US$8bn AfCFTA shock absorber

NDAMU SANDU IN DURBAN

The African Export-Import Bank (Afreximbank) is working with the AfCFTA Secretariat on an US$8bn facility to cushion African economies against potential losses under the continent’s free trade area, bank’s president Benedict Oramah said Monday.

The African Continental Free Trade Area (AfCFTA) began operations on January 1, 2020 and is touted as Africa’s Marshall Plan to pull out the continent from the ravages of the Covid-19 pandemic.

In his remarks at the opening of the Intra-African Trade Fair (IATF2021) in Durban, Oramah said a facility is being worked out to cushion African economies.

“We are working with the AfCFTA Secretariat to create an US$8bn AfCFTA Adjustment Facility that will cushion African countries from fiscal revenue losses from the tariff removals associated with the AfCFTA and to help the private sector to retool their operations as they reorient their operations towards the continental market,” Oramah said.

He said trade agreements have worked in more mature markets as they have institutional mechanisms that support their implementation. Africa is beginning to build its own institutions and Afreximbank is unrelenting in its support for the AfCFTA, he said.

The bank, Oramah said, has committed to disbursing US$40bn to support intra-African trade over the next five years, building on the US$20bn disbursed in the past five years.

The bank is also providing Letters of Credit Confirmation lines to African commercial banks to support cross-border trade.

“It is our aim to on board 500 banks with aggregate lines of over 8 billion US Dollars. The Bank has so far on boarded nearly 480 and is today the Bank with the widest messaging links with African banks,” Oramah said.

Afreximbank, the African Union and the AfCFTA Secretariat have created a Pan-African Payment and Settlement System to facilitate cross-border payments in national currencies.

A pilot programme is underway in the West African Monetary Zone meant to strengthen national currencies, integrate Africa’s payment infrastructure, and save the continent about US$5bn in transfer charges, Oramah said.

“Above all, it will return to Africa, large volumes of trade diverted away from the continent due to currency issues. Afreximbank is supporting the pilot in an amount of US$500m and expects to expand this to US$3bn when fully adopted across Africa,” he said.

Afreximbank, Oramah said, is piloting an African Collaborative Transit Guarantee Scheme that will facilitate an uninterrupted flow of goods across multiple borders with a single transit bond, operating on a risk-sharing platform with country-specific issuers.

The bank is committing US$1bn to the Scheme meant to save Africa over US$300m in transit cost annually, he said.

This year’s edition of IATF2021 has over 1000 exhibitors, over 10,000 visitors and buyers, and is expected to close deals worth above US$40bn.

IATF seeks to boost intra-African trade which is at around 13% compared to approximately 60%, 40% and 30% intra-regional trade that has been achieved by Europe, North America and ASEAN respectively.