The Role of Trade Financing in Enhancing Intra-African trade under the African Continental Free Trade Area (AFCFTA)

Abstract

The study examines the role of trade finance in enhancing intra-African trade under the African Continental Free Trade Area (AfCFTA), with focus on how financing constraints, trade finance mechanisms and digital payment systems affect the ability of African firms to participate in cross-border trade. The study covers the AfCFTA era, with attention to recent evidence on trade finance, intra-African trade and digital payments across Africa. It reviews trade finance mechanisms, the African trade finance gap, financing constraints facing firms and the emerging role of the Pan-African Payment and Settlement System (PAPSS) and FinTech. The study adopts a conceptual and policy analysis approach based on verified empirical studies and reports from credible institutions, including the African Development Bank, Afreximbank, World Trade Organization, UN Trade and Development and the World Bank. Evidence from the literature shows that limited access to trade finance constrains export participation, trade volume and intra-African trade efficiency, with SMEs facing greater financing barriers. The study also finds that digital payment systems can reduce transaction costs and payment delays, while risk-sharing facilities can encourage banks to provide more trade finance. The study concludes that AfCFTA's success depends partly on the availability of affordable and accessible trade finance. It recommends stronger risk-sharing schemes, improved SME financing, wider use of PAPSS, better foreign-exchange access and greater investment in digital trade finance infrastructure.