The Private Sector’s Key Role In Accelerating The Implementation Of The AfCFTA

Trade finance was already going through a digital transformation before the COVID-19 crisis. However, this trend accelerated as the digitisation of trade flows became essential to the continuity of the business. The crisis could be a catalyst to reshape the industry more quickly and profoundly than could ever have been anticipated, with implications for entire trading ecosystems.

Digitisation is also a critical component to unlock the full potential of the African Continental Free Trade Area (AfCFTA). Reinforcing the capacity of African firms and entrepreneurs to trade easily within Africa’s borders and reach a global marketplace requires significant progress in Africa’s digital infrastructure, as well as a focus on regulations that protect and enhance digital trade. Investments in digitisation can also be developed through public-private partnerships (PPPs), recognising the multiplier downstream benefits that this investment will bring. Digitisation, leveraging the AfCFTA, can be a tool for reducing inequality significantly, as it can facilitate reaching even the most marginalised and vulnerable. According to a study by the World Bank, AfCFTA would significantly boost African trade, particularly intra-regional trade in manufacturing. The volume of total exports would increase by almost 29% by 2035 relative to the baseline. Intra-continental exports would increase by over 81%, while exports to non-African countries would rise by 19%.  ^[1]

Overcoming the deficit of infrastructure, which has been a major constraint to both economic growth and intra-African trade expansion, will become ever more critical during the implementation of the AfCFTA.  Such an effort will include both physical and digital infrastructure, which, in the current fragmented African markets, have been major constraints to economic transformation and industrial production, as well as to the distribution of goods. As investors look to capitalise on the economies of scale offered by the AfCFTA, nothing is as pressing as integrating markets and improving connectivity.  Intra-African trade has been growing steadily and AfCFTA would accelerate that by removing the trade barriers that have caused the fragmentation of African economies. Businesses currently face higher tariffs when they export within Africa than when they export outside it. AfCFTA will progressively eliminate tariffs on intra-African trade, making it easier for businesses to trade within the continent. The COVID-19 pandemic has also caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food. By increasing regional trade, lowering trade costs, and streamlining border procedures, full implementation of the AfCFTA would help African countries increase their resilience in the face of future economic shocks and help usher in the kinds of deep reforms that are necessary to enhance long-term growth.  AfCFTA is a major opportunity for Africa, but implementation will be a significant challenge. Lowering tariffs is only the first step. Reforming non-tariff and trade facilitation measures will require substantial policy reforms at the national level. These reforms may require politically difficult decisions in some cases. However, the agreement’s opportunities can be used to help policymakers overcome these challenges and implement the substantive reforms that are needed to make Africa as competitive as any other region in the world.

According to a report by the World Bank, the AfCFTA will boost regional income by 7% or USD450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035. Wages for both skilled and unskilled workers will also be boosted by 10.3% for unskilled workers, and 9.8% for skilled workers. Diversifying exports, accelerating growth, competitively integrating into the global economy, increasing foreign direct investment, increasing employment opportunities and incomes, and broadening economic inclusion are just a few of the positive economic outcomes AfCFTA can bring.^[2] The AfCFTA represents a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion.Implementation of this initiative would increase employment opportunities and wages for unskilled workers, help to close the gender wage gap and significantly reduce poverty.

Financial institutions have the infrastructure, network, and capabilities to emerge as central ecosystem leaders. Standard Chartered Bank has been working across the continent to help businesses overcome these challenges. Some central banks, such as the Central Bank of West African States, have implemented measures to cut the transaction costs of electronic payments, while the adoption of the pan-African payment and settlement system as part of the AfCFTA is a major step towards the integration of digital financial services. The AfCFTA will give banks like Standard Chartered Bank an opportunity to re-reinforce its brand promise and commitment to driving commerce and prosperity across Africa, which remains a strategic region for the banks for trade and investment priorities. The full implementation of the AfCFTA could provide a lever to mitigate the effects of the COVID-19 pandemic and help move millions out of poverty by 2025. Standard Chartered Bank will combine its knowledge and track record in 15 African markets and continuous investment in products and services, making the bank the ideal partner that will help to accelerate the implementation of the AfCFTA.

^[1] The African Continental Free Trade Area (worldbank.org)

^[2] The African Continental Free Trade Area (worldbank.org)

Onyebuchi Memeh, Executive Director & Head of Trade, Transaction Banking, South Africa & Southern Africa at Standard Chartered Bank