Intra-African Trade in Services and the AFCFTA

This paper assesses the prospects of AfCFTA—which commenced trading in January 2021—in boosting intra-African trade in services. We use the PPML estimator of the gravity model on bilateral services trade data for total and eight categories of services in 49 African countries spanning from 1995–2019. For our first objective, we assess the determinants of services trade, particularly the degree of complementarity between trade in goods and trade in services. The second objective establishes the role of trade facilitation on trade in services within Africa. We find that goods complement services, particularly total, transport, construction, other business services and personal, cultural and recreational services. We also find that most ‘hard’ indicators of trade facilitation improve trade in services within Africa compared to ‘soft’ factors whose effect is mixed. For purposes of policy, we find that having a services-specific policy, for instance, the protocol on trade in services in the AfCFTA, is likely to boost intra-African trade in services. This can be achieved by reducing the deficit in infrastructure such as internet spread and broadband subscriptions and the regulatory quality of countries. Relaxing the competition policy, investment policy, research and technology and education and training policies could reduce trade costs and, in turn, facilitate trade in services.