Free trade in Africa: macroeconomic convergence, possibilities and prospects.

Abstract

For a free trade area to deliver good results, macroeconomic convergence and policy coordination are critical. Inflation, fiscal balance, trade balance, per capita incomes, national debt and real exchange rate are crucial macroeconomic factors which should be taken into account in a pursuit of a free trade area. In particular, to deal with economic shocks in a coordinated manner, it is necessary that macroeconomic policies in African countries are harmonized so that the recently unveiled African Continental Free Trade Area (AfCFTA) can be successful. The paper explores the AfCFTA and macroeconomic convergence – a stable macroeconomic environment (i.e. low inflation, low budget deficits etc.) would imply that there is macroeconomic convergence. Also drawing from the experiences of other regions [e.g. European Union in Europe, Caribbean Community (CARICOM) and Mercosur (Bienvenidos al Mercado Común del Sur) in Latin America, the paper makes suggestions that will help African countries go about ensuring macroeconomic convergence. In particular, broadly, it is important that sufficient planning is undertaken for the AfCFTA to be effective. Besides issues of coordination and convergence, decisions need to be made regarding the interface between the AfCFTA and other existing free trade arrangements in Africa. For instance, there must be in-depth research and rigorous policy analysis (also dealing with legal aspects) in relation to the interface between the AfCFTA and the Regional Economic Communities and other relevant issues, including the Tripartite FTA.