AfCFTA to help unlock Sh25.8 trillion intra-African trade – report

Expected to further support formalisation of cross-border informal trade.

In Summary

•According to Afreximbank, cross-border informal trade (ICBT) contribution is not known partly because it is simply not accounted for in balance of payments.

•Kenya-Uganda-Tanzania borders among areas with a large number of cross-border informal trade activities. 

Entry POINT: A billboard gives direction to the Kenya Revenue Authority offices at the Kenya-Tanzania border of Namanga/FILE
Entry POINT: A billboard gives direction to the Kenya Revenue Authority offices at the Kenya-Tanzania border of Namanga/FILE

Trade within African countries could grow by up to $231 billion (Sh25.779 trillion) if a free trade area is promoted, according to a repot by Afreximbank.

The bank notes that that the The African Continental Free Trade Area has the potential of opening the path towards towards formalisation of cross-border informal trade(ICBT).

According to the African multilateral trade finance institution, the export potential of intra-African trade remains untapped , currently at more than $84 billion (Sh9.374 trillion).

"The untapped proportion is based on sectors that have already proven to be internationally competitive and which have good prospects for export success in other African markets," the report by Afreximbank and United Nations Economic Commission for Africa (UNECA) states in part.

Products with the greatest export potential include minerals, machinery, food products, motor vehicles and parts, and plastics and rubber.

The untapped figure of $84 billion is overwhelmingly concentrated in Southern Africa, with $53 billion of the total. North Africa comes next with $13.4 billion, followed by West Africa with $9.5 billion and East Africa with $7.8 billion (Sh870.5 billion).Central Africa comes firmly in last place with just $840 million.

About 32 countries  have so far deposited their instruments of AfCFTA ratification with the African Union Commission, among them Kenya, Ghana, Rwanda, Niger, Chad, Congo Republic, Djibouti, Guinea, Eswatini, Mali and Mauritania.

Others areNamibia, South Africa, Uganda, Ivory Coast (Côte d'Ivoire), Senegal, Togo, Egypt, Ethiopia, Gambia and Sierra Leone .

According to the lender, intra-African trade is expected to expand considerably during the AfCFTA’s implementation, which starts on January 1.

“The agreement has the potential to accelerate industrialisation processes and boost cross-border trade, which is increasingly dominated by manufactured goods,”it said yesterday. 

However, there is need for “a stronger commitment to a speedy implementation” of the AfCFTA and commencement of trading there-under.

To support trading, Afreximbank and the African Union have developed the Pan-African Payment and Settlement System (PAPSS), a platform that will make it possible for intra-African trades to be settled in local currency.

Beyond mitigating the continent’s exposure to recurrent adverse commodities terms of trade and commodity price cycles, the growth of intra African trade associated with the AfCFTA will cushion the region against escalating trade tensions which remains the chief near-term downside risk to global growth and trade, the bank says.

Meanwhile, the continental agreement is expected to support ICBT  by reducing the costs of formal trade and improving trade related and logistics infrastructure, including through digital payment and settlement systems.

ICBT is estimated to account for a significant portion of intra-African trade; and in a context of limited employment opportunities in the formal sector, it has been critical for generating employment and income needed to sustain living standards in countries where social safety nets and unemployment insurance simply do not exist.

The Kenya-Uganda-Tanzania borders are among areas with a large number of cross-border informal trade activities, mainly  by women and youths in small markets and volumes.

Tax evasion remains a major challenge for authorities as borders continue to record illegal smuggling of goods.

When done correctly, ICBT remains an important source of income for vulnerable groups and the path for reducing gender disparity through women economic empowerment, Afreximbank notes.

It has a significant contribution to the continent’s economic development, expansion of intraregional trade, job creation and gender equality, as well as the realisation of Sustainable Development Goals (SDGs).

Very little is known about its dynamics, scale and composition as well as its contribution to intra-African trade.

“For most countries across the region, its contribution to African trade is not known partly because ICBT is simply not accounted for in balance of payments and national accounts statistics,” said Benedict Oramah, President, Afreximbank.