Identifying the insurance industry as a critical driver towards unlocking the full potential of the USD 3.4 trillion African Continental Free Trade Area (AfCFTA), Executive Vice President, Intra-African Trade and Export Development at Afreximbank, Mrs Kanayo Awani recently urged the sector’s stakeholders to strengthen underwriting capacity, deepen regional integration and retain more risks within the continent.
Mrs Awani, while delivering her speech on the theme titled “Insurance as an Enabler of Economic Growth for All: Taking Advantage of Free Trade Across Africa” during the 52nd Conference and Annual General Assembly of the African Insurance Organisation (AIO) in Cairo, Egypt, said the success of the AfCFTA and Africa’s industrialisation ambitions would depend largely on the ability of insurers to support trade, infrastructure development, investment and cross-border commerce through effective risk management.
According to the senior official of the Afreximbank, the continent’s dream of creating a single market of 1.5 billion people with a combined GDP of about USD 3.4 trillion cannot be achieved without a robust insurance industry capable of underwriting the risks associated with increased trade and investment flows across the continent.
“While the AfCFTA represents the largest free trade area in the world by number of participating countries, insurance penetration across Africa remains between 2% and 3%, significantly below the global average of 6.8%, creating a major gap in the continent’s economy. No nation can trade beyond the limits of its own capacity to carry risk. If cargo cannot be insured, it does not move. If receivables cannot be covered, they cannot be financed. If political and currency risks cannot be priced and managed, projects do not reach financial close,” she said.
Awani blamed the low level of insurance penetration across the continent as the key factor behind constrained investment, which, in turn, has raised financing costs, apart from forcing a significant portion of African risks to be ceded to foreign markets, resulting in capital flight and reduced domestic capacity.
“The AfCFTA was designed not merely to eliminate tariffs but to transform Africa’s economic structure through industrialisation, stronger regional value chains and increased intra-African trade. Recent data showed Africa’s merchandise trade recovering to USD 1.35 trillion, while intra-African trade rose to USD 206.6 billion and foreign direct investment surged by 75% to USD 97 billion, underscoring the enormous opportunities emerging across the continent,” she stated further.
However, despite these positive signs, fragmented insurance regulations, weak capital markets, inadequate risk data and limited financial inclusion have continued to impede the growth of Africa’s insurance sector. For Awani, the harmonisation of insurance regulations under the AfCFTA framework would enable insurers to operate more seamlessly across borders, apart from achieving economies of scale and building the capacity required to support major infrastructure and trade transactions.
“A continent assembling itself into one market cannot remain a patchwork of small, fragmented and undercapitalised pools of risk,” she stated.
The Afreximbank executive also highlighted several initiatives being deployed by her bank, with the goal of supporting continental trade. Prominent among them is the Pan-African Payment and Settlement System (PAPSS), which currently connects 27 countries and more than 180 banks and fintechs, significantly reducing transaction costs and settlement times for cross-border payments. Then solutions like the Trans-Africa Bond Alliance and AfrexInsure have been tailored as strategic platforms designed to deepen African underwriting capacity, facilitate trade and finance and retain more insurance premiums on the continent.
“The continent must urgently reverse the long-standing practice of exporting a substantial share of insurance premiums to foreign markets through excessive reinsurance arrangements. Historically, African insurers have ceded between 70% and 90% of premiums in specialised sectors such as energy, aviation and large commercial risks to offshore reinsurers, depriving the continent of capital, expertise and underwriting experience,” Awani said.
She also informed that AfrexInsure, established in 2022, has already supported transactions across more than 25 African countries with over USD 20 billion in sums insured, while prioritising the use of African underwriting capacity before seeking support outside the continent.
While maintaining that insurance should no longer be viewed as a peripheral financial service but as essential economic infrastructure that lowers the capital cost, improves bankability, supports trade and ultimately enables sustainable growth, Awani concluded, ‘There comes a moment in the life of every economy when it must learn to carry more of its own risk.’ For Africa, that moment is now.”