Intra-African trade still accounts for less than 20% of Africa’s total trade flows. But geopolitical tensions, and in particular, self-inflicted carving out of the US from international trade networks, have brought a renewed interest in the continent: this time, with hyperopia as to its potentials. In this light, many are reevaluating the extent to which the African Continental Free Trade Area (AfCFTA) has been fully expedited by continental financial institutions, given the predicted upcoming growth of intra-regional trade.

A recent report by the Centre of Excellence in Financial Services (CEFS), a not-for-profit dedicated to researching financial services in and around South Africa, argues that South African banks must be best prepared both for a vision of a more prosperous Africa and to implement international standards to provide common frameworks for every country.

Africa’s population is not only growing, expected to reach 3.3 billion people by 2100 from 1.5 billion now, but also youthful, with an average age of 19. It’s a figure oft cited in analysis of the continent largely because this means, by 2050, Africa will be home to some 25% of the world’s working population. In short, therefore, Africa houses a substantial market of human capital and consumers: capitalising on its population should be preemptive.

But what structures are in place to allow Africa to flourish as a place for growth? And is the AfCTA one of them?

What is AfCFTA?

Before AfCFTA, the ambitions of Agenda 2063 should be outlined. This 15-step project refers to programmes and initiatives aimed at accelerating Africa’s economic growth. On the trade front, there is a focus on developing a high-speed train network and formulating an African commodities strategy, so that the continent’s raw materials are not merely exported but are utilised to support African economic development; essentially, as the safety measure goes, put your oxygen mask on first.

As one of the steps in Agenda 2063, AfCFTA is designed to encourage intra-regional trade for Africa’s economic development. This, in turn, would support its international standing by providing it with a unified voice in trade policy negotiations. 

Operational instruments and protocols of AfCFTA include:

• The rules of origin regime of duty-free trading across the region
• 90% tariff liberalisation
• A continental online tool for monitoring, reporting, and eliminating non-tariff barriers
• The Pan-African Payments and Settlement System (PAPSS), a centralised payments infrastructure for intra-African trade payments
• The African Trade Observatory, a trade information portal aiming to provide information on opportunities, local exporters and importers, and trade statistics.

As of January 2025, 54 of the 55 African Union (AU) member states have signed the AfCFTA, with recent advancements in Sierra Leone and Angola (non-AU countries are, at present, Benin, Eritrea, Liberia, Libya, Madagascar, Somalia, South Sudan, and Sudan).

AfCFTA brings together eight regional economic communities (RECs) – associations of African states with integration promoted within them. RECs are not siloed; rather, as Mark Brits, Executive Director at CEFS, told Trade Finance Global (TFG), “dividing the African continent into eight regional economic communities and with several countries participating in multiple regions, these structures, if leveraged appropriately, will drive a uniform outcome.

Brits highlighted, however, that outcomes will arrive at different speeds. “Adopting international best practice will negate the complex negotiations to arrive at an acceptably agreed objective,” he said.

Opportune foundation for growth

The CEFS report highlights that the removal of both tariff and non-tariff trade barriers and the settlement systems, which AfCFTA promises, will catalyse the continent’s financial integration. For banks, this means regional lending, risk pooling, and product innovation for continental clients. 

The numbers, compared with a non-AfCFTA baseline by 2035:

• Africa’s total exports to expand by 29%
• Intra-African exports to expand by 81%
• African imports to expand by 41%
• Intra-African imports to more than double, expanding to 102%

Manufactured goods are set to displace raw materials as the continent’s primary trade driver, creating ample opportunities for structured trade products and the financing of industrial supply chains, which banks can provide. On the import side, the radically increased flows make flirtations of letters of credit, supply chain finance (SCF), and trade insurance all the more appealing.

Can the Basel standards make it from Switzerland to Swaziland?

A spanner in the works: the variation of financial system maturity across different RECs. South African banks have operated under fully compliant Basel III standards since 2013, but they are alone. 

In Morocco, Basel III is partially applied, and Tunisia is in transition to Basel III; Mauritius and Egypt show moderate compliance. In Botswana, Kenya, Namibia, Nigeria, Rwanda, and Zimbabwe, Basel II is at an early stage of implementation. But ultimately, of the 54 AU-state AfCFTA-signatories, 15 have not implemented Basel II at all. 

This should not come as a surprise. Many AfCFTA economies lack the foundational structure to begin implementing stringent regulatory frameworks, which may choke growth, in the classic catch-22 of regulation vs. innovation. Nonetheless, banks must navigate operational complexity using more sophisticated, dual approaches. The report proposes internal ratings-based (IRB) models at a group level, with more simplified and standardised approaches for the majority of jurisdictions

Currency volatility and foreign exchange constraints pose considerable operational risks, particularly in West and Central Africa. Nigeria’s chronic foreign exchange crisis, combined with CFA-zone dependencies, creates liquidity bottlenecks and costly hedging requirements. Considering Ethiopia’s closed capital account and Algeria’s rigid controls, it becomes clear why many markets scored merely 1–2 on regulatory scorecards for foreign exchange openness.

The report recommends that the South African Reserve Bank introduce a Pillar 2B add-on in the home jurisdiction if capital adequacy for recipient countries is deemed too risky, a sensible approach aligning with structures in place in the European Union (EU) and elsewhere. It also recommends selective partnerships with fintechs in growing economies – it specifies Kenya, Ghana, and Egypt, though Nigeria is also seeing huge fintech activity, and defines this selective activity as engaging proactively to lower compliance complexity.

A unified, but not unilateral, approach

Over 200 languages are spoken across AfCFTA’s 55 states. Travelling between AfCFTA’s member states, you will find over 200 languages and entirely different business attitudes. These countries have been building a domestic economy for centuries; their cultures have been invariably shaped by interactions with different colonial powers and interactions with neighbours of varying religious backgrounds. 

On this note, legal pluralism complicates AfCFTA use. Member states operate under common law (emphasising judicial implementation), civil law (relying on codified statutes), Sharia law, hybrid approaches, and more. From contract enforceability to collateral recognition, these laws inextricably bleed into financial procedures, creating risk for banks.

These countries have different stages of credit infrastructure, which particularly harms the small and medium-sized enterprises (SMEs) that comprise 90% of African businesses. Environmental, social, and governance (ESG) standards and taxonomies, and their relevant compliance burdens, are fragmented. Private sector financial institutions are integrated at varying levels when regulation is designed in recipient countries.

For Brits, the variation of know-your-customer (KYC) and anti-money laundering (AML) frameworks in different jurisdictions creates dead weight for banks trying to engage in trade finance operations across the continent. “Giving a voice to the trade finance experts, enabling them to co-author the African financial infrastructure, will be a key success factor and the shortest route to accomplishment,” he said.

This is all to say, a product designed for urbanised South Africa will need to be redesigned for adoption in rural, francophone Tunisia. Banks must recognise that a one-size-fits-all approach will fall flat on its face, and focus on building relationships to fully understand the legal, technical, and financial diversity which Africa offers.

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In summary, the report recommends advocacy of standards, engagement with REC-level regulators to develop tailored strategies, and promotion of public-private coalitions for both payments and framework development. 

The report touches on throughout, but never emphasises, that the central role to achieving these ambitions will be SCF: digging deeper into the supply chain and integrating technical knowledge and technological kernels all the while.

While it focuses on South African banks, the report’s findings are applicable to African multinational banks across the continent, particularly the recommendation that they prioritise support for continental trade activity. 

Not only will this accelerate the effectiveness of AfCFTA and Vision 2063 to the betterment of African society, but a deep well of knowledge of the ins and outs of intra-African trade will make these banks more appealing to international players. The global gaze is on Africa; now is the time to put on a show.