AfCFTA: SMEs cost of borrowing high – Wamkele Mene
Secretary General of the African Continental Free Trade Area (AfCFTA), Wamkele Mene, has notified with worrying concerns that the cost of borrowing by the commercial banks in member countries with respect to Small and Medium scale Enterprises (SMEs) is high.
Mr Mene stated that sovereign guarantees by governments are needed to enable SMEs thrive and explained further that the issues are not about the lack of availability of funds to support them but rather the SMEs have to do with risk mitigation.
“The cost of borrowing is of course high, I had a conversation with the CEO of one of the major commercial banks in Africa with 26 branches across the Africa continent. He said to me that they, this particular bank, they have thrived in trade finance portfolio, 100% repayment, no bad loans specifically for SMEs that are run by women, very impressive.
“The big challenge is, how do you have a cross jurisdiction trade financing facilities across 39 countries? We have ratified the AfCFTA, but you don’t have sovereign guarantees, that is what we are trying to work with at the moment.
“The risk mitigation factor, all of them we want to contribute to AfCFTA SME facility but there is a major issue of risk mitigation that has to be solved.
“It will take us three, four, five years to negotiate sovereign guarantees by governments.
“I think that in the conversations, my sense is not the lack of availability of funds, the issue is risk mitigation and who is going to bear the cost of risk if we want to have an AfCFTA SME fund. We are close in resolving that issue. I am hoping that next year we will be able to make the announcement to Africans,” he stated in an interview.
AfCFTA
According to the World Bank, the AfCFTA would significantly boost African trade, particularly intra-regional trade in manufacturing.
The volume of total exports would increase by almost 29 percent by 2035. Intra-continental exports would increase by over 81 percent, while exports to non-African countries would rise by 19 percent.
Intra-AfCFTA exports to AfCFTA partners, the World Bank predicts, would rise speedily, especially for Cameroon, Egypt, Ghana, Morocco, and Tunisia, with exports doubling or even tripling.
Of the real sectors of the economy, the manufacturing sector is expected to gain the most with 62 per cent increment in production activities followed with modest gains in the services sector and smaller gains in agriculture.
The African Continental Free Trade Area (AfCFTA) agreement creates the World’s largest free trade area in the world measured by the number of countries participating.
The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion.
It has the potential to lift over 100 million people out of moderate and extreme poverty,
