Free Trade Area (AfCFTA), a new benchmark for trade development which seeks to

provide a framework for the liberalization of trade in goods and services in Africa.

Several economic opportunities are expected in Togo as a result of the implementa-

tion of the AfCFTA. This article provides insights on the potential implications of the

AfCFTA Agreement for Togo in terms of trade, revenue and welfare effects. By

applying the WITS-SMART simulation model on 2018 disaggregated trade data, we

find that, trade effects in Togo are likely to surge by US$ 8.83 million while promot-

ing consumers' welfare by US$ 1.09 million. However, revenue losses are imminent

as the country might experience a drop in tariff revenue of US$ 4.66 million. Overall,

the AfCFTA is expected to improve on the country's trade balance as exports are

envisaged to outweigh imports. In order to mitigate the revenue loses, we recom-

mend that the country keeps substantial portion of tariff lines for sensitive and

excluded products over a longer period during the liberalization.

1|INTRODUCTION

On April 2019, Togo ratified the agreement establishing the African

Continental Free Trade Area (AfCFTA), which was supposed to come

into effect in July 2020 [African Union Commission, (AUC, 2018)].

According to Article 3 of the AfCFTA Agreement that was signed in

March 2018 in Kigali by 44 Member States of the African Union, the

first phase of the implementation of the AfCFTA aims to create a sin-

gle continental market for goods and services by reducing the trade

costs and increasing access to diversified products and services

[United Nations Economic Commission for Africa, 2019; AUC, 2018].

In accordance with the vision of the Agenda 2063, AfCFTA is

expected to improve the competitiveness of downstream industries

that can access cheaper raw materials and intermediate inputs (United

Nations Economic Commission for Africa, 2019). Therefore, firms will

access broader continental markets and gain from economies of scale

in the long run (Masiya, 2019). Also, the AfCFTA is envisaged to raise

Africa's income levels and reduce poverty by raising productivity and

boosting investment (Abrego, Amado, Gursoy, Nicholls, & Perez-Saiz,

2019; Karingi & Mevel, 2013; Masiya, 2019; United Nations Eco-

nomic Commission for Africa, 2018). Ultimately, the implementation

of the AfCFTA is seen as one of solutions to the African challenges as

well as continental integration process through Regional Economic

Communities (RECs) in Africa (Oloruntoba & Tsowou, 2019).

According to the economic literature, a Free Trade Area (FTA) is

an important step for achieving economic integration among group of

countries (Balassa, 1962). For most part, FTA calls for the liberaliza-

tion of tariffs. It implies trade effects (trade creation and diversion) as

well as impacts on the different actors such as consumers, producers

and governments in a given economy (see Karingi, Lang, Oulmane,

Sadni, & Hammouda, 2005; Kimbugwe, Perdikis, Yeung, & Kerr, 2012;

Sangeeta, Kimbugwe, & Perdikis, 2009; Schiff & Winters, 2002;

Viner, 1950). Therefore, understanding of the magnitude and direction

of these effects due to the AfCFTA is important for countries such as

Togo, which derive substantial amounts of tariff revenue from inter-

national trade taxes to meet fiscal needs. For instance, taxes on goods

and services are the most important part of country's government tax

revenue and have an average value of 43.59% over the period span-

ning from 2015 to 2018 (World Bank, 2020, Bayale, 2020).

A look at Togo's participation in international trade reveals that

the country trades with the African continent as well as the other con-

tinents of the world. Figures 1 and 2 describe the trends in trade

Received: 10 July 2020 Revised: 31 July 2020 Accepted: 10 August 2020

DOI: 10.1002/pa.2377

J Public Affairs. 2022;22:e2377. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of13

https://doi.org/10.1002/pa.2377