The Fiscal Health Paradox: Modeling the Welfare Losses of Non-Harmonized Excise Taxes on Sugar-Sweetened Beverages under the AfCFTA

While many regional trade agreements eliminate tariffs to drive economic growth, liberalized markets can also accelerate the spread of health-harming commodities. Understanding how trade policy interacts with domestic health taxation can help identify the structural safeguards needed for regional economic and social development. However, research on the fiscal externalities and health spillovers of uncoordinated health taxes under the African Continental Free Trade Area is limited. The main objective of this economic study was to examine the fiscal, welfare, and public health consequences of non-harmonized sugar-sweetened beverage taxes across liberalized African trade markets. Data were drawn from available consumption, trade volume, and price elasticity databases and analyzed through the lens of partial-equilibrium simulation combined with game theory. The analysis indicates that unilateral taxation produces several key economic vulnerabilities across participating African markets. First, high-tax countries experience tax revenue losses of 15% to 25% over ten years as cross-border trade diversion shifts demand to lower-tax neighbors. Second, lower retail prices caused by untaxed beverage imports expand overall sugar consumption, associated in the model with an estimated 1.0 to 1.5 million additional cases of Type 2 diabetes. Third, establishing a harmonized regional health-tax floor reduces incentives for cross-border price arbitrage, stabilizes government revenues, and preserves broader regional social welfare. The findings suggest that trade negotiators should integrate fiscal health coordination directly into regional trade agreements rather than relying on uncoordinated national action. The findings therefore support the implementation of a binding minimum excise tax floor paired with digital track-and-trace enforcement mechanisms to protect public health systems and support sustainable human capital growth by continental trade authorities.

AfCFTA, sugar-sweetened beverages, tax harmonization, non-communicable diseases, regional welfare

1. African Union. (2018). Agreement establishing the African Continental Free Trade Area. https://au.int/sites/default/files/treaties/36437-treaty-consolidated_text_on_cfta_-_en.pdf [Google Scholar] [Crossref]

2. Bloom, D. E., & Canning, D. (2000). The health and wealth of nations. Science, 287(5456), 1207–1209. https://doi.org/10.1126/science.287.5456.1207 [Google Scholar] [Crossref]

3. Carroll, C. D. (1997). Buffer-stock saving and the life cycle/permanent income hypothesis. The Quarterly Journal of Economics, 112(1), 1–55. https://doi.org/10.1162/003355397555109 [Google Scholar] [Crossref]

4. Chen, L., Wahlqvist, M. L., Teng, N. C., & Huang, Y. C. (2018). Price elasticity of demand for sugar-sweetened beverages and soft drinks in low- and middle-income countries: A systematic review and meta-analysis. American Journal of Public Health. https://ajph.aphapublications.org/doi/full/10.2105/AJPH.2018.304427 [Google Scholar] [Crossref]

5. Dare, C., Canning, D., Boachie, M. K., Herl, C. R., Goldstein, S., Thsehla, E., & Hofman, K. (2025). Assessing changes in non-alcoholic sugary beverage prices in Agincourt following South Africa’s Health Promotion Levy: A pre- and post-implementation study. Journal of Public Health Research, 14(3), 22799036251358299. https://doi.org/10.1177/22799036251358299 [Google Scholar] [Crossref]

6. Eichengreen, B., Park, D., & Shin, K. (2013). Growth slowdowns redux: New evidence on the middle-income trap (NBER Working Paper No. 18673). National Bureau of Economic Research. https://www.nber.org/papers/w18673 [Google Scholar] [Crossref]

7. Euromonitor International. (2023). Passport: Soft Drinks in Sub-Saharan Africa. Euromonitor International. [Google Scholar] [Crossref]

8. García-Chávez, C. G., Barrientos-Gutierrez, T., Ng, S. W., Rivera, J. A., & Colchero, M. A. (2025). Changes in sugar-sweetened beverages and non-essential energy-dense food purchases overall and by type before and after the implementation of taxes in Mexico: Repeated cross-sectional national surveys (2008–2018). BMJ Public Health, 3(1), e001524. https://doi.org/10.1136/bmjph-2024-001524 [Google Scholar] [Crossref]

9. Global Burden of Disease Collaborative Network. Global Burden of Disease Study 2021 (GBD 2021). Seattle, United States: Institute for Health Metrics and Evaluation. (2024). https://ghdx.healthdata.org/gbd-2021 [Google Scholar] [Crossref]

10. International Diabetes Federation. (2025). IDF Diabetes Atlas (11th ed.). https://diabetesatlas.org/media/uploads/sites/3/2025/04/IDF_Atlas_11th_Edition_2025.pdf [Google Scholar] [Crossref]

11. Kanbur, R., & Keen, M. (1993). Jeux sans frontières: Tax competition and tax coordination when countries differ in size. The American Economic Review, 83(4), 877–892. https://www.jstor.org/stable/2117683 [Google Scholar] [Crossref]

12. National Treasury. (2025). Excise Duties on Sugar-Sweetened Beverages. Pretoria: National Treasury. [Google Scholar] [Crossref]

13. Organisation for Economic Co-operation and Development. (2021). Tax challenges arising from the digitalisation of the economy – Global Anti-Base Erosion Model Rules (Pillar Two). https://www.oecd.org/tax/beps/tax-challenges-arising-from-the-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two.htm [Google Scholar] [Crossref]

14. Parry, I., Heine, D., Lis, E., & Li, S. (2014). Getting energy prices right: From principle to practice. International Monetary Fund. https://www.imf.org/en/Publications/Books/Issues/2016/12/31/Getting-Energy-Prices-Right-From-Principle-to-Practice-41345 [Google Scholar] [Crossref]

15. Southern African Customs Union. (2002). 2002 Southern African Customs Union (SACU) Agreement. https://www.sacu.int/docs/agreements/2002-sacu-agreement.pdf [Google Scholar] [Crossref]

16. Stacey, N., Edoka, I., Hofman, K., Swart, E. C., Popkin, B., & Ng, S. W. (2021). Changes in beverage purchases following the announcement and implementation of South Africa’s Health Promotion Levy: An observational study. The Lancet Planetary Health, 5(4), e200–e208. https://doi.org/10.1016/S2542-5196(20)30304-1 [Google Scholar] [Crossref]

17. Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector (4th ed.). W. W. Norton & Company. https://wwnorton.com/books/9780393925227 [Google Scholar] [Crossref]

18. United Nations Economic Commission for Africa. (2021). Economic Report on Africa 2021: Addressing poverty and vulnerability in Africa during the COVID-19 pandemic. https://www.uneca.org/era2021 [Google Scholar] [Crossref]

19. World Bank. (2020a). The African Continental Free Trade Area: Economic and distributional effects. https://openknowledge.worldbank.org/handle/10986/34139 [Google Scholar] [Crossref]

20. World Bank. (2020b). The potential of intra-African trade and the African Continental Free Trade Area. https://www.worldbank.org/en/topic/trade/brief/african-continental-free-trade-area [Google Scholar] [Crossref]

21. World Health Organization. (2017). Taxes on sugary drinks: Why do it? https://iris.who.int/bitstream/handle/10665/260253/WHO-NMH-PND-16.5Rev.1-eng.pdf [Google Scholar] [Crossref]

22. World Health Organization Regional Office for Africa. (2022). Obesity rising in Africa, WHO analysis finds [News release]. https://www.afro.who.int/news/obesity-rising-africa-who-analysis-finds [Google Scholar] [Crossref]

23. World Health Organization. (2023). Global database on the Implementation of Nutrition Action (GINA). https://extranet.who.int/nutrition/gina/en/ [Google Scholar] [Crossref]

24. World Health Organization. (2025). Noncommunicable diseases progress monitor 2025. https://www.who.int/publications/i/item/9789240105775 [Google Scholar] [Crossref]

• Impact of Foreign Direct Investment in India
• Issues Involved in Digitalisation Special Reference to Indian Tourism Growth
• Relationship Marketing and Customer Loyalty in the Fast-Moving Consumer Goods (FMCG) Industry in Nairobi County
• Financial Literacy or Financial Inclusion? Which is Which, What is What—To Achieve Uganda’s 10-Fold Economic Growth By 2040
• Harnessing Natural Gas for Economic Transformation: Overcoming the Regulatory and Infrastructural Bottlenecks in Nigeria