AfCFTA: Standard Bank’s Madhavan on how to address policy hurdles

The African Continental Free Trade Area (AfCFTA) came into operation at the beginning of this year, with over 38 countries ratifying the agreement. Six months into the implementation, the progress seems slow, but there is optimism about the potential it holds. Vinod Madhavan, the Head of Trade at Standard Bank Group, discussed the challenges and opportunities of the AfCFTA on a CNBC Africa interview. One of the key themes highlighted by Madhavan is the shift from globalization to regionalization, emphasizing the need for quick responses to market changes and resilient supply chains. Another crucial aspect he touched upon is the importance of rules of origin, tariff agreements, and the necessity of implementing these regulations domestically to boost intra-African trade. Despite the hurdles, Madhavan highlighted the enthusiasm of countries in adopting digital solutions like digital certificates of origin to facilitate trade. One significant challenge faced by African countries is the lack of clarity regarding the rules of origin. Trade between countries like Tanzania, Kenya, and Uganda has suffered due to this ambiguity, impacting the smooth flow of goods. Additionally, the sluggish progress in leveraging the trade opportunities under the AfCFTA raises questions about the reasons behind the delay. While Madhavan acknowledges the need for a functioning manufacturing value chain and the resilience of supply chains, he also points out the slow uptake from private enterprises and investors. However, recent interest from corporates and investors in utilizing the AfCFTA for trade indicates a shift towards embracing this trade agreement. Madhavan addressed concerns about the lack of trust in the implementation of the AfCFTA, suggesting that there is a cautious 'wait and watch' approach from corporates. While acknowledging the infrastructure deficit as a barrier to intra-African trade, he emphasized Standard Bank's commitment to addressing non-tariff barriers, including infrastructure challenges. Madhavan highlighted the bank's focus on leveraging digital solutions like blockchain, artificial intelligence, cloud computing, and data analytics to enhance trade facilitation and reduce friction. Standard Bank is actively engaged in initiatives to enhance trade finance within the African context, with a focus on infrastructure development. Madhavan stressed the importance of engaging with governments and regulators to accelerate the implementation of trade agreements, emphasizing the AfCFTA as a vital stimulus package for economic recovery post-COVID-19. He called for greater collaboration between private enterprises, regulators, and financial institutions to drive the adoption of the AfCFTA. In conclusion, Madhavan outlined three key steps to ensure the successful implementation of the AfCFTA. First, there is a need for swift action from governments on rules of origin and tariff reductions. Secondly, private enterprises and regulators must collaborate effectively to unlock the trade potential offered by the AfCFTA. Lastly, awareness campaigns targeting medium-sized enterprises and domestic corporates are essential to ensure widespread adoption of the trade agreement. The AfCFTA presents a significant opportunity for African nations to boost intra-regional trade and economic growth, and concerted efforts from all stakeholders are necessary to overcome the policy hurdles and fully realize its benefits.