Free-trade treaty could benefit SA’s credit profile

A crucial free-trade treaty, signed at the African Union (AU) Summit in Kigali yesterday, could be a sign of good things to come for the credit profiles of several African countries.

Ahead of the signing, rating agency Moody’s Investor Services said the African Continental Free Trade Area (AfCFTA) could improve the region’s credit profile although obstacles such as Africa’s under-developed infrastructure, non-tariff barriers and finance constraints could also limit its potential benefits.

In its report titled Sovereigns – Africa, Intra-regional trade can promote growth, but infrastructure and non-tariff barriers limit upside, Moody’s managing director for credit strategy and the report’s co-author Colin Ellis said countries with larger manufacturing bases, such as South Africa, Kenya and Egypt, were more likely to benefit.

“There is significant potential for further trade integration in Africa, which the AfCFTA could stimulate. This could improve the region’s credit profiles, given the greater stability and sophistication that intra-regional trade could offer compared with traditional commodity exports to the rest of the world,” Ellis said.

“That said, countries with larger manufacturing bases and better infrastructure, such as South Africa and Kenya, are most likely to benefit from further integration. For others, poor infrastructure and non-tariff barriers will continue to restrict the trade sector’s development and long-term growth potential.”

At least 53 African heads of state have gathered in Kigali for the 10th Extraordinary Summit of the AU to consider the legal instruments of AfCFTA and also launch the agreement officially to establish the treaty.

AfCFTA is aimed at deepening African economic integration, promoting agricultural development, food security, industrialisation and structural economic transformation. – ANA