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AfCTA: Africa Will be The Largest Free Trade Area Globally With $3trn GDP

September 27, 2021

Prof. Benedict Oramah, President of the African Export-import Bank

The Africa Export-Import Bank (Afreximbank) has said that with a Gross Domestic Product (GDP) of US$ 3 trillion, Africa will be the biggest free trade area in the world. This was made known by the President of Afreximbank Prof. Benedict Oramah at the opening of the Agriculture Summit Africa 2021, hosted by Sterling Bank Plc in Lagos recently. The two-day summit titled: “Building the New Agro Order” had participants drawn from different sectors of the economy.

Oramah was represented by Mr Ibrahim Sagna, Global Head/Director of the Advisory and Capital Market of the Bank who delivered the keynote address on “The Green Mile – AfCFTA, Trade and Africa’s Agribusiness Economy – Discussing the policy framework and funding opportunities for Financial Institutions.”

He said that the free trade area could be achieved through proper and successful implementation of the Africa Continental Free Trade Agreement (AfCFTA) that would create a single market for over one billion consumers on the continent.

AfCFTA, according to him, was a treaty that would transform Africa from its fractured commodity dependent growth of economies into a vibrant integrated market of over 1.2 billion people.

He noted that establishing the AfCFTA and its counterparts, with the commencement of trade will drive and deliver sustainable solutions to the needs of African countries. He also said that the agreement presented a major opportunity for African countries to bring 30 million people out of extreme poverty and raise 68 million others who live on less than five to US$ 50 per day.

He added that having a strategy of interventions to regulate the external manipulation of currency was critical as it was evident that technology would be a highly significant factor in the success or failure of African exports.

“Governments and financial institutions should more aggressively pursue the approach of strengthening the International Monetary System (IMS) multi-lateral surveillance role to directly combat this issue.

“The AfCFTA depends on approvals and implementation and especially raising the agriculture sector.

“It is in agriculture that the continental free trade aspirations can be actualised especially by strengthening the regional value streams integrated into priority products led by diverse private sectors inspired by small business owners, commercial finance, miners and operators.

“If successfully implemented, the continental free trade will create a single African market for over a billion consumers with a total GDP of three trillion dollars which will make Africa the largest free trade area in the world”, he said.

Oramah also said that the tariff on African goods was relatively lower entering the European Union and the U.S. markets, making exports to these destinations more lucrative than exporting to other African countries.

He added that COVID-19 had a disastrous result all around the globe and for Africa as it revealed inefficiencies across various industries like health, logistics and food with issues mainly around vaccines affordability and availability.

According to him, this encouraged the need for laying the foundation for a structured way for African countries to manage their own circumstances in the future by supporting intra-African trade to boost regional development. He said the AfCFTA committed countries to remove tariffs on 90 per cent of goods, progressively raising trade, services and addressing a host of non-tariff barriers.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Tap Into AfCTA, Adesina Tells Britain

January 23, 2020

The President of the African Development Bank (AfDB) Dr. Akinwumi Adesina has urged the government and people of the United Kingdom to ride the wave of the African Continental Free Trade Area arguing that Africa and the UK should be significant trading partners. Speaking to an audience made up of British investors yesterday, Dr. Adesina said that Africa is on the cusp of unmatched economic transformation, and the UK must engage in a “partnership of change.” Dr. Adesina in a keynote address at a United Kingdom Parliamentary Symposium titled “The Africa of the 21st century is very different. The Africa of the 21st century is new and more confident,” pointed out that there is no better time for British businesses and investors to look south towards Africa than now as Africa warms to the creation of a single market which would be among the top five in the world.

The Symposium was co-organized by the All-Party Parliamentary Group for Africa with the Royal African Society, Oxford Brookes University, and the Trade Justice Network under the theme UK-Africa Trade and Brexit. The Bank’s chief argued that Africa and the UK should be significant trading partners. “The reality, however, is that UK’s trade with Africa is trending downwards. From a $49 billion peak in 2012, trade decreased to $30.6 billion in 2018,” he noted. The decline in UK trade and investment in Africa is against a backdrop of projected business-to-business and consumer-to-consumer expenditures of $5.6 trillion by 2020, and a food and agriculture market worth $1 trillion by 2030.

“The fact that we are having this conversation in the UK Parliament is a great start. The convening of this Summit by Prime Minister Boris Johnson is an even greater start,” he acknowledged. President Adesina used his engagement at the House of Commons to share Africa’s investment opportunities, “which speak for themselves.” Trading under the African Continental Free Trade Agreement, which represents a market of more than 1.3 billion people and a gross domestic product of $2.5 trillion, and is the world’s largest free trade area since establishment of the World Trade Organization, starts in July.

Speaking earlier in the morning at the UK-Africa Investment Summit Sustainable Infrastructure Forum, the Bank’s chief said: “Investing in quality and sustainable infrastructure can spur Africa’s economic transformation.”

The Forum, organized by the Department of International Development (DFID) and Her Majesty’s Trade Commissioner for Africa, seeks to facilitate new investment and commercial opportunities for the UK and promote quality infrastructure to deliver better services to African citizens. The Bank has been a forerunner in the race to rapidly close the continent’s infrastructure gap, which Adesina suggested be renamed “Africa’s infrastructure demand opportunity.” Investors who tapped early into information and communications technology infrastructure in Africa have seen those investments become game-changers for Africa, he noted.

“Just under two decades ago, Africa had fewer telephones than Manhattan in New York. Today, Africa has over 440 million cell phone subscribers. Returns on digital infrastructure are very high as the continent expands broadband infrastructure to boost connectivity and improve services,” Adesina said.

The African Development Bank has been a major investor in infrastructure development in the electricity, transport, and water sectors across Africa. Cumulative Bank funding for infrastructure on the continent rose by 22% from $66.9 billion in 2016 to $81.6 billion in 2017. During the same period, the value of infrastructure projects with private sector participation has increased from $3.6 billion to $5.2 billion.

To meet Africa’s unmet infrastructure needs, project preparation is critical, the Forum heard. The Bank has established several project preparation facilities to address the lack of bankable projects and ensure a robust pipeline of projects. These facilities collectively provide $30-50 million annually in support for project preparation. The African Development Bank and DFID are collaborating to explore how to better support fragile states, which are facing huge financing needs. DFID has been the Bank’s key strategic partner since it joined the Bank group in 1983. And its “strong and consistent” support for the African Development Fund has helped the development of low-income states, especially the fragile states.

Instruments, such as the Private Sector Credit Enhancement Facility, a credit-risk participation vehicle from the African Development Fund, (ADF)’s concessional window to support Non-Sovereign Operations in low-income countries, are showing tremendous results. With $500 million in credit guarantees, provided through ADF, the Bank has leveraged $2.5 billion of financing into fragile states, with a zero default rate. “We are committed to quality infrastructure and ensuring that no one is left behind!” Adesina concluded.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

Afreximbank Calls for Open Account Terms for Achievement of AfCFTA Goals

November 10, 2019

If the continental single trading bloc being promoted by African leaders through the African Continental Free Trade Area (AfCTA) will be achievable, then there is the need for the adoption of open account terms for trade to enhance competitiveness. This was the submission of the Managing Director of Intra-African Trade Initiative, Kanayo Awani during the 2019 Afreximbank Factoring Workshop in Durban, South Africa. According to Awani, this becomes necessary because while letters of credit were relatively expensive and cumbersome, open account transactions were cheaper and simply involved a business selling its receivables (invoices) at a discount to a third party called a factor.

Managing Director of Intra-African Trade Initiative, Kanayo Awani

The workshop, with the theme “Promoting Factoring in Support of Intra-African Trade and the African Continental Free Trade Area”, covered such topics as factoring and receivables finance; factoring as a solution to intra-African trade promotion; key success factors in setting up factoring activities; managing risk in factoring transactions; and insurance in factoring. It featured panel discussions and sessions on Afreximbank’s initiatives for factoring and on the legal and regulatory environment for factoring in Africa.

Ms. Awani noted that access to finance remained a daunting challenge for most African companies, particularly small and medium-sized enterprises (SMEs) and that, according to Global Banking and Finance Review magazine, SMEs face refusal for 53 per cent of their trade finance applications. “The continent needs factors to fill the trade finance gap and to support SMEs that cannot obtain traditional bank funding,” she argued.

Ms. Awani added that factoring was necessary to help deal with the significant reduction in correspondent banking relationships in Africa, saying that sales in open account terms had highlighted that banks and non-bank financial institutions had the capability to access the global correspondent factoring network of Factors Chain International (FCI) to support international trade in a compliant, risk-managed manner.

Afreximbank was continuing to create awareness, demonstrate the relevance, and highlight the potency of factoring in Africa as part of its commitment to supporting the operationalization of the AfCFTA, she said. That effort was also in keeping with the Bank’s ambition to use factoring as an instrument to implement its Intra-African Trade and its Industrialisation and export Development strategies, continued Ms. Awani.

The Education Director of FCI, Aysen Cetintas gave a rundown of the organisation’s work in support of factoring across the world, explaining that FCI was active in many countries while the Head of the Department of Economic Development, Torusim and Environmental Affairs of Kwazulu-Natal Province of South Africa, Siza Sibande told the participants that the province had introduced SME financing in order to boost economic development.

The one-day workshop was organised by Afreximbank, in collaboration with FCI, for learning and capacity-building aimed at enabling African countries to further develop alternative sources of trade finance in order to address the widening trade finance gap and limited liquidity across the continent. About 100 representatives drawn from financial institutions, legal and regulatory entities across Africa participated in the workshop.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.

ECO: As West Africa Takes the Single Currency Plunge

July 10, 2019

Analysts have started exploring opportunities inherent in the proposed single currency for the West African region; The Eco. It could be recalled that leaders of the 15 member states of the Economic Community of West African States (ECOWAS) met in Abuja, Nigeria, and formally agreed on the name of the planned common currency the “ECO” The currency according to a release from ECOWAS Secretariat Abuja, would be based on a flexible exchange rate regime, coupled with a monetary policy framework focused on tackling inflation.

Observers say there seems to be a sense of urgency in this latest efforts, maybe being buoyed by the recently signed Africa Continental Free Trade Agreement (AfCTA). This is because the target launch date for Eco has been postponed several times; in 2005, 2010 and 2014; since the concept first arose in 2003. Now the Economic Community of West African States (ECOWAS) is planning to launch the currency in 2020, with member states agreeing to name it the ‘ECO’ there seem to be a new sense of urgency.

Reports indicate that governments in the region are keen on more integration and a single currency will facilitate trade, lower transaction costs, and payments amongst ECOWAS’ 385 million people.

Currently, eight of ECOWAS countries i.e. Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo jointly use the CFA franc while the remaining six members have their own independent currencies.

Some analysts are of the view that the single currency if properly implemented will improve trade by allowing specific countries to specialize at what they are good at, and exchange it for other goods that other countries in the bloc produce more efficiently.”

A report by the African Development Bank Group (Afdb) indicates that the 2020 deadline for the single currency will most like be postponed again unless the region can align with its monetary and fiscal policies.

Countries are required to meet a ten convergence criteria, set out by the West African Monetary Institute (WAMI), by the 2020 deadline. The primary four beings: a budget deficit of not more than 3%, an average annual inflation rate of less than 10%, Central Bank financing of budget deficits should be no more than 10% of the previous year’s tax revenue and gross external reserves worth at least three months of imports.

The six secondary criteria to be achieved by each member country are: Prohibition of new domestic default payments and liquidation of existing ones, tax revenue should be equal to or greater than 20 percent of the GDP, wage bill to tax revenue equal to or less than 35 percent, public investment to tax revenue equal to or greater than 20 percent, a stable real exchange rate and a positive real interest rate.

However, reports indicate that although countries may meet the criterion by the deadline they fall behind thereafter thus posing the main difficulty in inconsistencies.

As at today, only five countries, viz; Cape Verde, Ivory Coast, Guinea, Senegal and Togo of the region’s fifteen countries currently meet the single currency’s criteria of a budget deficit not higher than 4% and inflation rates of not more than 5%, as noted by Charlie Robertson, chief global economist at Renaissance Capital.

Additionally, while ECOWAS says the integration will be gradual as countries meet the criteria, it’s unlikely that a 2020 launch date is feasible as there is no significant progress in the design, production, and testing of the currency notes.

Given that various economies in the region are at “dramatically different levels of development,” the leadership of ECOWAS is being unrealistic in both its timing for the currency’s launch and expectations of what it might achieve, Robertson says. “You’ve got very different levels of debt, interest rates, and budget deficits. Trying to align these countries to operate as one is extremely difficult,” he says. “What currency policy is right for two such divergent countries like saying Ghana and Burkina Faso?”

There is also the glaring disparity in the economic size of Nigeria in the region. For example, Nigeria is 67% of ECOWAS’ GDP, so really this isn’t a single currency for 15 countries, this is the Nigerian Naira plus a few countries.

How the leaders hope to close all these gaps between now and next year remains to be seen.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.

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Tag: AfCTA

AfCTA: Africa Will be The Largest Free Trade Area Globally With $3trn GDP

He said that the free trade area could be achieved through proper and successful implementation of the Africa Continental Free Trade Agreement (AfCFTA) that would create a single market for over one billion consumers on the continent.

AfCFTA, according to him, was a treaty that would transform Africa from its fractured commodity dependent growth of economies into a vibrant integrated market of over 1.2 billion people.

He added that having a strategy of interventions to regulate the external manipulation of currency was critical as it was evident that technology would be a highly significant factor in the success or failure of African exports.

“Governments and financial institutions should more aggressively pursue the approach of strengthening the International Monetary System (IMS) multi-lateral surveillance role to directly combat this issue.

“The AfCFTA depends on approvals and implementation and especially raising the agriculture sector.

“It is in agriculture that the continental free trade aspirations can be actualised especially by strengthening the regional value streams integrated into priority products led by diverse private sectors inspired by small business owners, commercial finance, miners and operators.

“If successfully implemented, the continental free trade will create a single African market for over a billion consumers with a total GDP of three trillion dollars which will make Africa the largest free trade area in the world”, he said.

Oramah also said that the tariff on African goods was relatively lower entering the European Union and the U.S. markets, making exports to these destinations more lucrative than exporting to other African countries.

He added that COVID-19 had a disastrous result all around the globe and for Africa as it revealed inefficiencies across various industries like health, logistics and food with issues mainly around vaccines affordability and availability.

Kelechi Deca

Tap Into AfCTA, Adesina Tells Britain

Afreximbank Calls for Open Account Terms for Achievement of AfCFTA Goals

ECO: As West Africa Takes the Single Currency Plunge

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