Critical financial industry reforms needed to make AfCFTA work

As the continent suffers the consequences of the Covid-19 pandemic, AfCFTA must not be relegated to the background.

The recently concluded Annual Meetings of the African Development Bank remind us that the consequences of Covid-19 will weigh on the continent’s economic prospects for the foreseeable future, with between $145-$190 billion lost in terms of GDP, 30 million people falling into extreme poverty, and economic growth in 2021 less than half the world average. In a world faced with a crisis of such magnitude, the temptation to protectionism is gaining ground.

Africa must avoid this trap at all costs. Even more so as the African integration was given a huge boost just before the crisis, thanks to the adoption of the AfCFTA. This ambitious project must not be allowed to suffer. To the contrary, it should be used as the powerful tool it is, both to mitigate the consequences of the pandemic and to transition to a more unified Africa.

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AFIS – the leading pan-African financial industry platform that brings together private operators and public institutions – calls for a critical acceleration of financial reforms as a priority step to achieve the overarching goals of the AfCFTA. We think that the African financial industry has a decisive part to play in supporting companies and individuals to trade and invest across the continent and ease cross-country payments and capital flows.

As announced by Wamkele Mene, the General Secretary of AfCFTA, the launch of the Pilot Phase for the Pan African Payment and Settlement System (PAPSS), developed by the African Union and Afreximbank, is a game-changer. Today, payments for intra-African trade are convoluted. They often require involving a non-African intermediary state even for trade between neighboring countries.

Such inefficiencies up fund transfer costs within the continent. Previous initiatives aimed at modernizing regional payment systems have failed to resolve this problem. Besides accelerating implementation of PAPSS, AFIS now calls for a single and unified norm of QR (“Quick Response”) that will allow full interoperability between banks and payment platforms across Africa, as well as permitting payments from banking and mobile money accounts.

To make AfCFTA a success, facilitation of capital flows and non-convertibility of African currencies must also be considered a top priority. In Africa, most cross-border transactions require the Euro or US Dollar, which makes economic and financial integration considerably difficult. Concrete and critical solutions exist.

It is possible to create a “unit of account”, a single measure which would provide an equivalent between African currencies without going through a non-African currency and thus reduce the non-convertibility of the currency risk. Alternatively, we can implement 2-3 regional currencies to simplify trading between currencies in Africa. We want to raise the issue of harmonization and capital flows’ liberalization between different exchange rate regimes to mitigate the exchange risk and make operations more affordable.

For the African financial industry to play its role in favor of African economic integration, AFIS also urges regulatory bodies and policy makers to accelerate collaboration and go further towards greater harmonization. Even if the process may be long, it is a vital step to take. Practical reforms could be: to create a platform for a supervisory college until regulators come together; to develop common rules for accounting in Africa (there are far too many different standards) and to establish minimum standards to share data across the borders to facilitate credit; to create a credit bureau at the Pan-African level; to develop a regional platform for capital markets.

It is also desirable to start to harmonize the minimum level of capital required for banks and insurance companies, considering the size of the economies, and to recognize agreements between countries for managers and skilled labor, which could ease skill transfers between African countries. To accelerate African integration, harmonizing consumer protection regimes, cyber security and handling disputes at a Pan-African level also need to be swiftly addressed.

At a time when the Covid-19 pandemic is severely impacting the development of the continent, and the rest of the world risks looking more and more inward, institutions, regulators and operators of the African financial industry cannot ignore their responsibilities towards Africa’s accelerated integration. We have to keep working together through public-private discussion platforms to seek solutions and stay on track to a more connected, resilient and confident Africa.

A quarter of the world’s population will live in Africa by 2050. Its emergence as an economic global powerhouse cannot be delayed. Financial integration is the cornerstone of the AfCFTA. Without it, it would probably be bound to fail.

Bode Abifarin, Paul-Harry Aithnard, & Mary Wangari Wamae

Abifarin, Aithnard and Wangari Wamae are members of Advisory Board of African financial industry platform, AFIS Advisory Board