Guided Trade Initiative Plays 'Pivotal' Role in Achieving AfCFTA's Goals, SA Professor Says

Sputnik Africa conducted an interview with Ronney Ncwadi, Full Professor and Director of the School of Economics, Development and Tourism at Nelson Mandela Metropolitan University in Gqeberha, South Africa, to assess the development prospects of AfCFTA in light of the Guided Trade Initiative enlargement.

Recently, the Secretary-General of AfCFTA announced that 31 African countries are set to join the Guided Trade Initiative in 2024. The professor explained the purpose of this initiative. He said it will facilitate the smooth exchange of a range of products at preferential rates, adding that its extension is consistent with the broader objectives of the AfCFTA.

"The Guided Trade Initiative is designed to assess the operational, institutional, and legal aspects of the AfCFTA agreement. This initiative facilitates the unhindered exchange of some selected products with preferential tariff considerations. [...] Importantly, participants stand to gain from tariff preferences. The extension of the Guided Trade Initiative aligns with the broader objectives of AfCFTA," Ncwadi told Sputnik Africa.

Moreover, as the professor pointed out, the Guided Trade Initiative will facilitate the legal aspects inherent in the AfCFTA agreement and create a strong, transparent, and trade-friendly legal system. The strategic inclusion of more nations in the Initiative can boost intra-African commerce. This increased participation creates a larger market and diversifies trade relationships, thereby promoting economic integration.

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Speaking about the possibility of switching to cross-border payments in local currencies, Ncwadi said that Pan-African Payment and Settlement System (PAPSS) and other streamlined financial processes can enhance international transaction settlement by decreasing expenses, enhancing effectiveness, and cultivating trust among involved countries.

"PAPSS is a revolutionary financial infrastructure, which enables instantaneous cross-border payments in local currencies across African markets, reducing transaction costs, ensuring real-time settlements, and providing currency flexibility. This streamlined and standardized system enhances trust among trading partners, mitigates payment delays, and promotes overall efficiency," the scientist added.

Furthermore, trade in local currencies can help avoid certain risks like currency exchange rate risks. It also "reduces foreign exchange costs, and minimizes transaction delays," according to the prof.

Ncwadi continued by saying that such trade stabilizes prices, reduces credit and default risks, streamlines risk management, and removes market entry obstacles, promoting inclusivity. Transactions in local currency also reduces market speculation and sovereign, political, and central bank policy risks. In general, this approach improves financial stability, transparency, and efficiency in cross-border transactions.

Lastly, the professor underlined that the Guided Trade Initiative "stands as a pivotal mechanism for achieving the long-term goals" of the AfCFTA.

"Overall, the Guided Trade Initiative serves as a comprehensive and strategic approach to realizing AfCFTA's ambitions for a more cooperative, efficient, and inclusive trade environment across the continent," Ncwadi concluded.