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The Independent Observer > Business > Stimulating Free Trade in Africa: What will it require?

Stimulating Free Trade in Africa: What will it require?

 By Staff Writer
As Africa works towards negotiating and ratifying the African Continental Free Trade Agreement (AfCFTA) next year, Standard Bank Head of Trade Product Management Kevin Holmes highlights some of the challenges around the practical implementation of the agreement. 

With African countries reeling under the additional pressure placed on their economies in the midst of the COVID-19 crisis, the urgent need for the successful ratification and implementation of AfCFTA, and the positive impact it will have on the continent in the future, is being highlighted.

The trade agreement aims at boosting intra-Africa trade by more than 50% through the elimination of certain import duties and non-tariff barriers, effectively creating the largest free trade area in the world. It would connect 1.3 billion people across 54 countries with a combined gross domestic product valued at US$3.4 trillion. Effectively, 90% of the participating countries’ tariff lines and 90% of imports would be liberalised.

Trading under the new pact was set to commence on July 1, 2020, but the pandemic resulted in a delay, with the new launch date now expected to be January 2021, according to Louis Yaw Afful, the executive director of the AfCFTA policy network.

While I am optimistic that the trade agreement will promote strong recovery for African economies as they start the process of economic recovery from the Covid-19 pandemic, there are many challenges that still need to be addressed in terms of the practical implementation of the agreement,” says Holmes, who also co-chairs BAFT’s recently launched regional African council. “The BAFT Africa Council is an optimal vehicle for public-private sector collaboration to address these practical implementation challenges.

“In many ways the coronavirus crisis has spotlighted the industry’s shortfalls and forced us to implement positive changes to make cross-border business dealings easier. Standard Bank is now, for example, working on implementing a programme to introduce e-signatures and e-documentation in collaboration with local regulators,” says Holmes.

He stresses, however, that there are realities around the agreement – particularly at government level – that are challenging. “The reduced income from customs duties will have a very real impact on governments who rely on this as a core part of their revenue. Many governments are already discussing how to navigate this shortfall,” says Holmes. “We also need to find common solutions for paperwork at borders, insurance etc.”

The role technology will need to play – and the implementation of functional, validated IT systems – cannot be under-emphasised. “Here’s a practical example: imagine a set of goods where 90% falls under the free trade agreement and 10% doesn’t. How are border customs expected to observe the difference between which goods qualify and which goods don’t? Technology has to be the enabler to address challenges like this,” says Holmes.

He notes that solutions for economic growth issues aren’t just governments’ problem to solve, the private sector needs to provide support and input too.

“For example, a Standard Bank investigation into the trade finance gap – which sits at a startling US$1.5 trillion – showed that a big part of this gap is around KYC (Know Your Customer) and information sharing. Technology could provide a smart solution to this, thus enabling greater economic growth and a reduction in the poverty that the trade finance gap creates,” says Holmes.

“Right now, those impacted the most in terms of compliance are SMEs, especially regarding anti-money laundering (AML) or fraud. A KYC repository should be set up, along with non-traditional risk review approaches to assess SMEs. Right now, it is difficult for them to provide standard documentation that would normally be used to review credit applications. These are areas that also need to be addressed and ratified by the trade agreement.”

 

Holmes stresses the need for the fintech industry to create a centralised platform for data, information, and technology enablement so that free trade agreement opportunities can be maximised.  “Currently there is a fragmented approach to this challenge; for example, here in South Africa each bank has its own systems and protocols.”

He says there are also questions around whether African countries are technologically able to implement the levels of cloud computing and information digitisation required for the smooth and legitimised execution this sort of trade agreement would require.

“It is imperative that we take a collaborative approach, using fintech to solve the issues the continent faces,” says Holmes. He points out that BAFT has already taken steps to encourage a collaborative approach and address some of the issues around integrated work schemes by releasing papers on how this should be addressed, as well as regulatory engagements and forums.

“AfCFTA offers infinite positive opportunities for Africa, and the best approach for solution enablers is to work with all bodies to understand the individual and collective hurdles and needs,” says Holmes.

Darren Turnbull, CEO at MoData, adds “Our conversation with Kevin Holmes provided interesting insights into the challenges and opportunities presented by the AfCTA agreement. With shrinking margins in trade finance business, the biggest challenges that organisations are facing today include improving service levels, increasing scale of operations and ensuring regulatory compliances.”

 

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