To be successful, you have to have your heart in your business and your business in your heart.
—-Thomas Watson Sr.
It is a known secret that many of the fastest growing economies of the world are in Africa, but regional economic integration and intra-African trade leave much to be desired. The direction of the continent has undoubtedly over the years been toward commodity and agricultural exports while importation of capital goods or food products have predominantly been from outside the resource-rich continent.
Africa has a huge potential for export growth as global trade share is less than 3%. However, export diversification is yet be achieved, as many African countries still rely on rents from extractive exports whilst falling behind on industrialization efforts. Intra-African trade remains below its anticipated potential, posting 17% of the total African trade volume in 2017. In contrast, intercontinental trade accounts for 51% of exports in North America; for 49% in Asia; for 22% in Latin America while among Western European countries, this number reaches 69%.
This shows clearly that Africa is integrated with the rest of the world faster than wit itself.
The Agreement establishing the African Continental Free Trade Area (AfCFTA) was signed at the 10th Extraordinary Summit of the AU Assembly on 21 March 2018 in Kigali, Rwanda. The AfCFTA Agreement entered into force on 30 May 2019. The AfCFTA is the continent’s most ambitious integration initiative.
The main objectives of the AfCFTA are:
- Create a single continental market for goods and services, with free move- ment of business persons and investments
- Expand intra-Africa trade across the regional economic communities and the continent in general
- Enhance competitiveness and support economic transformation
Eight RECs have been officially recognised as building blocs of the AfCFTA:
ECCAS, ECOWAS, EAC, SADC, COMESA, AMU, CEN-SAD and IGAD.
Market of 1.2 billion people with a combined GDP of US$3.4 trillion. The AfCFTA area boasts of over 400 companies that earns annual revenues of US$1 billion or more. Some of the Core Partners of AfCFTA Secretariat includes Department of Trade & Industry of the Afircan Union Commission (AUC), United Nations Economic Commission for Africa (UNECA) and Afreximbank, GIZ etc.
Opportunities and Benefits for the Banking Industry
The success of AfCFTA will rely heavily on Africa’s financial services industry’s ability to serve as the brain of the liberalization process. As indicated by the World Trade Organization (WTO), International Monetary Fund (IMF) and other international economic organizations, the financial services sector should take a lead role in providing the major tools necessary to implement robust trade agreements. These include but not limited to:
- Allocating capital funds.
This is to effectively and efficiently take care of productive investment. Banks will have the opportunity to help move funding across various areas of need by pan-African businesses with its accompanied international appeal. The opening of new markets and easing of cross-border transactions envisioned under the AfCFTA are expected to increase capital funds and promote both foreign direct investment and intra-continental investment within Africa.
Banks must position themselves to lead the way and also develop new technologies to adapt to the diversifications which will result from the Agreement.
- Mobilizing Savings.
One of the most crucial businesses of banking is to mobilize savings across various sectors of the economy. Savings present a life blood for banks and getting that in excess will help with overcoming liquidity challenges. With the ratification of AfCFTA, the industry will have access to funds from businesses in the form of savings mobilization as many of the local and pan-Africa businesses will operate accounts wo facilitate development.
This opportunity will provide competition within the industry and therefore banks which position themselves appropriately, will benefit enormously.
- Provision of Credit.
Banks if well positioned, will have access to a large pool of funds to lend, thereby creating opportunities to reap benefits. The banking sector will be relied on to provide the credit and support necessary for certain industries to move forward. This is particularly true of the infrastructure and manufacturing sectors, which will be at the center of Africa’s development goals following the AfCFTA’s enactment.
To be successful in achieving sustainable growth, Africa must improve its infrastructure and invest in the development of new technologies. To compete on the global stage, African businesses will need financial support to modernize Africa’s industries. Without the financial services sector playing its part, the potential economic advances envisioned under the AfCFTA will fall short.
- Monitoring Managers.
As banks provide credit to various potential stakeholders to facilitate business for growth and development, they become monitoring authorities also for executing of various projects. This helps in halting diversionary tactics which sometimes bedevils many SMEs and other large corporates within the lending space. Effective monitoring will inadvertently reduce the credit risks within the industry.
The stringent legal measures and the expected profiling of institutions under the Agreement of AfCFTA, will enable banks access great data for transactions and greatly improve risks associated with onboarding of businesses.
The AfCFTA has the potential to transform Africa’s economy. The opportunities under the Agreement are plentiful. If properly implemented and supported, the free trade of goods and particularly, services envisioned in the AfCFTA could result in real, sustainable growth for the continent. The time is now for Africa’s baking industry to begin taking a lead role in planning for the Agreement’s enactment and setting the stage for successful implementation. This sector has the potential to benefit from its efforts to ensure that the Agreement is fully and completely supported upon enactment. It must support both governments and private businesses in laying the framework for long-term growth. Africa is on the threshold of significant development but that will need an unmatched push to reach its full potential.
About the Writer:
Ebenezer ASUMANG, CGIA worked extensively in mainstream Banking & NBFIs. He is a Chartered member of the CGIA Institute, USA, a Google Certified Digital Marketer and an Author.
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