News & Media / African Continental Free Trade Area (AfCFTA): a real opportunity

African Continental Free Trade Area (AfCFTA): a real opportunity

05 July, 2019

The opinions expressed in this article are solely those of the author, and do not necessarily reflect the opinions or views of the Mo Ibrahim Foundation.

The AfCFTA entered into force on 30 May 2019, and this week Nigeria - the biggest economy on the continent - has confirmed it will sign the AfCFTA at the upcoming 12th Extraordinary Summit on AfCFTA  in Niamey, Niger.

As highlighted in the 2019 Ibrahim Forum Report, the AfCFTA has the potential to become the largest regional agreement in the world in terms of participating countries; creating a single continental market for goods and services as well as a customs union with free movement of capital and persons.

This is an extraordinary moment in Africa's history, a result of decades of negotiations and all kinds of delays that came from both within and outside Africa. The concept of a continental single market goes as far back as at the birth of the African Union’s (AU) predecessor the Organisation of African Unity (OAU) in 1963. This idea dates from even before that in the 19th century with the birth of the pan-African movement. It took this long because it required a certain level of coordination, shared vision, technical and technological capacity that did not previously exist on the continent. More than anything, it is a message to the African youth that Africa, with a growing population of 1.2 billion people with potential access to finance, is open for business.

While this is a moment to celebrate, there are many issues Africans will have to overcome in order to take full advantage of the single African market. From free movement of people to digital identities, from harmonisation of tariffs to harmonisation of regulations. The biggest challenges will be to build the physical infrastructure to link the continent, and it will take time: the trans-Africa highway network system will take at least 20 years, while the 12,000 km Integrated High Speed Train Network will take even longer.

Electronic payments in Africa have reached unprecedented levels. According to a report published by the Rwanda Central Bank in February this year, 34% of the country’s GDP is electronic payments. However, from my experience of making payments from Rwanda, you can only use mobile money to pay Kenya and Uganda. This means that most Rwandans cannot access digital money from most other African nations, and most Rwandan businesses cannot get payments from other African countries.

An African currency has been talked about for many years, ECOWAS recently announced the creation of the ECO, a currency that will unite 15 countries in West Africa. It may however take many years for the African currency to arrive. Some even argue it might not be a good idea, given the experience of the Euro.

The low hanging fruit, and the most efficient way to get hundreds of millions of Africans to exchange goods and services is the creation of a solution to make all the different wallets on the continent interoperable, from bank accounts to mobile money accounts.

The African youth today, who will be the main beneficiaries of the AfCFTA, and the largest workforce on the planet by 2035, is already connected to the internet, mostly through the Facebook ecosystem comprising of Facebook, WhatsApp and Instagram, the three most important social networks on the continent. The youth is more information-connected, but can barely make money from it.

While mobile money has been extremely useful on the continent, especially for sending funds within one country and for informal commerce, the fact it is based on mobile numbers as a unique identifier  is a major limitation to scaling: it lacks privacy for business. For example, you cannot ask someone famous to list their personal mobile number in order to receive money.

If money cannot move freely across Africa, then Facebook's Libra could become the most important trade tool on the continent making Facebook more powerful than anything else.

In the next five to ten years, money in Africa will be much more digital, with most Africans having at least one digital wallet. The challenge and opportunity is to make those wallets interoperable, so that I can send my Rwandan Francs to a friend in Ethiopia, and they receive Ethiopian Birr instantly and securely. The post-CFTA Africa needs one thing above all: frictionless payments, so that just as the internet has allowed Africans to share information, the time has arrived for citizens across the continent  to  send and receive money  efficiently, and for a reasonable fee.

What Facebook has understood, is that trying to  create a single payment system in Africa or elsewhere is almost impossible. It would require complex regulatory approvals, and high risks in terms of technology, but having different independent digital wallets that connect through blockchain technology is doable, both in terms of technology and regulation. Even though there are other technologies available, blockchain technology is young enough that Africa can catch up and even lead the world, if we put our mind to it.

This could create 1.2 billion connected digital wallets for Africa’s digital economy, and result in an explosion of  jobs, from gig-economy  and  e-commerce jobs, to digital marketing. For that we need a continental effort as formidable as what it took to gain our independence and to launch the AfCFTA.

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