As the continent suffers the consequences of the Covid-19 pandemic, the AfCFTA should 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 economic prospects of the continent for the foreseeable future, with between 145 and 190 billion dollars lost in terms of GDP, 30 million people falling into extreme poverty, and economic growth in 2021 less than half the global average. In a world faced with a crisis of such magnitude, the temptation of protectionism is gaining ground.
Africa must at all costs avoid this trap. Especially since African integration received a huge boost just before the crisis, thanks to the adoption of the AfCFTA. This ambitious project must not suffer. On the contrary, it must be used as the powerful tool that it is, both to mitigate the consequences of the pandemic and to make the transition towards a more unified Africa.
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 objectives of the AfCFTA. We believe that the African financial industry has a decisive role to play in helping businesses and individuals trade and invest across the continent and in facilitating payments and capital flows between countries.
As announced by Wamkele Mene, the Secretary General of the AfCFTA, the launch of the pilot phase of the Pan-African Payments 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 the intervention of a non-African intermediate state even for trade between neighboring countries.
Such inefficiencies increase the costs of transferring funds within the continent. Previous initiatives to modernize regional payment systems have failed to address this issue. In addition to accelerating the implementation of PAPSS, AFIS is now calling for a single, unified QR (“Quick Response”) standard that will enable full interoperability between banks and payment platforms across Africa, as well as payments from bank accounts and mobile money.
To make the AfCFTA a success, the facilitation of capital flows and the non-convertibility of African currencies must also be considered a top priority. In Africa, most cross-border transactions require Euros or US Dollars, 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 that would provide an equivalent between African currencies without going through a non-African currency and thus reduce the inconvertibility of exchange risk. Alternatively, we can implement 2-3 regional currencies to simplify exchanges between currencies in Africa. We want to raise the issue of harmonizing and liberalizing capital flows between different exchange rate regimes to mitigate currency risk and make transactions more affordable.
For the African financial industry to play its part in supporting African economic integration, AFIS also urges regulators and policy makers to accelerate collaboration and move further towards greater harmonization. Although the process can be long, it is an essential step to take. Practical reforms could include: creating a platform for a supervisory college until regulators meet; develop common rules for accounting in Africa (there are far too many different standards) and establish minimum standards for sharing data across borders to facilitate credit; create a pan-African credit bureau; develop a regional platform for capital markets.
It is also desirable to start harmonizing the minimum level of capital required for banks and insurance companies, taking into account the size of the economies, and to recognize agreements between countries for executives and skilled labor , which could facilitate the transfer of skills between African countries. To accelerate African integration, the harmonization of consumer protection regimes, cybersecurity and the handling of disputes at the pan-African level must also be quickly addressed.
At a time when the Covid-19 pandemic is having a heavy impact on the development of the continent, and when the rest of the world is in danger of withdrawing more and more into itself, the institutions, regulators and operators of the African financial industry can ignore their responsibilities in the face of Africa’s accelerated integration. We must continue to work together through public-private discussion platforms to seek solutions and stay on the path to a more connected, resilient and confident Africa.
A quarter of the world’s population will live in Africa by 2050. Its emergence as a global economic power cannot be delayed. Financial integration is the cornerstone of the AfCFTA. Without it, it would probably be doomed.