1. The African Continental Free Trade Area came into action in January 2021.

According to
the World Bank's report THE AFRICAN CONTINENTAL FREE TRADE
AREA - Economic and Distributional Effects, it will lift 30 million Africans
out of extreme poverty and boost the incomes of nearly 68 million others who live on less
than $5.50 a day. Additionally, it will boost Africa’s income by $450 billion by 2035 (a gain
of 7 percent) while adding $76 billion to the income of the rest of the world, and increase
Africa’s exports by $560 billion to name some of the most prominent benefits. 

Regarding the development of Fintech in the framework of AfCFTA, let’s keep in mind that
Fintech needs a dedicated regulatory framework to be able to prosper. 

When 1.3 billion people across 55 countries with a combined gross domestic product (GDP)
valued at US$3.4 trillion join forces, this unravels unforeseen potential for the Fintech
industry.

Payments: Alternative Payment Methods

Who says trade, also says payments. What that means in the context of AfCFTA, is that
payment facilitations will be an absolute necessity. Hence, payment providers addressing this
need, also address a huge opportunity. Wamkele Mene, secretary-general of the AfCFTA
Secretariat told journalists in Nairobi that the trading bloc is working with the African Export
and Import Bank (Afreximbank), to establish a payment and settlement platform to eliminate
the need for currency convertibility. How that translates into a legal framework for payment
providers is however yet to be seen.

(Source: http://www.xinhuanet.com/english/2021-
02/05/c_139723986.htm)

Financing: Crowdfunding, Lending and Credit

With a potential market of the aforementioned 1.3 billion people, a common regulation,
especially in the lending and (micro) credit space would not only allow access to an immense
market, but also allow for substantial support to exit poverty. 

According to research conducted by the The Fintech Times, The top ten largest
banks in the African continent, have a total of $600 billion (based on assets)
which include banks such as Standard Bank (South Africa), Absa Bank (South
Africa), National Bank of Egypt and Zenith Bank (Nigeria)- to name a few.

Imagine the leverage of Fintech solutions around lending and credit in this context - a
tremendous amount of possibilities.

Let’s keep in mind though that the lending space.

(Source: https://thefintechtimes.com/the-101-on-the-african-continental-
free-trade-agreement-afcfta/)

Personal Banking: Robot-Advisory and Personal Finance Management

Let’s remember that the AfCFTA income by $450 billion by 2035 (a gain of 7 percent) - see
intro of this article. That ultimately means an increasing number of people that move from the
un(der)banked space to having a bank account, a growing middle class and hence an
increasing need for banking and insurance solutions. It is a long shot, and like other fields,
personal banking needs a framework. However, the development will be less dependent on
overarching regulatory framework since it is only indirectly connected to AfCFTA - it’s a
private matter. Also, challenger banks and solutions are already in place and can be
developed. AfCFTA will most likely also emphasis the leap-frog effect that the African
continent is experiencing anyway in this area of financial services

This article is not fully comprehensive since we haven’t looked at the effect on/of blockchain
insurtech in this context - blockchain/AfCFTA requires a whole new article. 

However, we can safely say that the AfCFTA is a growth opportunity for the African Fintech
community. Part of this opportunity will require time to materialize since they are bound to a
regulatory framework, i.e. lending, others, i.e. in personal finance.

2. https://www.gtreview.com/news/africa/details-of-new-african-payment-and-settlement-
platform-revealed/

Africa’s challenge when it comes to payments and settlements, Oramah explains, comes down to
the fact that it has multiple local currencies, meaning that cross-border payments typically involve
a third currency, such as the US dollar or euro. This leads to a high cost of intra-African
payments, which can take weeks to process.

“Governments want to build their reserves, so they tend to prefer exports to markets that issue
hard currency. For this reason, a significant amount of cross-border trade occurs informally,”
Oramah says. The issue is compounded by the fact that most traders currently do not have a
system that enables them to settle in a secure way.

He explains that with the new platform, “a buyer in country A buying from a seller in country B
can pay in his or her own currency for the goods, while the seller will receive his or her own
currency. At the end of the day, the only countries that will have to pay dollars will be those in
deficit”.

Although the president concedes that it may not be possible to completely eliminate hard
currencies in trade settlements, he believes that through the platform it will be significantly
reduced.
Off the back of the signing of the African Continental Free Trade Area (AfCFTA), GTR caught up
with African Export-Import Bank (Afreximbank) president Benedict Oramah to discuss initiatives
that the bank will soon be launching, and to hear his views on how best to address Africa’s trade
finance gap.

GTR: Africa’s trade finance gap is estimated to be in the region of US$120bn. What impact
has derisking had on this gap?  What is Afreximbank doing to address the challenge?

Oramah: We know what the international commercial banks are doing. Instead of using the “d”
word, we can say that they are going away. The compliance cost is high. Africa is fragmented – it
has 55 countries: for these banks it’s not interesting, it doesn’t make sense for them. So they pull
out. We’ve had many countries complaining, and many central banks coming to us to complain
about the refusal of international banks to accept or confirm letters of credit issued by local
banks. We are trying to solve this.

We have now finished building the Africa Customer Due Diligence (CDD) Repository Platform,
which we started almost four years ago. The platform will have CDD information on African
corporates, banks and other players. It also provides online chat capability. So if any bank is
conducting a CDD/KYC and wants additional information, it can easily communicate with the
particular bank or entity: they can sit in London and get all the information they need. It will
significantly reduce the cost of compliance. We are going to integrate it into our trade information
portal, and we hope that the banks will subscribe to it. The pilot is starting this month. A full
launch is expected on the sidelines of the bank’s annual meeting in July.

I’m happy that we’ve finished building the platform – hopefully it can be used to bring about the
return of the international commercial banks. We need them. The trade finance gap in Africa is
estimated at US$120bn, but I personally think it’s as much as US$200bn. Afreximbank’s pipeline
alone is about US$50bn and that’s only a small fraction of the market.

GTR: What is new in the conversation about intra-African trade today?

Oramah: Whereas a few years ago, intra-African trade was political talk, today it is becoming a
reality. African companies are beginning to look across their borders for markets. The different
African governments are also beginning to design continental strategies.

What is new is the signing of the Africa Continental Free Trade Area (AfCFTA) on March 21.
It is a giant step from our perspective: that day 44 African countries signed to form a single
market. The ratification process is still ongoing: it needs 27 countries for this to happen, and the
African Union believes this will happen before the end of the year and that the agreement will
become effective early next year.

Something else which is new, and which supports the AfCFTA is the upcoming, first-ever Intra-
Africa Trade Fair, promoted by Afreximbank in collaboration with the African Union and the
government of Egypt. It will be held in Egypt from December 7-18. We expect more than 70,000
visitors and 4,000 exhibitors at the fair, which we plan will take place every two years. Those that
cannot attend in person will be able to participate – and close deals – virtually.

Separately, Afreximbank is about to launch the Pan-African Payment and Settlement Platform,
which will boost intra-African trade. We have been working on it for a couple of years. The plan is
to start the pilot in six West African countries by the end of the year, and then accelerate
implementation.

The problem is that Africa has multiple currencies. Apart from the West and Central African CFA
countries, every other country has its own currency. In cross-border trade, payments are made in
hard currency – either the US dollar or euro – which means getting a third currency involved.
Governments want to build their reserves, so they tend to prefer exports to markets that issue
hard currency. For this reason, a significant amount of cross-border trade occurs informally. Our
estimates put informal cross-border trade at almost US$40bn, and this is compounded by the
fact that most traders do not have a system that enables them to settle in a secure way.

The platform will help formalise informal trade – it will be available on mobile devices – and it will
reduce the foreign currency content of intra-African trade payments. It will provide a clearing
platform. So buyer in country A buying from a seller in country B can pay in his or her own
currency for the goods, while the seller will receive his or her own currency. At the end of the
day, the only countries that will have to pay dollars will be those in deficit. We believe that while
we will not achieve zero foreign currency content, it will reduce significantly.

We are partnering with the West African Monetary Institute (Wami) to launch the pilot. The West
African Monetary Zone is the continent’s only economic community that does not already have a
settlement platform.

We want to start with a clean slate and then roll it out, because the solution we have resolves the
reason for the low volumes in some of the other existing settlement platforms.

GTR: What does the AfCFTA need to truly succeed? What are the challenges to boosting
intra-Africa trade?

Oramah: What happened in March 2018 was a political act – the governments signed a
document. The political act is huge, and it provides the framework that harmonises a couple of
things over time. It is extremely useful. But the people who make it work are the business people.
To help them to do so, we have to deal with the challenges that African countries face today.

One of the biggest problems that intra-Africa trade has today is a lack of trade information. For
example, Kenya today imports certain kinds of leather from outside Africa, which can be sourced
in Burundi. Egypt imports meat from outside of Africa – but Chad produces a lot of that kind of
meat. There are several such examples. The average African businessman who wants to do
international trade does not view another African country as a market.

People say that infrastructure is the biggest problem. My counter-argument to that is yes,
infrastructure is a problem, but Africa’s infrastructure today is able to carry about US$1tn of total
Africa trade, so why is intra-African trade’s share only US$150bn?
 

GTR: What is Afreximbank doing to help alleviate these problems?

Oramah: Afreximbank is building a trade information portal for African businesses. The platform
will vend information – some of which will be free. It will also offer bespoke advisory services,
such as market entry studies.

At the same time, the African Union is also working on what it calls the ‘trade observatory’, with
the support of the International Trade Commission (ITC). The plan is to see how to merge the
two initiatives because we want to make sure that the information is available.

In terms of infrastructure, our approach is to support the infrastructure that supports the
manufacturing of goods and services that impact trade, for example, the construction of industrial
parks. Africa currently imports about US$60bn of light manufactures from China. We know that
the Chinese are moving away from light manufacturing, so we need to attract some localised
companies to fill this gap, otherwise another country will take over from China to sell those
products to Africa.

Amongst other infrastructure-related initiatives, we also have a programme to support vessels

that can carry goods along the coast of Africa. We are contributing where we can.

We are about to start a study of a type never done before to get the status of the infrastructure
that currently carries trade today – how trade is transported, and the volumes that are carried.
People don’t use the roads that we think they use. The actual goods carried in trade today are
not the ones governments are focusing on. We intend to give our findings to institutions that
support these projects, like the World Bank, so that they can get an idea where their financing
would be most effective. It will be a continent-wide initiative. We are in the process of doing the
selection of the people who will do this study.