The Promise and the Paradox of AfCFTA
The African Continental Free Trade Area (AfCFTA) represents one of the most ambitious economic projects in modern history, creating the largest free trade area in the world by the number of countries it encompasses. It connects over 1.4 billion people and a combined GDP exceeding US$3.4 trillion, according to the African Union and Economist Impact studies.
At its core, AfCFTA aims to increase intra-African trade by reducing tariffs, harmonizing customs rules, and facilitating the free movement of goods and services. But as barriers to trade fall, exposure to new risks rises — from non-payment and political instability to currency fluctuations and logistical disruptions.
This is where credit insurance becomes not just a safety net, but an enabler of growth in Africa’s evolving trade ecosystem.
The New Trade Reality: Opportunities and Risks Under AfCFTA
Under the AfCFTA framework, African businesses can now access new markets more easily and expand their supply chains across borders. Yet, despite this opportunity, intra-African trade remains under 20% of total African exports — compared to over 60% in Europe and 50% in Asia (UNCTAD, 2024).
The gap isn’t from lack of demand — it’s a lack of trust and risk protection mechanisms.
Here’s what’s shifting under AfCFTA:
- Trade Expansion = More Exposure:
As exporters move beyond familiar markets, they face new buyers, currencies, and regulations — increasing commercial and political risk.
- Reduced Tariffs, Higher Working Capital Needs:
Lower tariffs mean greater competition and thinner margins. Businesses must extend credit terms to attract new buyers — tying up liquidity.
- More SMEs Entering Trade:
With AfCFTA simplifying cross-border processes, SMEs are joining trade networks — yet most lack access to finance or risk management tools.
- Political and Regulatory Divergence:
Each member state has different levels of policy stability and enforcement. A default in one country can easily ripple across supply chains.
How Credit Insurance Enables Intra-African Trade
Credit insurance, also known as trade credit insurance, protects businesses against non-payment by buyers — whether domestic or cross-border.
In the AfCFTA context, it becomes a strategic tool for:
1. Protecting Cash Flow
When exporting under open-account terms, the risk of delayed or non-payment is inevitable. Credit insurance guarantees up to 90% recovery of the insured value, allowing exporters to plan with certainty.
2. Unlocking Access to Finance
Banks are more willing to extend pre- and post-shipment finance when receivables are insured. For SMEs, this transforms trade receivables into bankable assets.
3. Facilitating Market Expansion
By transferring buyer risk to insurers, exporters can enter new African markets without fear of default. For example, a Kenyan manufacturer can confidently sell to distributors in Ghana or Rwanda.
4. Strengthening Regional Supply Chains
Credit insurance stabilizes relationships between suppliers, manufacturers, and buyers. It creates a foundation of trust critical for long-term trade growth.
5. Supporting AfCFTA’s Broader Objectives
By mitigating risk, credit insurance accelerates regional trade integration — making it easier for African businesses to compete globally.
Economist Impact: What the Data Says
According to Economist Impact’s 2025 Africa Trade Outlook, AfCFTA could boost intra-African trade by 33% and reduce the continent’s trade deficit by 50% within a decade — if supported by better access to finance and insurance.
The report identifies trade credit insurance as a key enabler of this growth, helping:
- Reduce payment defaults, which currently account for 25–30% of trade losses in Africa.
- Improve lender confidence by reducing the cost of financing.
- Encourage SMEs to enter regional markets that were previously considered too risky.
Case in Point: A Practical Example
Consider a Tanzanian agribusiness exporting sunflower oil to Zambia under AfCFTA. The buyer is reputable but new. Without insurance, the exporter must choose between demanding cash in advance (losing competitiveness) or offering open credit (risking default).
By purchasing a credit insurance policy, the exporter:
- Protects 90% of the receivable amount
- Gains eligibility for working capital financing from their bank
- Expands operations into new AfCFTA markets with confidence
This simple step turns uncertainty into opportunity — and that’s the power of risk management in the AfCFTA era.
The Role of Insurers and Reinsurers
As AfCFTA reshapes trade, the insurance ecosystem must adapt too.
- Insurers must design products that are flexible, digital, and accessible to SMEs.
- Reinsurers must provide sufficient capacity to manage continent-wide exposure.
- Public-private partnerships (PPPs) with regional trade agencies, like Afreximbank and ATI, are essential to scale access.
At Underwriting Africa, we collaborate with leading reinsurers and financial institutions to structure tailored credit insurance solutions that address both commercial and political risk — ensuring that no African business is left behind in the AfCFTA journey.
FAQs: Credit Insurance Under AfCFTA
Q1: Is credit insurance only for large exporters?
No. While initially used by corporates, many insurers now offer SME-friendly packages. SMEs can insure single buyers or portfolios.
Q2: Does it cover all types of non-payment?
It covers buyer insolvency, protracted default, and in some cases, political events that prevent payment.
Q3: Can local banks use it to support lending?
Yes. Banks can assign policy proceeds as security, making it easier to lend against insured receivables.
Q4: What’s the cost of coverage?
Premiums vary by sector and country, but typically range between 0.3% – 1.2% of turnover — a small cost for peace of mind.
Q5: Is credit insurance recognized under AfCFTA frameworks?
Yes. AfCFTA recognizes the need for risk mitigation instruments to facilitate regional trade finance, including credit insurance and guarantees.
Risk Protection Is the Missing Link in Africa’s Trade Revolution
The success of AfCFTA won’t be measured by agreements signed, but by transactions completed safely and sustainably.
As trade barriers fall, credit insurance bridges the gap between opportunity and risk — giving African exporters, lenders, and investors the confidence to connect markets, scale operations, and fuel the continent’s growth.
In short, trade without protection is speculation — and in today’s interconnected Africa, managing credit risk is just as important as closing the deal.
🔗 Learn how Underwriting Africa is helping businesses unlock safe trade under AfCFTA: https://underwritingafrica.com/trade-credit-insurance/