Lack of access to affordable trade finance is holding back the economic and employment potential of African countries, says Stanbic Bank a member of Standard Bank.
According to the African Development Bank’s (AfDB) recent report on trade finance in Africa, the conservative estimate for the value of unmet demand for bank-intermediated trade finance is between US$110 billion and US $120 billion, which is significantly higher than earlier estimated figures of US$25 billion.
Trade finance has a direct impact on employment. A great number of jobs could be created if small and medium enterprises (SMEs) in Africa, could do cross border transactions that would have been supported by the unmet gap in demand for trade finance.
The gap means there are corporates out there who would have liked to have done that business but just because they could not access trade finance they could not do those trades.
“There is an opportunity for trade financiers to help fill this void but there are a number of barriers to trade that need to be removed.
This is why creating uniform rules and standards across various facets of trade will go a long way to closing these gaps and removing these barriers,” says Charles Kapufi, Head of Trade Sales at Stanbic Bank Tanzania.
The International Chamber of Commerce (ICC), the largest business organisation in the world, says the African market is clearly underserviced from a trade finance perspective.
The ICC Banking Commission produces universally accepted rules and guidelines for international banking practice. ICC rules and guidelines on documentary credits serve as the basis of US$ 2 trillion worth of trade transactions a year.
The Commission helps policymakers and standard setters to translate their vision into concrete programmes and regulations to enhance business practices throughout the world. Letters of credit are very popular in cross-border trade as they are legal and enforceable in all markets that have adopted the ICC standards.
According to the World Trade Organisation (WTO), not all developing countries participate equally in international trade, with Africa having the smallest slice of world exports.
The WTO’s World Trade Report 2014 says the potential of trade in supporting development has not yet been fully realised. The emerging trends suggest, however, that trade will be a major force for development in the future.
Despite the positive outlook, the WTO report says 2014 was the third straight year of below average trade growth and that this will not change in 2015.
This is clearly reflected in the Economic and Operations Annual Report by the Bank of Tanzania for the year ended 30/June/2014 that, the percentage share of banks credit to trade has been dropping at roundabout 6.5 perrcent annually over the last three years.
“A better understanding of risk finance is needed. There needs to be a better understanding of how the trade between these markets will grow by taking on more risk in an appropriate manner. This is also where you need the local market participants to give their input and advice,” says Mr Kapufi.
There needs to be more understanding of risk, not just counterparty credit, country, currency risk, but also compliance risk, which is on the rise in Africa (and other emerging markets) and there is a growing concern of de-risking by certain players, who would rather step back than face the higher risks.
While global initiatives in the space of managing compliance risk will benefit businesses in Africa, more hard data on the problem is needed so proper advocacy actions can be taken.
This is where collaboration at a forum like the ICC can help get a better handle on the problem and come up with solutions that are relevant and appropriate for emerging markets (such as markets in Africa). This needs to be augmented by increased awareness and support from corporates.
Stanbic Bank has created a corporate trade finance programme that facilitates domestic and international trade by guaranteeing payment for goods shipments.
With an extensive presence in the market and in key financial centres, Stanbic Bank offers competitive funding costs and experienced teams to help businesses succeed. The bank’s footprint across 20 countries in Africa enables it to provide comprehensive trade finance solutions.
Originally published on DailyNews Tanzania
