Unlocking free trade in Africa is a must – and so is the right infrastructure to make it work, writes Ruhling Herbst, Acting Head of Africa Business Development at BankservAfrica.
The widely anticipated African Continental Free Trade Area (AfcFTA) will launch in January 2021. This will herald a new beginning for African Union countries, bringing ample investment and market opportunities to benefit 1.2 billion individuals and generate a combined GDP value of $3 trillion.
Achieving this history breaking success will no doubt present a tremendous victory for the continent, positioning it well on the global map as the place to be for business and trade. It will strengthen economies and help African countries emerging from the worst of the COVID-19 pandemic in their journey to reconcile the after-effects to create a sustainable recovery.
In mirroring the African philosophy of ubuntu for connected economies and communities, its success is linked to the inner workings and agreements between the country. For there to be a smooth run of trade between and outside borders, it will be critical to building a solid foundation between regions on all fronts.
The picture on the ground
The proposed Trade Tripartite Free Trade Area (TFTA), comprising of the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC), is one of the regional building blocks for the completion of the AFCFTA.
TFTA has the potential to enhance business into Africa and accelerate development by creating a single market of about 700 million people with an estimated gross domestic product of over US$1.4 trillion. Through a bold vision set on improving the economic and social welfare of citizens in the 22 member countries, intra-African trade will be boosted by widening the market, increasing investment flows, enhancing competitiveness and developing cross-regional infrastructure for the 22 member countries.
But to achieve this, there needs to be the right infrastructure in place. Structures that have been up and running and in use for decades will not help us to get to where we want to be. The rising populace should also be kept in mind – they are youthful, ambitious, digitally savvy and not inclined to be caught up in the trappings of outdated systems. There’s an urgency to create solutions for the uniquely African environment.
Attaining these should not be a tedious, overdrawn process. There is a need to keep up with the times; modernise for the digital economy.
From cash to traditional banks, mobile money and fintechs, each African country has developed its payments standards quickly and affordably to meet the market’s short-term needs. The problem is that these operate on different channels, which makes it difficult for a payment from a fintech to move to another owned by a mobile operator.This is the reason for higher payment costs and the challenge for neighbouring countries to trade with each other. It is that lack of interoperability that has, to a large extent, played a role in stifling economic growth and progress to date.
We have studied the SADC payments market extensively and, as a leading African payments provider, used our knowledge to identify the common stumbling blocks that many of our customers in different regions across the continent encounter. Now is indeed the time to rebuild the infrastructure by creating the payment rails that work across the diverse payment channels and are unrestrictive.
We are working closely with the SADC Payment System Oversight Committee (SADC PSOC), SADC Banking Association (SADC BA), SADC Integrated Regional Electronic Settlement System (SADC-RTGS) and various banks and non-banks to build the SADC Low Value (Retail) Immediate Payments called ‘TCIB’ (Transactions Cleared on an Immediate Basis) to innovate for payments without borders.
In other words, a cost-effective way of making a payment that bridges the historical divides between countries while enabling the cross-over needed such as for authorised non-banks to leverage each other’s expertise and technology for the benefit of millions of Africans. This modernised method of payment will be low-cost, instant and without any restrictive channels that may hinder payment immediacy.
TCIB is a highly scalable to connect SADC and other regional economic communities to facilitate an extended Immediate Retail Payments Network. This will be one of the many infrastructure developments that will help to free up African trade in our region for the benefit of the broader continent.