Assessing the Potential for Tanzanian Exports in the African Continental Free Trade Area

Abstract

In 2019, the Africa Union launched the African Continental Free Trade Area (AfCFTA), one of the largest pro-development regional trade arrangements (RTAs) in the world. Despite the broad promises, the potential trade benefits of AfCFTA to specific African countries is not crystal clear. We employ a gravity model and the Pseudo Poisson Maximum Likelihood (PPML) estimator to establish the existence, magnitude, and change of Tanzania export potential in 49 African markets. The results show existence of export potential in 38 markets, and inexistence of export potential in 11 markets. Out of 38 markets with export potential, Tanzania has high export potential in 32 markets, moderate potential in 2 markets, and low potential in 4 markets. Further, the export potentials are higher in most markets that fall outside Tanzania’s existing RTAs. Also, the study confirms the emerging claim that trade potential is dynamic. The potential was found to increase mainly in markets with high export potential and decrease in markets with low export potential, mostly in the existing RTAs. Impliedly, Tanzania is tapping the export potential in the traditional markets, whereas export potential in other African markets remains untapped. The study presents initial information on export opportunities in AfCFTA that require follow-up action by the business and government. This may include adapting targeted interventions, and taking advantage of AfCFTA operationalization instruments, which partly address market entry constraints. Our findings contribute to regional integration literature by demonstrating that RTAs involving developing countries, such as AfCFTA, present enormous trade potential to member countries.