- Is the African Continental Free Trade Area (AfCFTA) serving only large but capital-strapped businesses?
- How can startups and SMEs benefit from the continental trade bloc?
- In Tanzania, an alliance of the AfDB and BOAT is set to offer credit guarantee to SMEs keen on continental trade and expansion.
The African Continental Free Trade Area (AfCFTA) is the world’s largest free trade area by number of participating countries, second only to the World Trade Organization (WTO). Given it’s size and scope, the AfCFTA has the potential to bolster small business growth across the country and continent, comments economist Prof. Odiop Massaza.
The economics, however, raises a key question; ” Does this facility (AfCFTA) actually help small businesses grow or are the big ventures enjoying the benefits alone?” Prof. Massaza was speaking in a recent exclusive interview with The Exchange following the launch of a credit facility by the African Development Bank and the Bank of Africa Tanzania (BOAT).
The two banks have signed a $7.5 million trade finance transaction guarantee facility to boost trade finance activities of the Bank of Africa in Tanzania.
“Under this facility, the African Development Bank will provide a guarantee of up to 100 per cent to confirming banks against non-payment risks arising from letters of credit and similar trade finance instruments issued by the Bank of Africa Tanzania,” a media update notes in part.
According to the communique; “The facility will support small and medium-sized enterprises (SMEs) and local corporates engaged in the import sector.”
However, the professor points out that it is already existing businesses that are capital strapped and are able to lobby that benefit from the AfCFTA. “I am not sure how many Tanzanian SMEs have ventured into the AfCFTA since it’s launch five years ago, but I do know that large businesses are benefitting from it,” he decried.
He was, however, optimistic that the signing of a credit facility that is specific for SMEs will serve to boost SME involvement in the AfCFTA. “I commend this loan deal, it will help small businesses get the capital they need to export and import goods,” he said.
He went on to urge commercial banks to develop loan mechanisms for startups especially since this new loan facility offer 100 per cent credit backing from AfDB itself. “It is also important for the government to conduct outreach programs to inform the public and not only the renowned business tycoons, of such facilities,” he explained.
The economist was keen to note that if more SMEs in Tanzania are enabled to enter the AfCFTA, then economic growth in the country will reach the grassroots levels. “At the moment the country is developing but the poor are still poor,” he lamented.
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AfDB signs new deal to support Tanzania SMEs
The AfDB and the Bank of Africa Tanzania (BOAT) have signed a $7.5 million trade finance transaction guarantee facility to boost trade finance activities of the latter aiming to increase lending to small scale businesses across the country.
“The facility aligns with efforts to bolster intra-Africa trade, contributing directly to the objectives of the African Continental Free Trade Area (AfCFTA),” reads the press report.
Speaking at the signing event in Dar es Salaam, the Bank’s Country Manager for Tanzania, Patricia Laverley, stressed the importance of the facility in addressing Tanzania’s trade finance needs, saying that given the country’s import requirements, it will aid priority sectors such as trade, agriculture, manufacturing, and energy.
“This facility will support trade by enabling BOAT to play a more strategic role in the regional and international market,” she said.
On his side, representing BOAT’s management, Deputy Managing Director Hamza Cherkaoui commended their strong partnership with the AfDB, emphasizing its role in expanding trade finance capabilities across the continent.
“This partnership strengthens our ability to support businesses across various sectors by providing seamless trade finance solutions, expanding our confirmation network, and enabling access to top-tier confirming banks,” he said.
Notably, this new Trade Guarantee facility aligns with Bank of Africa Tanzania’s strategic priorities and the AfDB’s broader objectives, including promoting regional integration, increasing food security, and industrializing Africa.
“It also supports Tanzania’s Country Strategy paper 2021-2025, which focuses on enhancing the private sector business environment for job creation,” details the press release.
It further explains that the facility aligns with the country’s development vision (Vision 2025), which aims to build a strong and resilient economy capable of competing globally.
“The signing of the agreement marks a significant milestone in the African Development Bank Group’s direct engagement with Tanzania’s private sector, reinforcing its commitment to strengthening the country’s financial sector and economic development,” concludes the report.
However, it is this very point that raises eyebrows as to whether SMEs will actually benefit or as the professor queried, will it only serve the big tycoons? Let us look at the founding stones of the AfCTA to understand how it encompasses SMEs across the continent.
AfCFTA: Five key functioning instruments
The launch of the AfCFTA operational phase in 2019 was characterised by the adoption of five key instruments, these are:
1. The Rules of Origin: A regime governing the conditions under which a product or service can be traded duty free across the region
2. The Tariff concessions: It has been agreed that there should be 90 per cent tariff liberalisation and the deadline is 1st July 2020. Over a 10 year period with a 5 year transition, there will be an additional 7 per cent for “sensitive products” that must be liberalised
3. The online mechanism on monitoring, reporting and elimination of non-tariff barriers, NTBs: NTBs are a great hindrance to intra African trade whether physical, like poor infrastructure, or administrative like the behaviour of customs officials. These are to be monitored with a view to ensuring they are eliminated.
4. The Pan-African payment and settlement system: To facilitate payments on time and in full, by ensuring that payments are made in local currency and at the end of the year there’ll be net settlements in foreign exchange. With the certainty of payments, there will be confidence in the system.
5. The African Trade Observatory: A trade information portal to address hindrances to trade in Africa due to lack of information about opportunities, trade statistics as well as information about exporters and importers in countries. The trade observatory will have all this information and other relevant data which will be provided by AU member states.
