Financial Inclusion, Intra-African Trade and the AfCFTA: A Law and Economics Perspective

Abstract

It is challenging to calculate the value of Sub-Saharan Africa’s contribution to global trade because of the continent’s low financial inclusion, which mostly finances trade through the informal financial system. Although access to more affordable and effective formal financial services can help boost intra-African trade, small traders in Africa cannot afford to use official financial channels for cross-border transactions. Almost no official trade is conducted between African nations. The average exports and imports between nations on the same continent between 2015 and 2017 was only 2% in Africa, compared to 47%, 61%, 67%, and 7% in America, Asia, Europe, and Oceania, respectively. This is because although intra-African trade makes up more than 60% of regional trade, it is typically unregulated and thus informal. The African Continental Free Trade Agreement (AfCFTA) provides an opportunity to regularise such trade. The AfCFTA was ratified by 36 of the 54 African nations. On January 1, 2021, it was formally started with the intention of unifying the African market by removing 90% of tariffs and enabling free trade in commodities, services, and capital. In order to lower the cost of international transfers and contribute to the success of the AfCFTA, this chapter will argue that using mobile money to expand financial inclusion for individuals working in the informal sector is decisive.