There is a massive opportunity to harness fintech in combination with the African Continental Free Trade Area (AfCFTA) Agreement to help solve many present and future challenges facing the continent, say legal experts Yael Shafrir and Lerato Lamola.
“That’s ultimately the goal – that Africa would be a continent that’s using innovation to solve a lot of the issues we have, from youth unemployment to currency instability,” explained Lamola, a partner at Webber Wentzel. “For me, the possibilities are endless if we can get the infrastructure and regulatory harmonisation right. You’re not going to stop innovation, so how do you let its benefits flow freely across borders within the continent?”
The AfCFTA is unique because it’s not just about trade, but rather inclusive trade and investment, and its ultimate objective is to lift people out of poverty, noted Shafrir, an associate director in Webber Wentzel’s Cape Town office, with a special interest in FDI and the AfCFTA.
In 2022 a World Bank report noted that, if fully implemented, AfCFTA had the potential to deliver significant economic and social gains for the continent. These include boosting regional incomes by nearly $50 billion, creating 18 million more jobs (many higher paying and better quality than those currently available), delivering big gains to women workers, boosting exports by 32%, growing intra-African exports by 109%, and helping up to 50 million people exit extreme poverty by 2035.
“By the end of this year we should have over 30 countries trading under the AfCFTA Guided Trade Initiative,” said Shafrir. “Fintech will facilitate trade in goods because it’s a facilitator like any other form of infrastructure – road or rail or payment platforms. Financial services are also one of the prioritised areas under the AfCFTA Protocol on Trade in Services, so there is an objective to get some kind of harmonisation across financial services in the region.”
Lamola also stressed that harmonisation is key to create a free flow and as few trade restrictions as possible. She noted that, while innovation can be borderless, for instance with digital financial products, it’s vital to separate fintech innovation from financial regulation.
With its plentiful resources, youthful population and entrepreneurial spirit, Africa is ripe for investment, say Lamola and Shafrir, but it can be a “spaghetti bowl” with varying regulations and overlapping bilateral treaties and regional agreements such as those involving the Southern African Development Community (SADC), East African Community (EAC) and Economic Community of West African States (ECOWAS).
The Webber Wentzel teams regularly advise international clients looking to directly invest in Africa, providing risk and regulatory assessments, advice on supply chains, and structuring investments considering trade and investment treaties.
The AfCFTA incentivises greater foreign direct investment alongside intra-African trade by creating a governance framework and setting up dispute resolution mechanisms, providing investors with greater certainty in the “spaghetti bowl”, Shafrir pointed out.
“I think if you’re looking to invest in a growing market, obviously Africa is the place to be,” Lamola commented. “And while regulatory change may bring compliance costs, the other side of the coin is that a lot of it also creates the opportunity for new products, services and offerings.”