Once upon a time, Egypt was a vital part of the trans-Saharan and Red Sea trading routes linking East Africa with Mediterranean economies. As the African Continental Free Trade Area’s (AfCFTA) impact grows, Egypt has the potential to enhance its role as a financial link between North and sub-Saharan Africa.
The AfCFTA, which entered into force in 2019, holds significant long-term potential to reshape Africa’s trade landscape, though realising this transformation will depend on overcoming implementation, regulatory and infrastructure challenges. Creating a free trade area of 1.4 billion people with a combined GDP of $3.4trn could reverse the continent’s shrinking share of global trade. The World Bank has estimated a fully-realised AfCFTA would boost Africa’s exports to the rest of the world by almost one-third by 2035. Intra-African exports and FDI would more than double by the same date, according to the same estimates.
For the Egyptian economy, which has been beset by challenges in recent years, the AfCFTA could provide a welcome tailwind. First off, there is a potential increase in Egypt’s export market. The country was already a member of the Greater Arab Free Trade Area (GAFTA) and the Common Market for Eastern and Southern Africa (COMESA). South Africa based think-tank The Trade Law Centre (tralac) highlights that the AfCFTA provides Egypt with preferential trading access to another 34 Africa markets.
Islam Zekry, Group Chief Finance & Operation Officer at Commercial International Bank (CIB), expects the AfCFTA to help Egypt penetrate new markets and diversify its export landscape. At a time when tariffs dominate the news cycle, the AfCFTA seeks to reduce intra-African tariffs on 97% of goods over various time frames, while the harmonisation of regulations and standards will help strip away non-tariff barriers. “Egypt’s established industrial base is well-positioned to cater to the surging demand across African consumer markets,” says Zekry
Egyptian industries that could benefit from intra-African trade include pharmaceuticals, chemicals, construction materials, agro-processed food and engineering services, says John Stuart, an economist, policy analyst and tralac associate. “Egypt has comparative advantages in many of these sectors due to a large and well-established industrial base, moderate labour costs, and growing expertise in digital-enabled services such as construction engineering, logistics management and fintech solutions,” he adds.
Trade finance bottleneck
Taking advantage of this potential export expansion is not straightforward. Logistics and physical distance present real barriers. Egypt may be located at the crossroads of North-East Africa and the Middle East, but its trade links are still heavily focused on Europe, Asia and the Gulf. The lack of direct maritime and air cargo links with many African countries – particularly in Central and West Africa – means higher freight costs, longer delivery times and reduced competitiveness for Egyptian exports.
Meanwhile, trade finance remains a “critical bottleneck” for intra-African trade, according to Stuart. “Egyptian exporters may find it difficult to extend credit to unfamiliar markets without guarantees, while African importers of Egyptian goods often lack the liquidity to pre-finance shipments or comply with demanding payment terms.”. Egyptian firms need the country’s banks lenders to help close these gaps.
A strong banking sector has provided welcome stability in Egypt during many downturns. The country’s lenders are generally well-capitalised and eager to expand. Several of the largest Egyptian banks already have footprints in Africa. In 2022 – the year after trading under the AfCFTA regime commenced – National Bank of Egypt (NBE) opened its first branch in Juba, South Sudan. State-owned NBE already has representative offices in Ethiopia and South Africa. Earlier this year, its state-owned peer Banque Misr unveiled plans to expand in Africa and is in the process of setting up a subsidiary in Djibouti and a branch in Mogadishu.
Among private sector banks, CIB stands out for its commitment to Africa through its Kenyan subsidiary, which it has fully owned since its acquisition of remaining shares in 2023. Through CIB Kenya, the bank offers clients brokerage services and a platform to support the regional ambitions of Egyptian businesses. Strategic partnerships with global and regional trade facilitation bodies allow CIB Kenya to help clients expand intra-Africa trade while mitigating risks, says Zekry.
Regulatory fragmentation, foreign exchange volatility and diverse credit profiles all pose significant operational risks. CIB’s approach to these hurdles is to adopt a comprehensive risk mitigation framework involving structured trade finance, risk-sharing frameworks, institutional cooperation and currency risk management. Key partnerships include the African Development Bank, which helps CIB strengthen its risk absorption capacity and trade finance offerings. Elsewhere, the African Export-Import Bank (Afreximbank) is assisting banks like CIB to strengthen their risk management tools. Partnership with Afreximbank has also allowed CIB to adopt the Pan-African Payment and Settlement System (PAPSS), which reduces conversion costs and helps make transactions more efficient. Multilateral initiatives like PAPSS and the AfCFTA Adjustment Facility, which aims help countries deal with tariff reduction losses, are promising. But, as Stuart notes, they will need scale and policy alignment to be transformative. There is still a long road ahead, but as momentum builds, Egypt’s lenders are increasingly well-positioned to help bridge the financing and connectivity gaps between African markets.
