AfCFTA is key to post-COVID recovery – Islamic Trade Finance
Implementing the African Continental Free Trade Area (AfCFTA) agreement is fundamental to the post-pandemic economic recovery, Hani Salem Sonbol, CEO of the International Islamic Trade Finance Corporation (ITFC), tells The Africa Report.
The agreement is “one of the solutions for Africa,” says Sonbol, speaking from Jeddah in Saudi Arabia. The ITFC is working closely to help launch the accord early in 2021, he adds.
COVID-19, according to the World Bank, has “laid bare the deficiencies in trade facilitation and border management procedures” in many African countries. Border closings have disproportionally hit the poor, especially small cross-border traders, agricultural workers and the unskilled, the bank says. The crisis has heightened food insecurity as currencies weaken and staple food prices climb, it adds.
The bank argues that through lowering trade costs and simplifying border procedures, full AfCFTA implementation would help African countries increase their resiliency. Sonbol sees the accord as the largest commercial agreement since the establishment of the World Trade Organization in 1995.
- The accord, originally set to start on 1 July, was pushed to January 2021 because of the pandemic. Nigeria, Africa’s most populous country, has yet to ratify it.
- This month, the Nigerian office of trade negotiations said that it has negotiated and almost concluded an agreement on the rules of origin of products to pave the way for ratification.
Improvements in digital regulation and infrastructure will be needed to maximise the agreement’s potential. The ITFC is working to help countries identify gaps in their digital policies, says Sonbol. In universities, curriculums need to be re-aligned to take account growing digitalisation. “This is where the jobs will be.”
- “Digital dependence will be the new norm,” says Sonbol. “Without it, the pandemic has shown that we are paralysed.”
The ITFC’s priorities, Sonbol says, are in financing the health, agriculture and energy sectors. In September, the ITFC, Afreximbank and the African Organisation for Standardisation (ARSO) started an initiative aimed at harmonising pharmaceutical and medical devices produced in or imported into Africa. The three-year programme will analyse existing standards and seek to harmonise them across the continent.
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The severity of the economic impact of the pandemic varies on the basis of the fiscal and monetary buffers that countries had built prior to the pandemic, says Sonbol.
He picks out Egypt as having “taken all the right measures to fix the economy” before COVID-19. Egypt carried out an economic reform program supported by the IMF’s Extended Fund Facility from 2016 to 2019. Key reforms included moving to a flexible exchange rate, tighter monetary policy, reducing the budget deficit and more effective tax collection.
- As of June, the ITFC had directed $10.6 billion of trade financing to support Egypt’s food and energy sectors.
- “They have done impressive work to keep the private sector moving,” says Sonbol. Since the start of the pandemic, its stimulus plans have been “very impressive.”
- The result, he said, is that Egypt’s economy will still post growth this year. “It’s a big accomplishment. Egypt is moving in the right direction.”
Morocco, he notes, is also providing big stimulus programmes for the private sector. For countries that didn’t make the right reforms, “the pandemic has added to their suffering.”
Africa can’t afford further delay in getting the free-trade agreement up and running.