Developing the Africa Continental Free Trade Area Through the Banking Industry: A Law and Economics Perspective

This chapter delves into the pivotal role of banks in financing trade to propel the success of the African Continental Free Trade Area (AfCFTA). It underscores the significance of banks in providing lines of credit to small, medium, and large businesses, thereby fostering intra-African trade and economic growth. The text explores the challenges banks face in performing this role, including institutional failures, data coordination issues, and the absence of a Model Law for Factoring. It also discusses the impact of the Basel III framework on trade financing and the need for dedicated AfCFTA financial regulations. The chapter concludes with recommendations for African banks to effectively support the AfCFTA's objectives, emphasizing the need for a centralised financial system, efficient bank cooperation, and robust risk management policies. Additionally, it highlights the importance of research and development in identifying the appropriate degree of leverage for banks to strike a meaningful balance between debt and equity financing. The chapter also touches on the role of central banks in trade financing and the need for strong safety nets to shield banks from macroeconomic shocks. Overall, the chapter provides a comprehensive overview of the challenges and potential solutions for banks to effectively support the AfCFTA's goals, making it a crucial read for anyone interested in the future of trade and economic development in Africa.