$31bn Risk Premium Threatens Africa’s Regional Trade Ambitions

African businesses are increasingly looking to expand across the continent, but high financing costs, limited access to trade finance and gaps in the implementation of the African Continental Free Trade Area (AfCFTA) are threatening to constrain regional commerce.

This is contained in preliminary findings of the 2026 PAFTRAC Africa CEO Trade Survey presented at the World Trade Organisation (WTO) Public Forum in Geneva.

The survey found that 81.3 per cent of executives expect their cross-border business activities to increase over the next 12 months, pointing to growing interest in African markets.

However, 57 per cent of respondents said accessing trade finance for cross-border transactions was difficult or very difficult, highlighting the financing constraints confronting companies seeking to exploit opportunities under AfCFTA.

The survey conducted by the Pan-African Private Sector Trade and Investment Committee (PAFTRAC) covers more than 2,500 business executives, up from 400 respondents when the survey began in 2021.

According to the findings, intra-African commerce has become the leading expansion destination among surveyed executives, ahead of China, Europe and the United States.

Yet, intra-African merchandise trade remains at only about 15 to 18 per cent of Africa’s total exports, underscoring the gap between the continent’s trade ambitions and actual commercial integration.

A major constraint is the cost of capital. PAFTRAC, citing International Finance Corporation (IFC) analysis, said African sovereign and institutional borrowers face an estimated $31 billion annually in excess financing costs associated with the pricing of African risk.

The additional cost of borrowing has implications beyond governments, as higher financing costs can feed into the cost of capital available to businesses involved in production, investment and cross-border trade.

The financing challenge is particularly significant for small and medium-sized enterprises (SMEs), which account for a substantial share of African businesses but often struggle to obtain affordable credit. IFC estimates Africa’s SME financing gap at more than $331 billion.

Similarly, the IFC also identified a significant trade-finance gap in Africa. Its research on four West African economies estimated a $14 billion annual shortfall in trade finance and found that improving access and reducing financing costs could increase merchandise trade in those markets.

Meanwhile, the PAFTRAC survey identified limited awareness of some AfCFTA mechanisms as another obstacle to greater regional commerce. Although 70.2 per cent of respondents said AfCFTA-related reforms had already had a tangible impact on their businesses, more than half were unfamiliar with the Pan-African Payment and Settlement System (PAPSS), while awareness of other trade facilitation tools also remained limited.

PAPSS is designed to facilitate eligible cross-border payments in African currencies, reducing dependence on hard currencies for intra-African transactions.

The findings suggest that creating continental trade infrastructure alone may not be sufficient to increase commerce unless businesses can access affordable finance, understand the available mechanisms and navigate regulatory and logistical barriers.

However, for Nigeria and other major African economies, the challenge is therefore to convert growing private-sector interest in regional markets into actual increases in trade, as this will require lower transaction and financing costs, wider access to trade finance, more effective payment systems and stronger implementation of AfCFTA rules.

Consequently, the latest findings point to a clear conundrum that African businesses increasingly want to trade with one another, but the financial and institutional barriers to doing so remain substantial, and how quickly those barriers are reduced could determine whether AfCFTA delivers the deeper regional integration envisaged by its architects or whether high costs continue to limit the continent’s trading potential.