AfCFTA’s initiative aims to develop regional value chains

The latest development designed to boost trade in Africa s continent-wide free trade zone is AfCFTAs Guided Trade Initiative (GTI).

means African countries no longer need to use third-party currencies during trade transactions among themselves.

In September 2022, the Afreximbank Trade Payment Services (AfPAY) was launched. AfPAY facilitates the settlement of international trade on open account terms on behalf of identified African financial institutions and their clients and was developed specifically to address African banking challenges, exacerbated by the withdrawal of international banks, but due mainly due to stringent regulatory and compliance requirements but also due to rising costs.

DEVELOPMENTS

Since the establishment of AfCFTA, there have been significant developments for intra-African trade with the launch of Transaction Guarantee instrument, PAPSS and the Base Fund of the AfCFTA Adjustment Fund, says Foundethakis. Increased investment, both within Africa and internationally, will ensure a continued decrease in the trade finance gap and a consistent boost to social and economic growth in Africa.

Launched in October 2022, it aims to test meaningful, continuous trade under AfCFTA and assist in the development of regional value chains to allow for more climate-friendly, sustainable trade across the continent.

Virusha Subban, a partner specialising in customs and trade and head of Tax at Baker McKenzie, Johannesburg, says the GTI will test AfCFTAs policies, legal framework and operational and institutional environments.

There are eight countries participating in the GTI that have all met the minimum requirements in terms of AfCTA’s tariff book and rules of origin Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia. The GTI will allow the shipment of goods from these countries through customs clearance, including ceramic tiles, sisal fibre, batteries and beverages and foodstuffs, including tea, coffee, processed meat products, corn starch, sugar, pasta, glucose syrup and dried fruits.

African countries receiving these goods, she adds, will benefit from reduced tariff treatment and possibly eventually from zero tariffs. The GTI will also focus on increasing opportunities for small and medium enterprises, youth and women in trade.

AfCFTA hopes to boost intraAfrican trade from 14.4% of total African exports to more than 30%. In addition to making it easier to trade, Subban explains that the aim of the free trade area is also to eliminate tariffs on intra-African trade, reduce unemployment, increase infrastructure development and create a more competitive and sustainable environment for cross-border trade. The challenge, however, is

A Boost In Local Production And Regional Trade Will Make Africa More Competitive

the continent s huge gaps in infrastructure, especially its utilities and transport infrastructure, which have hampered the ability of African countries to trade.

“Transport challenges in African countries, made worse by the issues in global supply chains in the past few years, have caused significant trade blockages, especially with regard to transporting goods to, and out of, the continent s ports.

Other issues, such as severe weather events, are also affecting trade supply chains in Africa says Subban. For Africa to make the most of free trade, the continent must address these challenges, she says. Encouragingly, there are projects already in progress to boost the development of continent-wide infrastructure such as Tanzania s construction of the Standard Gauge Railway to provide a safe and reliable means for efficiently transporting people and cargo to and from the existing Dar-esSalaam port, among others. The continent also needs to address supply chain challenges by boosting manufacturing capacity and reducing its reliance on global suppliers and shortening its supply chains to make them more sustainable, says Subban. She adds that facilitating sustainable trade under AfCFTA requires a drastic increase in climate financing for continentwide major investments in infrastructure, manufacturing capacity, clean energy and climate change adaptation. A boost in local production and regional trade the latter which is currently being developed through initiatives such as the GTI as well as the development of climate resilient infrastructure and manufacturing, will make Africa more competitive globally, says Subban. If the continent s gaps in infrastructure and manufacturing can be developed in a sustainable way, such as investments in renewable energy projects, food security initiatives, shortened supply chains and projects that assist SME, women and youth traders, Africa s free trade successes will benefit the whole planet.

FINTECHS ARE POSITIONING THEMSELVES TO ADDRESS THE GAPS

CURRENTLY NOT MET BY BANKS

The Accenture research revealed there is a mismatch between banks trade finance offerings and client needs. As a result, corporate clients are actively reviewing their roster and number of trade finance partners. The survey revealed that 67% of clients are planning to change their roster of trade finance partners in the next 12 months, 72% say they will change the number of partners on their current roster, while 62% say they already have five or more trade partners.

It found the product most clients wanted was inventory financing with growing demand for pre-shipment finance. In addition, there is a need for purchase order financing for small to medium buyers and payable finance for multinational corporations. Respondents said they wanted more efficiency and faster turnaround times, more competitive pricing, easier access to credit facilities and improved access to international markets.

The biggest threat to banks trade finance offerings are innovative new fintechs which are ready to supplement or displace banks if they fail to meet the needs of clients. The Accenture report highlights that fintechs are positioning themselves to address the gaps currently not met by banks by offering clients flexible access to liquidity and technology-driven due diligence as well as digital processes that enable them to trade internationally. The report advises banks to invest in digitalisation and automation to help corporate customers address their manual, error-prone pain points; forge technology partnerships which include leveraging strategic partnerships with big tech, fintechs, ERP software vendors and other platforms to create interconnected solutions; and to offer sustainable products and ESG advice to help clients navigate the challenges of reducing emissions and reporting on ESG emissions.

The banks that get this right, says Accenture, will enjoy new revenue opportunities and expanded market share.