The liberalization of Financial Services in Africa

  • Mouhamed Kebe, Managing Partner, DLA Piper Africa, Senegal (GENI & KEBE)

Return to Africa Connected: Issue 2


Africa is on the brink of enacting the African Continental Free Trade Area Agreement (the AfCFTA or the Agreement), a massive free-trade agreement that, if enacted, will liberalize trade and services across the continent. This Agreement has the potential to set in place long-lasting, sustainable economic growth in Africa. The free trade of services envisioned under the AfCFTA is expected to create new industries and opportunities for investment, placing the continent in a more favorable position in the global market. This in turn can create tremendous opportunities for Africa’s financial services sector, which will be expected to take a lead role in assuring the successful implementation of the Agreement.

After first providing a brief summary of the AfCFTA, this article then takes a closer look at how the Agreement is focused on liberalizing services across the continent and how that can benefit Africa’s economy. The article then delves into the lead role the financial services sector will have in implementing the Agreement and what it stands to gain with liberalization. Finally, it looks at the hurdles to successful implementation that exist and details what role key actors can play in assuring that the AfCFTA does not fall short of its promises, as many regional agreements on the continent have done in the past.

Understanding the AfCFTA

If enacted, the AfCFTA would constitute the largest free-trade area in the world. As it currently stands, this Agreement is only four countries short of the necessary 22 countries that need to ratify the AfCFTA for it to be enacted.1 So far, 49 of Africa’s 54 countries have signed the AfCFTA, indicating its widespread popularity and the existing hope that it will bring greater prosperity to a continent that has historically lagged behind the rest of the world. There is growing hope that this agreement will soon enter into force, with four more countries, South Africa, Senegal, Sierra Leone, and the Democratic Republic of Congo ratifying the agreement during the African Union summit in February 2019, bringing the number of ratifications to 18.2

Economic integration of this scale would create a single market of more than one billion people, with a gross domestic product of more than USD3 trillion, breaking down existing barriers to the movement of goods, services, people, capital and ideas across the continent. The United Nations Economic Commission for Africa has estimated that the AfCTA is "expected to boost consumer spending to about USD1.4 trillion in 2020 and increase intra-African trade by as much as USD35 billion per year, or 52 percent above the baseline by 2022."3 In fact, Africa has already seen the benefits of uniting on a smaller scale, in regional economic unions. The AfCFTA seeks to combine the strengths of those unions and to build on them to create an even stronger and, of course, larger union. This acknowledges that what West Africa has to contribute is different from what East Africa brings and those are both different than what Central Africa can add. The hope is that by combining these regional economic unions, Africa has the prospect, perhaps for the first time in history, of becoming self-sustainable.

Political and economic leaders across the continent believe that African nations have much to gain from combining their collective strengths and in sharing best practices without limitations. Enhanced trade between countries is expected to create a greater incentive for the development of infrastructure, introducing more robust industry than currently exists. By allowing the free movement of people, there is an expectation that a larger percentage of the collective population of Africa can be brought into the formal sector. At the same time, the Agreement is expected to result in the growth of industries with higher productivity and more skill intensive work, which will in turn provide higher pay at all levels and greater opportunity for the growing educated portion of the population.These impacts are expected to be felt in even the smallest of African nations, who have the greatest potential to benefit from the economies of scale naturally created by the Agreement. At the same time, countries with already robust manufacturing industries are expected to achieve rapid growth from the AfCFTA.5

Free trade of services under the AfCFTA

One of the key aspects of the AfCFTA is the free trade of services. The expanded market that will be created by the Agreement is expected to stimulate trade in services, resulting in financial stabilization and the promotion of cross-border investments. Not only is there expected to be an influx in exported services, but also industries that rely heavily on services, such as the manufacturing and agricultural sectors, are expected to grow. Unlike trade liberalization, which is expected to be driven directly by African governments, the liberalization of services is likely to be led by the private sector, specifically financial institutions, who will play a significant role in influencing policies and implementation. While growth resulting from the AfCFTA is likely to attract more substantial foreign direct investment, the long-term sustainability of economic growth will be reliant on local, African-based companies taking the lead.

By allowing the free trade of services across the continent, Africa’s ability to invest in and build the infrastructure necessary to achieve sustainable economic development can become a reality. The free movement of trade and services to be introduced by the AfCFTA is expected to stimulate industrial development and create a more diverse business landscape. Creating a single market will allow African countries to be in a better position to negotiate prices and production levels, which in turn will better position the continent as a viable economic partner on the world stage.As a result, businesses operating in the continent will also begin to have a greater platform with which to launch into the global market.  

The free trade of services envisioned under the AfCFTA will be bolstered by the free movement of people that will be permitted under the Agreement. Businesses and governments will have the ability to tap into talent from different parts of the continent in a way never before feasible. At the same time, individuals will have a greater opportunity to seek employment and education opportunities outside of their home country, which has the potential to create a much more skilled workforce. Growing industry, coupled with growing talent, sets the stage for a more sophisticated business climate, the potential for rapid infrastructure development and, in turn, more substantial returns on investment. All of this will be within reach for Africa should the AfCFTA be enacted and then implemented and supported by African governments. 

AfCFTA and financial services

The success of AfCFTA will rely heavily on Africa’s financial services industry’s ability to serve as the brain of the liberalization process. As indicated by the World Trade Organization (WTO), International Monetary Fund (IMF) and other international economic organizations, the financial services sector should take a lead role in providing the major tools necessary to implement robust trade agreements. As stated by the WTO, these include "facilitating transactions (exchange of goods and services) in the economy; mobilizing savings (for which the outlets would otherwise be much more limited); allocating capital funds (notably to finance productive investment); monitoring managers (so that the funds allocated will be spent as envisaged); and transforming risk (reducing it through aggregation and enabling it to be carried by those more willing to bear it)."7 Following the enactment of AfCFTA, Africa’s financial sector will need to demonstrate that it has the capacity to provide tools which have historically been available within a limited geographic scope or regionally. 

The opening of new markets and easing of cross-border transactions envisioned under the AfCFTA are expected to increase capital funds and promote both foreign direct investment and intra-continental investment within Africa. Financial institutions will need to lead the way in developing new technologies and methods to adapt to the diversified economies expected to result from the Agreement. They will also be relied on to assure changes are quickly and efficiently executed. The AfCFTA will, overall, create a more favorable environment for investors and Africa’s financial services sector will be expected to make the necessary reforms to capitalize on this and turn it in to actual growth and development.

Africa’s financial services sector will be relied on to provide the credit and support necessary for certain industries to move forward. This is particularly true of the infrastructure and manufacturing sectors, which will be at the center of Africa’s development goals following the AfCFTA’s enactment. To be successful in achieving sustainable growth, Africa must improve its infrastructure and invest in the development of new technologies. To compete on the global stage, African businesses will need financial support to modernize Africa’s industries. Without the financial services sector playing its part, the potential economic advances envisioned under the AfCFTA will fall short.

In exchange for serving as the leader of Africa’s trade reform, the financial services sector will likely see tremendous growth itself. A significantly larger pool of industries and businesses to lend to will create a great opportunity for the financial sector to reap the benefits of the AfCFTA. Financial services providers will be able to explore cross-border opportunities with ease and will not be inhibited by complicated and contrasting regulations from individual countries. Foreign investors will likely seize on the reduced restrictions and complications that arise from managing a web of different systems and, as a result, foreign direct investment is expected to flourish. The financial services sector will benefit directly from this influx, as capital increases and businesses become better positioned to invest and secure loans.

Recent activity by Pan-African Banks (PABs) demonstrates that the African financial sector is likely ready to rise to the occasion. While financial institutions in Sub-Saharan Africa remain, in most cases, small and underdeveloped, there has been expanded growth of PABs over the past decade, which has correlated with growing business opportunities on the continent. Growing PABs are, according to the IMF “fostering financial development and economic integration, stimulating competition and efficiency, introducing product innovation and modern management and information systems, and bringing higher skills and expertise to host countries."Banks such as Ecobank, the largest PAB, with a presence in over 30 African countries, are quickly buying up smaller local banks, which allows them to expand their scope and more easily facilitate cross-border transactions in a broader number of countries.9 As stated by Montfort Mlachila, the then IMF Senior Resident Representative to South Africa in 2017, “[t]he growth of PABs has undoubtedly contributed to financial sector development. It has promoted competition for deposits and loans. The clientele has also expanded beyond large domestic and multinational entities to reach underserved segments of the market, including SMEs."10 For the AfCFTA to be truly successful, the efforts of many key actors in the financial sector to expand their clientele and offer greater opportunity for financing will need to continue. The PABs should serve as a model for other stakeholders in the field. 

Remaining hurdles

Success of the AfCFTA is not guaranteed. Smaller regional bodies on the continent have consistently fallen short of expectations and have failed to deliver on their promises to promote economic development. A strong example of this is the Economic Community of West African States (ECOWAS). This regional body comprised of 15 West African member states was one of the earliest established regional bodies on the continent. ECOWAS has some of the most progressive regional protocols of any African regional body and it did have some early successes in serving as a model of good governance and democracy.11 In recent decades, however, a growing number of countries within the region have fallen to authoritarian regimes or now face growing concerns of terrorist activity, social unrest or political rebellions. Nigeria, for example, now faces a growing internal conflict and uprising of terrorist groups such as Boko Haram. The Ebola crises in 2014 shed light on many of the institutional and infrastructural weaknesses of the region. At the same time, ECOWAS continues to lack the resources necessary to promote real stability within the region and to address the, in some cases expanding, poverty crippling a number of its member countries.12 Moreover, linguistic differences between ECOWAS’ Francophone and Anglophone countries has made true integration more difficult. While it does have a few success stories, ECOWAS has largely fallen short of expectations. If it is to be successful, AfCFTA will have to overcome many of the hurdles that have impacted regional bodies such as ECOWAS. 

First and foremost, to succeed in delivering on the AfCFTA, African governments will need to provide tangible support for the liberalization of trade and services. However, there is some doubt as to the capacity of many governments to provide the level of support required. Due to the novelty of the changes proposed under the Agreement, there will be a steep learning curve. Governments must make a commitment to being involved in the learning process and to make adjustments along the way, based on real-time feedback and results. In making this commitment, governments must engage private businesses and incorporate their approaches and perspectives into the implementation of the AfCFTA. Policymakers should rely on the knowhow of the private sector to put in place regulation that supports innovation and sets Africa up for success in the long term, and not only in the short term.

Emphasis will need to be placed on human capital by training individuals to be valuable assets to the formal sector. This should include both government and business policies that encourage technical, skill-specific training, which will provide individuals with the skills they need to quickly and successfully enter the workforce and provide the support required for sophisticated businesses to thrive.13 Governments should also focus on putting in place policies that allow citizens to pursue opportunities abroad, both for employment and education. Local universities can be engaged to assist in bringing in new talent and casting a larger net when looking for students.

Local businesses will also need to play an active role in the development of the implementing framework for the Agreement. Sound technical capacity is an essential element for successful implementation. Businesses will have to insert themselves into the process, providing technical support to governments.14 The financial sector will need to ensure that the proper steps are being taken at the proper time in the implementation of AfCFTA. Resources should be provided incrementally and strategically so as to promote development, without overwhelming the existing systems. Consideration should be given to balancing the varying economies that will combine under the Agreement, in order for the continent to reach its full potential and for smaller countries to not be left behind or for more developed countries to be held back. Strategic planning on the part of both governments and businesses will be essential.


The AfCFTA has the potential to profoundly change the shape of Africa’s economy. The opportunities under the Agreement are plentiful. If properly implemented and supported, the free trade of goods and, particularly, services envisioned in the AfCFTA could result in real, sustainable growth for the continent. The time is now for Africa’s financial services sector to begin taking a lead role in planning for the Agreement’s enactment and setting the stage for successful implementation. This sector has the potential to benefit from its efforts to ensure that the Agreement is fully and completely supported upon enactment. It must support both governments and private businesses in laying the framework for long-term growth. Africa is on the cusp of significant development, but it will need a real nudge to reach its full potential.

Return to Africa Connected: Issue 2

4 See
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10 Ibid.
12 Ibid.
13 See
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