Lloyd Caughey
Head of trade finance at Access Bank’s South African unit
Lack of access to finance, trade barriers, poor infrastructure and restrictive policies are some of the major hurdles to unleashing the full force of African trade. However, once African countries expand their participation in international trade and global value chains, this will have a multiplier effect on transforming economies and reducing poverty.
The Development Bank estimates Africa’s annual trade finance gap to be around $81 billion, with the biggest impact felt by SMEs and other domestic firms as they have greater difficulty accessing trade finance.
This area of the market, however, is where Access Bank – which opened in South Africa in 2021 through its acquisition of Grobank (formerly Bank of Athens) – is making a key difference, among its broader ambition to be the gateway bank for the entire continent. The bank already has 45 million+ customers, and operates across twelve African countries, the UAE and UK, with representative offices in China, India and Lebanon.
Yet, according to a 2022 book by the World Bank, Africa i the New Trade Environment: Market Access in Troubled Times, the continent must look further than just trading in raw materials. It must also link its production and trade to the global economy in order to take advantage of the unlimited demand and innovation along the supply chain. As the book notes, this will require efforts to boost Africa’s export market access and diversify its markets to new regions and products, while also strengthening regional trade.
The first phase of the African Continental Free Trade Agreement (AfCFTA) agreement, which took effect in January 2021, paints a picture of what could be if countries show the will to implement it. AfCFTA’s overall aim is to gradually eliminate tariffs on 90% of goods and reduce barriers to trade in services. That alone would expand trade and could raise real income by 7% by 2035 and significantly reduce the number of people living on the continent in extreme poverty, according to a 2020 World Bank report. About two-thirds of the $450 billion in potential income gains would result from removing long delays along borders and lowering trade costs, making it easier for African businesses to join regional and global supply chains.
Trade finance is beneficial because it introduces a third party intermediary to transactions to remove payment and supply risks, improving the ability of businesses importing goods to focus on their strengths and not worry about fulfilment delays. A bank like Access Bank can help alleviate payment and supply risks by matching funding between buyers and suppliers to ensure a seamless delivery of goods and smooth facilitation of orders. This helps to avoid fulfilment delays and ensures goods are sold no matter what happens with the exchange rate or the country being traded with. Generally, this is provided through services such as credit confirmation lines, approved trade finance facilities, hedging, bills for collections and outright dollar loans.
Trade finance is ideally suited where there is a flow of goods and commodities in sectors like mining and agriculture products such as sugar, fruit and nuts. The benefits for the South African market are immense as businesses from sugar importers to commodities, food and bicycle suppliers and retailers all stand to improve their stock and supply chain efficiencies. It also works well for finished goods and other manufactured items imported from places like China.
With limited access to finance holding back opportunities, African enterprises will benefit when they secure funding at a fair rate and work with partners who are willing to go the extra mile. Each deal must, however, be looked at independently rather than using a one-size fits-all approach – and the businesses involved should be already sound.
The edge provided by Access is to facilitate smaller transactions of R 50m or R 10m, as well as much larger deals. The ability to offer affordable rates is a major plus, as is having experts in the field for each deal. While effective costs can add up to 34-40% per annum in the industry, Access’s innovation, network and modelling are much more affordable.
We are building our import solution trade finance unit and the aim is to focus on businesses where there is a flow of finished goods and commodities. We apply strict diligence and look for clients with strong buyers lined up and a track record in their sector but who are usually struggling to raise enough working capital to meet demand.
At a high level, the optimal trade finance solution should give business owners the right amount of funding for the required length of time at a fair cost, with the ultimate aim of benefiting their bottom line. As African businesses continue to expand their international trade footprint, trade finance is a powerful proposition that can help underpin their future growth.
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