Fintech startups could make or break Africa’s new free-trade area

AfCFTA wants to create a single market for goods and services in the continent.
AfCFTA wants to create a single market for goods and services in the continent.
Image: Reuters/Thomas Mukoya
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Fintech companies in Africa are flourishing by producing digital systems and infrastructure to make financial services more efficient. And with the launch of the African Continental Free Trade Area (AfCFTA) at the start of this year, the companies are well positioned to replicate this success by providing solutions for what is the largest free trade area globally by the number of countries taking part in it.

Solving cross-border payment within the continent could “exponentially increase intra-Africa trade,” according to the United Nations Development Programme and the AfCFTA secretariat. In a case study cited in one of their recent reports, Godwin Benson, the CEO of Tuteria, a Nigerian peer-to-peer learning platform, says: “It should be easy for customers in Egypt or Rwanda to pay a business in Nigeria. Recently, a customer from Cameroon wanted to pay us but could not carry out the transaction. Without seamless intra-African payments, businesses like Tuteria, especially those run by young entrepreneurs, may not be able to trade across the continent.”

AfCFTA aims to increase intra-African trade by the creation of a single market

There’s relatively low trade amongst African countries, compared to other parts of the world. For instance, intra-African trade (the average of intra-African exports and imports), was around 2% in 2015-2017, compared to 61% for Asia and 67% for Europe.

AfCFTA aims to create a single market for goods and services in Africa by progressively eliminating tariffs and non-tariff barriers to trade. It was brought about by the African Continental Free Trade Agreement , which has been signed by 54 of the 55 African Union countries and ratified by 37 as at July 13, 2021.

“It’s often been the case where pan-African endeavors remain more ambition and milestone that never truly find traction,” Goolam Ballim, the chief economist and head of research at South Africa’s Standard Bank Group, tells Quartz. “However, this does appear to have the political weight that requires giving it thrust.”

Fintech could formalize payments in Africa’s mostly informal cross-border trade

Informal cross-border trade is a major way of doing business in most African countries. In eastern Africa, for example, it could be worth up to 80% of the value of formal trade, according to a 2020 report by the African Export-Import Bank. To facilitate payments and formalize some of the unrecorded trade due to informal cross-border trade, AfCFTA is piloting the Pan-African Payments and Settlement System, a payment and settlement infrastructure for intra-African trade and commerce payments that is being developed in collaboration with the African Export-Import Bank.

AfCFTA presents opportunities for fintech companies in areas including payment facilitation, settlement, and reconciliation, says Niyi Kolade, founder and CEO of Seerbit, a Lagos-based pan-African enterprise payment platform.

Niyi Kolade, founder and CEO of Seerbit.
Seerbit’s Niyi Kolade.
Image: Seerbit

Fintech companies, he adds, should look at how they can build seamless payment solutions that address ease of payment as well as settlement within different currencies—AfCFTA doesn’t have a common currency.

With cash still a dominant payment method in the continent though, Kolade advises against fintech “disenfranchising” the market by making everybody go online. “We need to start building solutions [that] exist as online and offline together,” he says.

Investment in fintech can help make AfCFTA work better, says Khaled Sherif, vice president for regional development, integration, and business delivery at the African Development Bank.

The success of mobile payments shows fintech has great potential in Africa, he adds.  “For it to move forward there is no doubt that mobile payments are going to be the future and this is why fintech has that great potential to meet the continent’s financing needs but to create also vehicles for promoting interregional trade” he says.

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