AfCFTA: Making trade work for Africa

Following the recent 7th meeting in Accra, trade ministers from various African nations have recommitted to kickstarting trade operations under the African Continental Free Trade Area (AfCFTA). Despite some unresolved issues surrounding the rules of origin, African trade ministers remain optimistic that the implementation of the continental trade pact will play a vital role in helping countries navigate the economic challenges posed by the COVID-19 pandemic. Wamkele Mene, the Secretary-General of the AfCFTA Secretariat, sheds light on the latest developments in intra-Africa trade. There are currently 41 countries that have ratified the agreement establishing the AfCFTA, showcasing a positive trend towards increased participation and recognition of the fundamental importance of eliminating barriers to intra-Africa trade. Mene expresses enthusiasm over this progress, highlighting the growing support from governments, private sectors, and civil society towards achieving seamless trade integration within the continent. A significant milestone on the AfCFTA agenda is the initiative to raise $1 billion for a trade finance facility intended to particularly support women and small businesses. However, progress on this front has been relatively sluggish due to the challenge of mitigating risks associated with continent-wide trade finance. Mene explains that while commercial banks possess the necessary liquidity, establishing mechanisms to reduce risks continues to be a critical negotiation point. Meetings with key stakeholders, including leading commercial banks, aim to find viable solutions, such as sovereign guarantees, to ensure greater confidence in financing intra-Africa trade ventures. The provision of trade finance is paramount to the success of AfCFTA, especially in fostering the participation of small and medium-sized enterprises, predominantly those led by young entrepreneurs and women, across different regions of the continent. Enabling businesses in one African nation to access markets in other parts of the continent is pivotal for driving economic growth and enhancing trade relations. Another significant aspect in facilitating intra-Africa trade is the Pan-African payment and settlement system, currently undergoing piloting in six countries in West Africa. The AfCFTA provides the necessary legal framework for this payment system, with the African Export-Import Bank contributing $1 billion for settlements and leveraging technology to ensure efficient and affordable payment transactions. The existence of over 42 currencies in Africa poses a substantial challenge, with currency convertibility costs estimated to amount to roughly $5 billion annually. The exorbitant costs associated with currency conversion pose significant drawbacks to Africa's economy in terms of efficiency, affordability, and hindering the potential for robust intra-Africa trade. Secretary-General Mene stresses the urgency of taking decisive actions to address this longstanding issue, emphasizing the need for concrete strategies to combat the adverse effects of currency convertibility hurdles on the continent's economic landscape. By spearheading initiatives like the trade finance facility and the Pan-African payment system, the AfCFTA aims to revolutionize intra-Africa trade dynamics and pave the way for sustained economic progress and collaboration across African nations.