Beyond Borders and Barriers:
The Role of Insurance in Realizing AfCFTA's Promise
BUSINESS FINANCE AND INSURANCE
HISTORICAL EVOLUTION OF AFRICA’S TRADE STRUCTURE
During the 1970s, Europe dominated Africa’s external trade, receiving over 60% of the continent’s exports, while trade within Africa itself remained very limited at approximately 7%. Although intra-African trade has grown in recent years, the continent continues to trade more extensively with external partners than within its own borders. Compared with other regions of the world, Africa’s level of intra-regional trade remains relatively low. This pattern is deeply rooted in colonial economic structures, which were designed to orient African economies toward external markets, particularly Europe, rather than fostering trade linkages among African countries. As a result, modern African trade is still heavily focused on external partners and remains geographically concentrated, rather than being diversified within the continent. (Fofack, 2019a). The adage "When Europe sneezes from a dust of recession, Africa catches an economic cold" originated from the long-standing correlation between African economic growth and European business cycles throughout the post-independence era. Even while the old colonial trade patterns are slowing down, significant regional differences are hidden by the overall headline figures.
At the continental level, Africa is trading less with its traditional partners, like former colonial powers in Europe. This is because new trade opportunities have emerged in other developing regions, a shift driven by globalization. A major turning point was China's entry into the World Trade Organization in 2001, which dramatically changed Africa's trade patterns. Instead of being heavily focused on its former allies, African trade has expanded in new geographic directions, breaking old colonial-era ties and creating a more diverse and global network of economic partners.
About a decade later, China emerged as a significant force in international trade and growth, and it has been Africa's biggest trading partner since 2009. China's rapid economic growth has led to a major increase in trade between developing countries (South-South trade) and specifically to Africa. This type of trade has grown much faster than global trade. Back in 1970, it made up less than a quarter of world trade and about 17% of Africa's trade. Today, it accounts for over 43% of global trade and more than half of all trade in Africa. The geographical distribution of African trade was also changed by new trading partners and developing economic prospects in North America, particularly under the African Growth and Opportunity Act.
Nevertheless, these changes have not significantly improved Africa’s economic integration or fundamentally altered its trade structure (Afreximbank, 2019b). In fact, Africa's share in global trade decreased from 4.3% to roughly 2.8% in 2019. This decline may be explained by major technological changes in the structure and drivers of global trade and growth (Afreximbank, 2020). In a rapidly evolving global economic context where manufactured items with increased technology content drive global trade, primary commodities and natural resources still make up most of the African trade. Furthermore, African economies that rely on exporting raw materials, like oil or minerals, face constant economic risks and unstable growth. This is because the prices for these goods go through unpredictable cycles of booming and bust on the global market. Making matters worse, the long-term trend shows that the value of these commodities is declining compared to the cost of imported manufactured goods. This means countries often get less for their exports over time, which creates repeated waves of economic instability.
AFCFTA AS A FRAMEWORK FOR INTEGRATION
The African Continental Free Trade Agreement (AfCFTA), which came into effect on May 30, 2019, is the world's largest free trade area since the General Agreement on Tariffs and Trade (GATT) was established more than 70 years ago, and it has the potential to be a transformative framework for globalization and the economy. A central goal of the African Union's long-term plan, "Agenda 2063," is to boost trade between African nations. By reducing trade barriers, the initiative could significantly increase Africa’s role in global trade and promote more diversified and resilient economies. (Fofack, 2018a; IMF, 2019).
The goal of the innovative African Continental Free Trade Area (AfCFTA) is to create the largest free trade area in the world by bringing together 55 African countries. By 2028, Africa’s population is expected to reach around 1.66 billion, driven by high urbanization and strong demographic growth. Alongside an anticipated economic expansion of about 4% annually in 2026 and 2027, the continent’s total GDP is projected to surpass the current US$3.4 trillion, greatly enhancing the market potential of the AfCFTA. This broad framework places a lot of emphasis on the services sector, especially insurance, which is essential to capital mobilization, risk management, and economic stability. According to recent data, the insurance industry plays an important role in supporting economic growth and financial resilience in Africa, however, its overall contribution remains relatively small, with insurance penetration averaging approximately 3% to 3.5% of GDP, significantly below global levels.
HOW EXACTLY DOES TRADE STRUCTURE AFFECT INSURANCE DEMAND?
Driven by changing demographics, economic growth, evolving regulations, and technological breakthroughs, the global insurance sector is rapidly evolving. New prospects for growth are opening in developing economies, especially in Africa and Asia, as the established insurance markets in Europe and North America stagnate. These emerging opportunities are propelled by a combination of robust economic growth, the expansion of the middle-class consumer base, and a strategic pivot towards inclusive Insurtech solutions designed to extend coverage to previously marginalized segments of the population (Calderon et al., 2020).
With greater penetration anticipated in the health, life, and property and casualty sectors, the insurance market in Africa has the potential to become a major engine for economic growth. Recent studies indicate that insurers continue to experience strong growth across key African markets such as South Africa, Namibia, Uganda, and Côte d’Ivoire. However, insurance penetration across the continent remains relatively low, averaging about 3.4% to 3.5% of GDP between 2023 and 2024. The demand for innovative insurance products is mostly driven by urbanization, the growing middle class, and demographic changes.
The rapid growth of mobile and microinsurance technology presents significant market opportunities. According to studies by Radley (2022) and Mobius (2023), mobile phone usage in sub-Saharan Africa has the potential to completely transform the way insurance products are distributed, especially in deprived rural areas. However, stronger regulatory frameworks are needed to support these technological developments and enable effective international insurance operations.
THE CHALLENGE?
The insurance sector is essential for promoting financial stability, managing risk, and supporting economic growth. This is especially important as AfCFTA creates a single market for goods and services across Africa. However, the absence of uniform regulatory requirements throughout African countries presents the industry with significant obstacles. The smooth transfer of insurance services across international borders is hampered by disparate legislation, different licensing procedures, and uneven supervision methods. The AfCFTA's objectives of market integration and economic development are directly challenged by this lack of regulatory cohesiveness, which also hinders cross-border operations, erodes economies of scale, and reduces the sector's potential for expansion (Signé & Johnson, 2020). Even while there is excitement about the AfCFTA's ability to promote sectoral growth, resolving these regulatory discrepancies is necessary to realize its full potential.
Eliminating nontariff barriers has been one of AfCFTA’s primary priority. To build a stronger and more diverse economy, countries need significant financial resources to fix major infrastructure problems. This necessitates strategic interventions, including the development of fiscally neutral funding mechanisms and the revitalization of public development banks to enhance financial mobilization. Careful allocation of funds and resources in this way is essential not only as an economic necessity but also a fundamental for achieving lasting peace and security.
Lastly, since the insurance sector operates in a highly regulated environment, laws vary greatly between jurisdictions. For international insurers, this disparity raises operational costs and creates compliance issues. For instance, insurers in the EU are subject to both national and EU-wide laws, such as Solvency II, creating a complex regulatory environment. According to the International Association of Insurance Supervisors (IAIS), these regulatory disparities can raise operating expenses by as much as 15%, which lowers competitiveness (Ali, 2021).
THE WAY FORWORD
Some regional regulatory harmonization schemes have been put into place throughout Africa to address these issues, and each one presents a possible route towards increased market integration.
A successful example of regulatory harmonization is the Conédération Interafricaine des Marchés d'Assurance (CIMA), which unites 14 West and Central African nations under a single regulatory framework. The CIMA code has contributed to the standardization of reporting requirements, capital requirements and solvency regulations, resulting in a more stable and predictable regulatory environment. However, differences in member states' economic development and their ability to enforce regulations have undermined CIMA's efficacy (Diop, 2014).
To promote market integration, the East African Community (EAC) is attempting to harmonize insurance rules. In this process, the East African Insurance Supervisors Association is crucial because it promotes uniform standards for insurance products, capital sufficiency, and solvency. The initiative nevertheless continues to face substantial impediments, including disparities in member states' regulatory capabilities and ongoing divergence of national legal frameworks (Mugenda, 2019). To attain complete regional integration, a more coordinated strategy to enforcement and capacity-building is required.
The Southern African Development Community (SADC) is working to gradually align the financial rules across its member countries. While a special committee fosters communication between regulators and a key agreement supports this goal, progress has been slow. The main obstacles are the lack of legally binding requirements and weak enforcement. To successfully create a larger, integrated market, the region must focus on strengthening its regulatory frameworks and ensuring rules are consistently applied.
By taking these actions, it will be ensured that the rules of origin, which are central to the African continental trade reform, serve as an accelerator of industrialization rather than a short-term, legally binding barrier to growth. Africa’s trade integration under the AfCFTA offers strong potential for economic growth and diversification, but its impact is constrained by structural weaknesses such as commodity dependence, low industrial capacity, and regulatory fragmentation. The insurance sector can support this transformation by enhancing risk management and trade facilitation, although its effectiveness is limited by low penetration and uneven regulation. Achieving meaningful and inclusive development will therefore require coordinated reforms, stronger institutions, and harmonized policies across the continent. The AfCFTA, which has established the world's largest free trade area, will produce a win-win result throughout its implementation if these policy reforms are implemented successfully, which is a prerequisite for success.
References
Fofack, H. (2020). Making the AfCFTA work for ‘The Africa we want’. Brookings Africa Growth Initiative Working Paper.
Marangwanda, A., & Mubanga, M. (2025). Reimagining Africa’s Insurance Landscape: How Regulatory Compliance Fuels AfCFTA’s Promise. International Journal of Advanced Business Studies, 4(1), 103-119.
