AfDB Stands Ready to Support African Countries in Establishing Continental Free Trade Area by 2017

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The African Development Bank (AfDB) stands ready to assist African countries in implementing the physical infrastructure needed for the establishment of the Continental Free Trade Area by 2017, said its president, Donald Kaberuka.

Addressing the NEPAD Heads of State and Government Orientation Committee which met during the African Union Summit held between 9 and 16 July 2012 in Addis Ababa, Mr Kaberuka echoed the call of the African countries “for the development of trade-related infrastructure and productive capacity building programmes” as well as “an enabling policy and legal framework so as to contribute specifically to the boosting of intra-African trade.”

Mr Kaberuka said he was confident that intra-African trade and African exports to the rest of the world could grow very fast if existing efforts were scaled up to improve the continent’s physical infrastructure which continues to undermine competitiveness and trade growth.

Efforts to address physical infrastructure should also look at “soft infrastructure” constraints such as regulatory barriers, restrictive regulations on movement of goods and people, poor logistics services and of late, challenges in accessing trade finance, he said. “Soft infrastructure constraints can be as pervasive as tariffs at the border, and can easily nullify the competitiveness and efficiency gains derived from investments in physical infrastructure,”  Mr Kaberuka warned.

Recognizing that finance is the engine that drives trade, Mr Kaberuka decried the fact that with the advent of the financial crisis, businesses in at least a third of African countries were now paying a premium of about 10 percent on trade loans on top of cash collateral requirements. “These developments threaten to undermine trade at a time when African exports are fueling growth across the continent,” he said.

He noted that the AfDB had responded to the trade finance crunch by establishing a USD 1 billion temporary Trade Finance Initiative (TFI) in 2009. The TFI has thrown a lifeline to hundreds of businesses across Africa, saving thousands of jobs and generating millions of dollars in revenue for firms and their governments. “The Bank has gone a step further and is establishing a full-fledged in-house Trade Finance Program, and is collaborating with other development partners on ways to counter the on-going turbulence in the financial markets, and to minimize damage to Africa’s trading capabilities”, said Mr Kaberuka.

He called for innovative ways to finance Africa’s growing infrastructure requirements. Citing the low returns of about 1.4 percent on instruments such as US Treasury bills, Mr Kaberuka was confident that investors and sovereign wealth funds would be looking for more appealing investments such as infrastructure in Africa, provided security and good returns are assured.  He noted that sovereign wealth funds are forecast to hold USD 10 trillion by 2015 and could be a key source of investment to finance some of Africa’s infrastructure.

Background information:

The 19th ordinary session of the Assembly of heads of state and government of the African Union which met from 9-15 July 2012 in Addis Ababa has maintained the theme of the previous summit, “Boosting Intra-African Trade”. At the 18th ordinary session held in January 2012, African heads of state had adopted an Action Plan for Boosting Intra-African Trade and agreed to establish a Continental Free Trade Area (CFTA) by the indicative date of 2017.

The last decade saw African exports to the rest of the world grow at only two-thirds of the rate of intra-African exports. Heads of state welcomed the gradual growth in regional infrastructure and trade – especially exports of manufactured products – which could form the foundation for fast-tracking the CFTA and promoting intra-African trade. African heads of state stressed the need to understand and address the enablers and the constraints to the growth of African exports. This places special importance on the need for accelerated industrialization and other sectoral strategies within the individual member states. It also entails a strong focus on trade facilitation initiatives, removal of tariff and non-tariff barriers. At the same time, Africa has to sustain investments in infrastructure – with the required investment estimated at a monumental US$94 billion to cover roads, rail, ports, energy, ICT, transport infrastructure, enhancing productive capacity, value addition and diversification. Such measures will help to ensure that member countries benefit from the opportunities by the CFTA.