Explainer: What the new AfCFTA Adjustment Fund is all about

The newly launched $10billion AfCFTA Adjustment Fund aimed at supporting all initiatives geared towards the implementation of intra-African trade will be hosted in Kigali, Rwanda. The fund was established by the AfCFTA Secretariat and Afreximbank to fulfill a mandate from the African Union (AU) Summit of Heads of State and Government and the AfCFTA Council of Ministers responsible for trade. Following the signing of host agreement on March 10, the AfCFTA Adjustment Fund will be managed by the Fund for Export Development in Africa (FEDA) –an impact investment arm of Afreximbank. ALSO READ: 7 continental priorities region’s business community presented to AfCFTA boss The Fund consists of three sub-funds: The Base Fund, the General Fund, and the Credit Fund. The Base Fund will utilise contributions from AfCFTA state parties as well as grants and technical assistance to address tariff revenue losses, infrastructure deficits to facilitate trade growth and possible supply chain disruptions that would result from the implementation of the AfCFTA Agreement. The General Fund will finance the development of trade-enabling infrastructure while the Credit Fund will be used to mobilise commercial funding to support both the public and private sectors enabling them to adjust and take advantage of the opportunities created by the AfCFTA. ALSO READ: Hopes high as AfCFTA launches Guided Trade Initiative Tariff losses To boost trade across the continent, the AfCFTA agreement prescribes the elimination of tariffs on 90 percent of products in five years (10 years for Least Developed Countries), and on 7 percent of products in 10 years (13 years for LCDs), but tariffs on 3 percent of products will remain. This is so that by 2033, trade in 97 percent of all goods originating in Africa should be traded across borders free of any customs duties or other charges having equivalent effect. Now, the adjustment cost for countries to implement the agreement by foregoing revenues from import duties, is estimated at $10 billion over the next six to 10 years. This is why the base fund was basically put in place. ALSO READ: East Africa meets minimum requirements for trading under AfCFTA At the official signing of the agreement, Wamkele Mene, Secretary General of the AfCFTA, emphasized that the fund should not be viewed solely as a tool for overcoming short-term revenue losses of state parties, rather as a crucial initiative aimed at enhancing the capabilities of the private sector to produce value-added goods and services that can be traded competitively throughout the AfCFTA market. ALSO READ: Youth urged to exploit intra-Africa trade opportunities Access to finance Jean Bosco Kalisa, CEO of East African Business Council –the regional apex body of private sector associations and corporates from the seven EAC countries –said the fund comes at the right time to facilitate businesses access the needed financing. According to him, this fund is different from other sources of financing known as ‘impatient capital’ from commercial banks with high-interest rates over a short repayment period. “This fund is different in terms of duration and ensuring that whatever costs you incur, will be integrated by the fund. It becomes like a mitigating measure to navigate in the new trade,” he explained. However, he highlighted that the Secretariat and Afreximbank need to put in place flexible conditions to access the fund. “We need to make sure that the requirements to access the fund are fast-tracked so that our members take advantage of this as quickly as possible,” he said. In EAC, more than 94 products have been identified and are ready for export. These include; coffee from Rwanda, tea and batteries from Kenya, spices from Tanzania, and leather and automotive products, among others.

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Explainer: What the new AfCFTA Adjustment Fund is all about