FIs, Startups and Policymakers Drive Intra-African Trade, Payments Within EU-Style Customs Union

Africa is often lagging behind when it comes to global trade but in recent years, projects aimed at building a more autonomous pan-African economy, many of them under the rubric of the African Union (AU), are seeking to redress that balance and secure a more prosperous future for Africans.

A key component of the AU’s economic vision is increasing the volume of trade between African countries and ensuring that the continent’s wealth is distributed fairly.

To this end, the United Nations Conference on Trade and Development (UNCTAD) recently announced that it has signed a Memorandum of Understanding with the African Continental Free Trade Area (AfCFTA) Secretariat to support their joint efforts to promote regional integration and growth in Africa.

The AfCFTA is intended to foster deeper economic ties and boost intra-African trade by reducing tariffs and other barriers to moving goods between countries. With the ultimate goal to establish a customs union similar to that found in the EU, the AfCFTA is the most ambitious attempt at pan-African economic integration to date.

Prior to the establishment of the free trade area, significant progress had already been made. For example, pan-African banks like Ecobank and Afreximbank were founded in the late-twentieth century to reduce the continent’s dependence on European institutions and financially empower governments and businesses in the region.

Related: Afreximbank’s Payment System Goes Live With 12 African Banks

Today, both banks serve an important role in enabling intra-African trade and have come out as vocal supporters of the AfCFTA.

As Ecobank’s head of FinTech Djiba Diallo told PYMNTS recently: “I strongly believe that we are not exchanging enough between ourselves and having [platforms like the AfCFTA] is definitely a very good opportunity to [govern] intra-African trade and exchange that I believe will create more wealth in the continent.”

Read the Interview: APIs Bridge FinTech Infrastructure and Bank Regulatory Expertise

While tariff liberalization is a critical pillar of the AfCFTA, the recent agreement with the UNCTAD will mostly address other ways of cultivating intra-African trade.

After all, realizing the potential of the AfCFTA will also require significant infrastructure investment and long-term policy cooperation between member states on issues such as competition law, intellectual property and commercial arbitration.

Reducing friction in cross-border payments is also critical to easing the flow of trade between countries. Here, the AfCFTA was instrumental in establishing the Pan-African Payment Settlements System (PAPSS) which went live earlier this year.

“For a trader across the border, it means that [they] will be able to get goods very quickly, as well as trade them and recover funds very quickly which will increase the velocity of money and ensure that businesses move quickly,” PAPSS Deputy CEO John Bosco Sebabi, told PYMNTS at the time.

Watch Bosco’s interview: Instant Payments Set to Boost Intra-African Trade by $5B Annually

By freeing up the movement of funds across the continent, PAPSS hopes to boost Africa’s internal trade, which Sebabi said accounted for only 16% of the continent’s total, by $5 billion a year.

Startups Address Trade Barriers

Aside from pan-African projects orchestrated at the political level, private sector innovation and technology development will also play a crucial role in increasing the continent’s internal trade volume.

Inefficient supply chains, fragmented digital infrastructure and high rates of financial exclusion still plague many African countries. That being said, startups on the continent have emerged as key drivers of change and are contributing toward more effective national and cross-border business transactions.

For example, to tackle supply chain inefficiencies, a handful of business-to-business (B2B) eCommerce platforms have sprung up in the last few years to address the challenges of international procurement and to connect African buyers and sellers in a digital marketplace.

Read on: B2B Marketplaces Digitize Corporate Procurement, Tackle Africa’s Inefficient Supply Chains

Meanwhile, a burgeoning Agri- and FoodTech scene is looking to equip the different players in Africa’s food supply chains with the tools needed to thrive in an international business environment.

See more: FoodTech Investments Help Streamline Africa’s Agriculture Trade, Connect Fragmented Supply Chains

From farmers to informal retailers, tech startups like ThriveAgric and MaxAB are designing solutions that bring the benefits of intra-African trade to the businesses at the heart of the African food system.

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