The Growth and Poverty Impact of the West African Free Trade Agreement with the European Union

The Cotonou Agreement concluded in June 2000 between African, Caribbean and Pacific group of States and the European Union (EU) ended successive Lomé regimes and paved the way for the conclusion of an Economic Partnership Agreement (EPA) consistent with the World Trade Organization rules. The EPA aims to create a Free Trade Area (FTA) between the EU and West Africa (WA); thus economies in the later region are expected to open their domestic market to almost all EU products over a period of 25 years. A multicountry economywide framework is developed to assess the growth and poverty impact of WA’s market liberalization to the EU products. The study simulates three realistic scenarios of market access offer by the WA to the EU merchandises. The scenarios involve 65 and 70 percent liberalizations of imports from EU over a period of 25 years. The simulation results indicate that liberalizing 65 percent of imports from the EU boosts growth and contributes to reduce poverty in WA. On the other hand, the WA economy faces more pressure when the liberalization reaches 70 percent of imports, leading to a slower growth rate and an increase of poverty compared to the non-FTA scenario. The deterioration of the trade balance comes out as the main cause of the economic slowdown under the simulated FTA scenarios. The loss of Government revenue due to a fall in import tax receipts - as well as other tax receipts in case of a deeper growth reduction - also appears as an important contributor of the counter performance of the economies.