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Pandemic makes African free trade ‘more important than ever’

The domino effect of the coronavirus pandemic will plunge many economies into recession and means the African Continental Free Trade Agreement (AfCFTA) is now needed more than ever to ensure that member states are trading with each other and supporting one another at this time, according to Banji Fehintola, senior director and head of treasury at the Africa Finance Corporation (AFC).

He says South Africa has a very important part to play. It is the most industrialised and diversified economy on the continent and is one of the only financial markets that is sound enough to be tapped for infrastructure projects.

“Trade finance and infrastructure finance are incredibly important in the creation of growth across Africa. However, since the global financial crisis of 2008/2009, some global banks have retreated from emerging markets, including Africa. These means credit capacity from global banks for African Financial Institutions (FI) has reduced considerably, constraining their ability to serve clients’ needs,” he tells Fin24.

No amount of policy change or cuts in taxes will truly make Africa competitive when the physical hinderances are ignored, according to Fehintola.

He says the AfCFTA is not just a dream, but there is a long way still go before it becomes a tangible reality.

The next phase comprises a new set of challenges as the ratifying countries commence implementing the AfCFTA with the goal of truly unlocking Africa’s potential through the free movement of goods, services and people.

He points out that the elimination of tariff and nontariff barriers through the AfCFTA’s ratification is vital to develop intra-Africa and international trade.

As such, infrastructure investment is the foundation on which the objective of intra-Africa trade growth must be built upon. Airports, seaports, bridges, highways and roads must be constructed and properly maintained to allow people to be better connected and ensure goods and services flow seamlessly.

“This is how we put African countries in the best position to truly leverage the AfCFTA,” he says.

Recent estimates by the African Development Bank (AfDB) put the minimum infrastructure needs – for countries to sustain the growth of their economies, population, income level and replace aging infrastructure – at US$130 billion to US$170 billion per annum. At least half of that requirement is currently unfunded.

“Without this funding we will not be able to make the AfCFTA dream a reality. Bridging that gap will require a collaborative effort between governments and private enterprise as well as supranational organisations and Development Financial Institutions (DFI) like AFC, which bridges the divide between a government’s development impact objectives and the private sector’s return-on-investment objectives while also taking the lead in environmental and social responsibility,” he says.

“South Africa, as the most industrialised and diversified economy on the continent, has a very important role to play. It must use its position of strength to show the AfCFTA will be used to level the playing field instead of exacerbating inequality.”

He points out that some African countries have inherent geographical challenges (such as being landlocked), are fragile (such as Guinea, which had its economy collapse during the Ebola outbreak) or have nascent industries, which cannot compete with more-established counterparts.

Therefore, South Africa must be a role model to show that the currently dominant players will not take advantage of the AfCFTA to further entrench itself at the detriment of others.

The Bakwena toll road, for instance, which connects South Africa to Mozambique is an example of sharing the wealth and the burden, in his view.

“This road stimulates agriculture, manufacturing, mining and tourism by integrating the value chain from South Africa’s industrial and commercial heartland all the way to a deepwater port in Maputo, Mozambique,” he says.

“Additionally, this adds to the Mozambican economy, because of the increase in shipments leaving going through the port, and reduces congestion at two South African ports.”

Source: Fin24

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