Closing the trade finance gap in Africa through AfCFTA

Closing the trade finance gap in Africa through AfCFTA

African Continental Free Trade Agreement (AfCFTA) is going to single handedly revolutionize the economies of the African continent – if done right. If done right, AfCFTA will connect about USD 3.4 trillion GDP and 1.3 billion people within the 55 African countries.

AfCFTA which officially began in January 2021 has the goal of boosting trade for goods, services, investments and intellectual property within Africa by reducing tariffs among countries, creating policies that will facilitate trade and having regulations in place that will ensure standards.

With AfCFTA’s ambitious goals, exports within Africa could increase by 29 percent and income by 7 percent within the first 15 years. On paper AfCFTA is a big win for the continent; increased access to markets will increase demand thereby increasing supply at a reduced production cost. However, AfCFTA poses major threats in terms of competitive pressures, failure of local SMEs, job losses, poor working conditions, taxation, privacy, antitrust and much more.

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One of the key driving forces for a successful AfCFTA implementation is digitalization; with digitalization there will be an easier flow of resources (revenue, intellectual property data, information), products and services. But at the same time, AfCFTA is a key driving force to leapfrog digitalization across the continent. First off, AfCFTA will aid in building the digital infrastructure necessary for a digital economy. Across the continent, 59% of the available mobile technology is still 2G, while 4G has a 6% penetration rate in comparison to 91% in North America.

In all 55 African countries it will be imperative to build the digital infrastructure to partake in the revolution AfCFTA is bringing. Within the E-Commerce space for example, a solid digital infrastructure will ensure, “Every African has the potential to become a cross-border trader in an Africa where trade barriers have been broken down by the AfCFTA.”

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