Opportunities in volatile trade environment, the AfCFTA perspective
Trade Finance is the fundamental driver of economies around the globe. Regardless of economic cycles and the implications of macro events such as the financial crises in 2007 and 2008, Brexit, the economies of all countries around the world continue to be driven by parties trading commercially in exchange of goods.
Therefore, smooth settlement of commercial contracts and a smooth exchange of goods to satisfy the demands of the end consumers is paramount.
The outbreak of the COVID-19 pandemic caused a huge disruption to all sectors of global economy most especially international trade in goods and services, which dipped by about 10 percent in 2020 because of the lockdown in many parts of the world and the disruption in production, supply chain and consumption.
Further effects of the COVID-19 were the limitations in the movement of goods and services as well as people, huge demurrage payments due to delays in receipt of negotiated sets of documents for clearing at the ports.
According to the United Nations Conference on Trade and Development (UNCTAD) Secretariat calculations on national statistics, it was noted that international trade began to recover slowly for a lot of the major economies during Q3’ 2020, while a noticeable general recovery happened in Q4’ 2020.
In Nigeria, a significant 57.60 percent increase was noted in foreign trade goods when comparing 2021 with 2020. This was according to the National Bureau of Statistics (NBS).
Africa’s growth in trade
The fast growth of population and markets in Africa offers businesses several opportunities despite the slow growth globally.
Investments and innovations from businesses within Africa are necessary to meet the ever-growing demand for goods and services, infrastructure gap closure, job creation and poverty alleviation.
African Continental Free Trade Area (AfCFTA) has created a borderless market worth $3.4 trillion. This would reduce contraction in growth caused by COVID-19, reduce inequality and poverty trends, and encourage an inclusive continental growth.
Africa’s current population of around 1.2 billion people is projected to reach 1.7 billion by 2030. It has been noted that 34 percent of households in Africa live below the international poverty line of $1.9 per day.
Also, approximately 40 percent of the total wealth belongs to 0.0001 percent of Africa’s population, according to a report issued by the UNCTAD. The pandemic has worsened the case of vulnerabilities and inequalities of marginalised people, leading to an additional 37 million people in sub-Saharan Africa (SSA) living in extreme poverty.
Data from the African Development Bank (AfDB) show that the continent’s current untapped export potential amounts to $21.9 billion. It is expected that an export potential of $9.2 billion would be realised through a partial tariff liberalisation plan of AfCFTA over the next five years.
Also critical is enhanced pan-African collaboration in service export, which will play a key role to deliver on the 2030 Agenda for Sustainable Development.
According to the World Bank, by 2030, the largest consumer markets will include Nigeria, Egypt, and South Africa.
Lucrative opportunities in countries like Algeria, Angola, Ghana, Kenya, Morocco, Sudan, Ethiopia, Tunisia, and Tanzania, among others in Africa. Ethiopia, as an example, is reportedly one of the fastest-growing economies in the world over the past decade, with an average annual growth of 10.5 percent GDP from 2005-06 to 2015-16
Opportunities in ICT and mobile access
The rapid diffusion of ICTs in Africa over the past decade has facilitated access to consumers in new and varied ways.
Africa is currently the fastest-growing mobile telecom market in the world, averaging roughly 30 percent increase in mobile phone connections per year since 2000, and recently overtaking Latin America to become the world’s second-largest mobile market behind Asia
SSA experienced the world’s fastest rate of new broadband connections between the years 2008 and 2015.
Also, with the introduction of many players in the telecom space, mobile data traffic is expected to increase in multiple folds between 2017 and 2022. Mobile money accounts that are active are close to 120 million users, which is over 50 percent of the global total.
This has reduced usage of traditional banking products. It is expected that this would allow companies to improve their productivity, increase transaction speed, and access other markets. It could additionally increase the continent’s GDP by 2025 by over $300bn.
Agricultural resource growth
Africa has always been known for her riches in agriculture and mineral resources. Though this has not been translated into economic growth, shared wealth, innovations and further investments can change the picture.
The sector can create exciting growth opportunities for businesses. Africa can produce what it eats and move to the top of the food value chain globally. Agro-industrialisation would add value to what is being produced.
Industrialisation in Africa
The timely intervention on the industrial development of Africa is a welcome development. Africa is probably the least diversified in the world, with minimal progress recorded over the last two decades on industrialisation.
It is suggested that African industries have the opportunity to double production to nearly $1 trillion within a decade. Three-quarters of that growth is likely to come from manufacturing to substitute imports and meet rapidly growing local demand.
Africa’s urban growth is the fastest in the world. The continent’s population is projected to double between now and 2050.
It is expected that Two-thirds of this growth will happen in the urban areas. 30 years from now, the cities will house an additional 950 million people globally.
There are lots of opportunities that come with this, as well as challenges for businesses, citizens and the government of Africa.
There is a need to revamp political development agendas and improve policy decision-making. The implications of this have lasting consequences over generations.
These trends are promoting a spike in sector developments such as in pharmaceuticals, financial services, education, healthcare and so on.
Payment solution – PAPSS
By simplifying cross-border transactions and reducing the dependency on hard currencies, intra-African trade is boosted significantly and promotes the implementation of the AfCFTA, which is a force for African governments to address their infrastructure needs as well as to overhaul regulation relating to tariffs, bilateral trade, cross-border initiatives and capital flows.
The Pan African Payment and Settlement Systems (PAPSS) is a central Financial Market Infrastructure (FMI) that supports payment arrangements for the purpose of expanding the international trade of African States, and to facilitate central bank’s economic and financial integration.
PAPSS is currently live in the West African states Monetary Zone (WAMZ) in the following countries: Nigeria, the Gambia, Sierra Leone, Liberia, Ghana, and Guinea. Engagements are ongoing with all African Central Banks and all regional payment institutions.