Insurance As The Facilitator To Unlocking Market Access To The AfCFTA
While current global trade trends are pointing towards protectionism, African countries have made a concerted effort to deepen regional integration and expand trade. The ratification of the Africa Continental Free Trade Area (AfCFTA) agreement signaled the strong commitment African countries have towards open trade. The free trade area has an ambition to create a unified continental market estimated at USD 3 trillion with over 1 billion people. However, to translate the AfCFTA from a trade agreement into a thriving free trade area will require significant financial resource mobilization to facilitate exports.
To realize the tremendous potential in the AfCFTA, given the existing high investment risk, will require the participation of institutions that offer investment insurance such as ICIEC. The insurance services offered will be crucial for the success of the AfCFTA in two main ways.
First, these investment insurance institutions provide much needed insurance to cover the political and commercial risks that might affect trade transactions. This insurance coverage provides investors with confidence that if the transaction does not follow through, they can at least get their initial investment back. This type of insurance will encourage more first mover investors in the AfCFTA. Second, the capacity building offered by ICIEC will be critical in building national institutions that support exports such as national Export Credit Agencies (ECA’s) and banks. Capacity building is essential in equipping these export-enabling institutions with the financial resources and technical capacity needed to facilitate exports in the AfCFTA.
As AfCFTA signatories begin to negotiate the trade agreement they should also keep in mind that investment insurance will be the cornerstone in building an inclusive and thriving free trade area that will benefit all member states.
