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Abstract

The implementation of the African Continental Free Trade Area (AfCFTA) will affect EAC countries in terms of tax revenues, trade volumes and poverty. Estimates paint a mixed picture among specific EAC economies regarding the increase in demand following the reduction in tariffs, also known as trade effect. Burundi has the most considerable total trade effect of US$ 9.5 million, followed by Kenya with US$ 5.2 million and Uganda with US$ 4.2 million. On the other hand, Tanzania and Rwanda register adverse total trade effects. All the EAC countries incur tariff revenue losses; for instance, Kenya incurs US$ 14.2 million loss followed by Uganda with a US$ 13.5 million loss. Whereas Uganda and Burundi experience positive welfare effects, Kenya, Tanzania and Rwanda experience negative welfare effects. To benefit from the AfCFTA, EAC economies need to (i) increase competitiveness to mitigate the negative impact of trade diversion (ii) pursue policies that promote industrialisation and (iii) compensate for the customs revenue loss by leveraging the envisaged increase in the trade volumes and value for other taxes.

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