The impact of the African Continental Free Trade Area on the Tanzanian economy

This study utilises the DEMETRA (Dynamic Equilibrium Model for Economic Development, Resources and Agriculture) computable general equilibrium model to conduct an economy-wide assessment of the impacts of the African Continental Free Trade Area (AfCFTA) on mainland Tanzania. The model provides a comprehensive description of the trade agreements effects on the economy as a whole, and on the agriculture and industrial sectors in particular. The study also employs a global, multiregional model to determine the trade creation and diversion effects of four liberalisation schedules defined by various policy objectives. The findings show that the AfCFTA will have a positive effect on both economic growth and welfare, mainly because the reduction in trade barriers, especially non-tariff barriers, will result in increased consumption and output (by reducing distortions) and consequently an improvement in efficiency. The Tanzanian national income is expected to improve as exports increase. Exporting sectors that are expected to gain include the agriculture, food processing, textiles, chemicals, paper and glass sectors. The AfCFTA will lead to increased output in industries that employ a large number of women, leading to a rise in their relative wages. In the agriculture sector, cash crops production will expand to a greater extent than that of food crops, and male labour employment in this sector will expand. Primary commodities will continue to be the most important exports. The study shows that trade in Tanzania is dominated by trade in raw materials, with trade in manufactured goods correspondingly weak, which is clearly reflected in current patterns in intra- and extra-African trade. The findings thus highlight the need for the Tanzanian government to promote industrialisation.