Sh9.1 trillion Africa trade finance gap hampers free trade

A goods truck crosses into Tanzania from Kenya at the Namanga border. FILE PHOTO | nmg 

By BRIAN NGUGI

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Summary

• Moody’s says the Sh9.1 trillion funding gap is among the major limitations of realising the full impact of a free-trade area in Africa.
• The ratings agency however adds that the regional pact which aims to create a single African market for goods and services, could boost intra-regional trade, which remains far lower than in developing Asian countries.

A massive gap in trade finance amounting to $90 billion (Sh9.1 trillion) is among the major limitations of realising the full impact of a free-trade area in Africa, global ratings agency Moody’s has warned in a new report.

Other factors that could limit the accomplishment of the objectives of the African Continental Free Trade Area (AfCFTA) are the continent’s under-developed infrastructure and non-tariff barriers.

Moody’s however adds that the regional pact which aims to create a single African market for goods and services, could boost intra-regional trade, which remains far lower than in developing Asian countries.

President Uhuru Kenyatta on Wednesday joined other African heads of state and government in Kigali, Rwanda, to sign the agreement to create the regional trade pact.

“There is significant potential for further trade integration in Africa, which the AfCFTA could stimulate,” said Colin Ellis, Moody’s managing director, credit strategy. “This could improve the region’s credit profiles, given the greater stability and sophistication that intra-regional trade could offer compared with traditional commodity exports to the rest of the world.”

The regional pact aims to establish a single market that will spur industrialisation, infrastructural development, economic diversification and trade.

READ: Achieving Continental Free Trade Area pact with quality content

The new agreement is also expected to increase intra-Africa trade beyond the current 13 per cent and improve the prospects of the African continent to attract huge investments.

Kenya has said the creation of the AfCFTA provides new export opportunities for African products whose combined GDP stands at $3 trillion (about Sh300 trillion), covering over 1.2 billion people.

“The agreement also covers issues on non-tariff barriers, technical barriers to trade, customs procedures and a framework on transit issues between countries,” said the Presidency in a statement by the PSCU.

The new agreement creates a borderless Africa in terms of trade in goods, services, jobs, investment, free movement of people, intellectual property rights and competitiveness.