Banks key to Africa’s economic integration

It was a historic occasion. One year ago, the African Union held an Extraordinary Summit in which the signing of the African Continental Free Trade Area agreement (AfCFTA) was concluded.

With Gambia’s recent ratification of the agreement, the threshold for it to come into effect across the continent has been met and the agreement will be in force in 30 days.

Gambia’s decision has brought to life the most important free trade agreement since the founding of the World Trade Organisation (WTO). The trade agreement pools one billion people together and up to $ 3 trillion of cumulative Gross Domestic Product (GDP).

That this agreement is important was evident at the Africa CEO Forum in Kigali, Rwanda last month, where hundreds of African heads of State, government officials, top corporate executives and investors met. There was agreement at the forum that such an agreement is needed to unlock the potential of the existing continental treaties for business and economic growth.

With Africa struggling to return to sustained growth, and foreign direct investment flagging, the ideal of a common market offers the private sector a unique opportunity. Whichever way you look at it, business must now weigh in on the ongoing discussions in order to determine the real priorities for economic integration and achieve much needed changes.

Fostering intra-Africa trade today is fundamental to the continent’s future economic wellbeing.

The words by the president of the African Development Bank Akinwumi Adesina, on the need for Africa to integrate ring true today as they did in 2016 when he told the World Economic Forum on Africa: “We have got to be so impatient with moving Africa forward relentlessly, we have no choice.”

African governments must be deliberate in crafting national policies geared towards pushing individual nations towards the objectives of the umbrella trade agreement.

The private sector too needs to play its part in agenda setting to help spur economic activity under the auspices of government agencies and policy frameworks. The economic dividends are evident, for integration and the trade benefits it holds. Unfortunately, organic and inorganic challenges have hindered progress.

Regional integration and its economic benefits have over time become a valuable tool for the facilitation of trade, the world over. Regional markets are a useful tool for attaining development goals and spreading economic dividends beyond geopolitical borders. Unfortunately, the AU and the sub-regional bloc’s initiatives have faced many challenges along the path to true integration.

The post-independence difficulties that have dogged African nations for more than half a century, namely wars, poverty, corruption and mismanagement have made almost any realisation of successful regional and continental integration and trade an impossibility.

Trade remains a powerful catalyst for poverty reduction and economic growth. Africa has yet to capture the vast economic growth-enhancing benefits of regional trade. The continent's share of global GDP still averages a paltry three percent.

Africa also misses out on multiple growth and development opportunities because one of the essential vehicles of trade, namely trade financing is inadequate. The current shortfall is significant and worrying. Commercial banks finance one-third of Africa’s commerce, but the finance gap still stands at $90 billion annually. This gap must be adequately addressed for the potential of the continent to be reached.

It is estimated that for every dollar spent on trade facilitation via commercial banks, there is a return of up to 70 dollars in economic benefits. Banks supporting cross-border trade can, therefore, be one of the most important vehicles available to deliver the potential of regional trade.

The banking industry can, therefore, play a critical role in the growth of trade from the micro to the macro level. Commercial banks are best placed to provide comprehensive, accurate and current information for both the buyers and sellers aligned under the new intra-government framework. Financing, management of risk and settlement of trade transactions can be done under one roof through banks.

Financial institutions through strategic partnerships have been able to develop regional models, to better capitalise on the opportunities along trade corridors. There is need to continually facilitate local and cross-border activities to finance operations and liquidity, as well as mitigate risks inherent in trade.

At the core of African integration, the African Economic Outlook (AOE), 2018 suggests that “a borderless Africa” is one of the key foundations of a competitive continental market that could serve as a global business centre. AfCFTA, therefore, offers substantial gains for all African countries.

The private sector has its role to play in propelling regional financial integration in East Africa and the continent at large. A guiding hand in actualising sustainable, equitable growth and development for countries and regions alike. We will continue to be at the forefront in offering financial services that are aimed at facilitating cross-border trade.

Now, “the winds of change,” have once again swept across our land. With a solid base formed under the economic benefits of integration, African nations will have more bargaining power as regional blocs. The economic dividends will be felt for the mid and long term, and Africa will take its rightful place on the global stage.

Banking can be utilised toward the realisation of the “African Renaissance,” the theme of the recently concluded Africa Union meeting. As a great African scholar once said: “The African renaissance is about building new Pyramids.”

The time to finance and actualise that dream is now.