The Group Head of Business Development at FBNBank Ghana limited, Mr. Azubike Obi intimates that the banking sector has a major role to play to ensure the success of the African Continental Free Trade Area (AfCFTA).
With the promising opportunities of the AfCFTA, the degree of success of any country with AfCFTA heavily depends on its financial services sector since it will serve as the engine that will drive the expected activities, Mr. Obi said.
“The sector must be continuously primed and pruned to enhance its ability to play an expanded role in this new inter-regional trade environment as well as in providing essential tools and platforms to enhance each country’s gains from the Agreement,” he added.
The African Continental Free Trade Area (AfCFTA) agreement aims at liberalizing trade to create a single continent-wide market for goods and services and to promote the movement of capital and natural persons. AfCFTA will cover a market of 1.2 billion people and a gross domestic product (GDP) of $2.5 trillion, across all 55 member States of the African Union.
According to the United Nations Economic Commission for Africa (UNECA), the AfCTA will lead to about US$35 billion or 52 percent increase in intra-African trade by 2022. Also, it will increase consumer spending significantly by lowering taxes on goods and services, creating a more competitive market across Africa that provides opportunities and improve livelihoods.
The World Trade Organization (WTO), posits that the banking sector will play roles such as facilitating exchange of goods, services and payment in the economy; mobilizing savings; allocating capital funds to finance the real sector especially; monitoring managers to spend funds allocated as envisaged, and transforming and reducing risk through aggregation to be carried by those more willing to bear it.
Although the banking industry has been providing these services for so many years, the AfCFTA will demand that this is enlarged in scope and nuance, Mr. Obi opined.
The trade finance gap persists despite efforts by banks to finance trade in the region. The third ‘Trade Finance in Africa’ research report by the AfDB indicates that “Trade finance remains a popular activity among banks in Africa, but participation rate continues to decrease – falling by 16% between 2013 and 2019”.
“For the period 2011-19, Banks intermediated about 40% of total African trade, compared to the global average of 80%,” the report added.
Mr. Obi went on to say that financial institutions must develop strategies to reduce the magnitude of the trade finance gap. Banks play an intermediary role between the surplus and the deficit sections of the economy. In West Africa for instance, banks facilitate local trade by funding the local agricultural value chain as well as international trade amongst nations.
In Ghana commercial banks play a significant role in financing Licensed Buying Companies (LBCs) to make purchases of cocoa beans from local cocoa farmers, for supply to Ghana Cocoa Board (COCOBOD) for export purposes.
It is anticipated that the AfCFTA will increase trade and likely widen the finance gap. This signifies greater opportunities for the financial services sector to grow to fill this gap, Mr. Obi remarked.
The Business Development Expert further asserted that FBNBank Ghana, which is one of the six subsidiaries of First Bank of Nigeria Limited in sub-Saharan Africa will leverage its digital platforms and reach across sub-Saharan Africa to facilitate local and intra-regional trade in Africa.
“The banking sector will play a key role in increasing the productive capacity of the economy by providing the needed finance to businesses that provide all kinds of infrastructure, most especially Small and Medium-sized Enterprises (SMEs)”.
This initiative underscores the AfCFTA because SMEs play an important role in driving economic growth and development. In Ghana, about 85% of enterprises are SMEs but many factors prevent them from accessing the needed financial resources to expand, Mr. Obi uttered.
This situation will however improve, as banks are able to ascertain the creditworthiness of many businesses through the use of various innovative monitoring tools particularly, the credit bureau tools which many financial service regulators are enforcing, Mr. Obi enunciated.
The recent reforms particularly the recapitalization and clean-up of the financial sector, have also resulted in stronger banks which are more prepared to serve their customers’ needs, he put forward.
Finally, the Business Development expert reckoned that future regulatory and policy changes to improve the role of banks will ensure Ghana derives the maximum benefit from the African Continental Free Trade Agreement (AfCFTA).
As part of African Union’s Agenda 2063, the AfCFTA is scheduled to start on January 1, 2021, and it is expected to contribute significantly to the continent’s post-pandemic economic recovery.
