Development SectorTransaction AdvisoryApril 20, 2022by fieconAfCFTA Operationalization: The USD 1 Trillion Investment Framework

Investment

The Africa Continental Free Trade Area (AfCFTA) agreement is an important instrument in helping Africa realize its economic integration and development goals. It builds up on the progress realized by the Regional Economic Communities (RECs) to establish a USD 3.4 trillion market of goods and services with over 1.3 billion people.

The scope of the Agreement establishing AfCFTA covers trade in goods, trade in services, investment, intellectual property rights (IPRs) and competition policy and e-commerce. The six components are negotiated in scheduled phases where the outcomes are constituted into legal instruments known as Protocols.

Currently the negotiations are in Phase II which addresses Intellectual Property Rights (IPRs), Investment and Competition policy. Phase I which came into force in May 2020 produced the AfCFTA Agreement, Protocol on Trade in Goods, Protocol on Trade in Services and Protocol on Rules and Procedures on the Settlement of Disputes. Phase III which covers e-commerce is yet to kick off. As at now, the AfCFTA is being effected in 36 of the 55 African Union (AU) member states that have ratified the agreement and began trading under Phase I of the accord in January 2021.

With the debate on the adoption of Phase II Protocols ongoing, negotiations for an Investment Protocol provide a great opportunity to come up with a comprehensive and bespoke instrument that best addresses the needs of the continent.

There has been a need for innovative mobilization of long-term capital for investing in infrastructure, natural resources and industrial assets across Africa; in order to deliver on the AfCFTA promises. The need birthed an investment framework that addresses the diversities of the integration process with the relevant stakeholders in mind.

The AU is partnering with the African Private Sector under the AfroChampions Initiative to fully operationalize the AfCFTA through private sector-driven investments in key business areas across the continent by the year 2030. This investment and financing framework is dubbed the Trillion Dollar Investment Framework for Africa. Its goal is to establish a private sector blended finance vehicle that will fund investments in strategic projects through collaborative efforts with project developers, investors, financiers, multinationals, SMEs, business associations, governments, regional bodies, Development Finance Institutions among others.

Investments will be skewed towards these core business opportunity areas with higher job and wealth creation rates continentally; Food, Clothing, Housing, Transport & Logistics, Value Addition, Tourism & Creative, Digital Economy, Skills & Healthcare and Financial services

The Framework is made up of a matrix for determining the eligibility of AfCFTA certified programs and projects and a monitoring and reporting aspect for the successful ones. The approach will include the following steps:

  • The project pipeline is categorized into either greenfield or a brownfield which are then submitted to the AfCFTA for certification and rating.
  • With the approved rating the project developers pursue relevant support and financing from AfCFTA AfroChampions partners.
  • The project developers then leverage partner financiers and investors controlling $10 trillion in assets under management with an interest in their certified projects
  • After a successful fundraising, the implementation of the project is rolled-out.
  • The project implementation is subjected to performance benchmarking and reporting.

The Framework will be very instrumental in encouraging coordination of public policies on impactful cross border projects, in order to ensure better prioritization, faster deployment and adequate funding.  It will also grant the continent means for legit economic cooperation to encourage inclusive growth that will intensify intra African trade which is estimated to be at only 17% currently. Additionally, investors will no longer shy away from the vast opportunities in the continent because of the executional risk that has always hampered projects; since the AfCFTA private sector investment & financing framework will provide a project de-risking mechanism.

Author: Inzillia Sasi

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