Tanzania has blocked all agricultural imports from Malawi, its southern neighbour, and South Africa, Africa’s largest economy. 

Since Malawi is landlocked, it relies on Tanzania’s ports for international trade. Therefore, its top exports – raw tobacco, tea, legumes, soybeans, and sugar – will suffer, particularly since its top trading partners are international (with Germany and India as leading destinations).

The export of fertiliser to Malawi will also be suspended.

South African exports which will be hit include various fruits, including apples and grapes. While relatively muted compared with the impact of Tanzania’s move on Malawi’s economy, South Africa is heavily reliant on exports. Already weakened by 31% tariffs from the US ($500 million worth of South Africa’s $13.7 billion in agricultural exports go to the US), the country may now struggle in the intra-regional reorientation which many other economies are enjoying.

Tanzania has also halted the transit of any agricultural goods through its territory to either country, stymying Malawi’s international importing capability in particular.

Tanzanian Minister of Agriculture Hussein Bashe has justified this policy as retaliatory. Both Malawi and South Africa have embargoes on Tanzanian produce. 

This refers to Malawi’s ban on the import of certain produce, which was apparently designed as a temporary measure: a “strategic move to create an environment where local businesses can thrive without the immediate pressure of foreign competition,” according to Malawi’s Trade Minister, Vitumbiko Mumba at the time.

Tanzania, Malawi, and South Africa are all members of the Southern Africa Development Community (SADC) regional economic bloc. This may grow fraught with Bashe’s emphasis that Tanzania will begin to act in defence of its national sovereignty.

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Global economic growth is expected to decline from 2.8% this year to 2.6% in 2025. South African businesses must now demonstrate reliability and export market potential to attract foreign investment.

Despite fears of economic uncertainty, trade with the US is forecast to grow by 1.8% in 2025. A survey revealed that 74% of US executives believe the November election could significantly alter their business strategies, with half anticipating increased foreign investments under a potential Trump administration.

The potential imposition of 10-20% import tariffs could pose challenges, particularly for South African exports of metals and ores, including platinum, aluminium, and ferroalloys.

In the eurozone, modest real GDP growth of 1.2% is anticipated; meanwhile, China and India emerge as particularly promising markets, building on their relationship in the BRICS alliance. China, South Africa’s largest trading partner, is expected to maintain solid growth at 4.5% in 2025, with high-tech manufacturing performing robustly.

The report also underscores a global trend towards “slowbalisation”, where countries prioritise national resilience through onshoring and nearshoring production strategies. For South Africa, this could mean increased regional collaborations, such as its growing dependence on Mozambique for port and energy services.

Domestically, the formation of the Government of National Unity (GNU) has sparked optimism. Financial markets have responded positively, with the Johannesburg Stock Exchange gaining 15.2% in the third quarter and the rand appreciating.

According to the Bureau for Economic Research, targeted reforms in energy, logistics, and crime could potentially boost South Africa’s real GDP growth to 3.3% in 2025, potentially creating 470,000 jobs and reducing unemployment to 31.4%.

Lullu Krugel, PwC South Africa’s chief economist, said, “Global economic and geopolitical developments directly impact business decision-making, which in turn affects trade and investment in South Africa.”

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This is one of the most consequential US elections in history, which has been mainly determined by what’s at stake in an ideological or geopolitical domain.

But we at TFG think it’s essential to fully explore what Donald Trump’s second presidential victory may mean for the world of trade, treasury, and payments. It’s with this regard that President Trump can redefine the world.

We recorded an emergency livestream with four industry heavyweights:

◾ Dr Rebecca Harding, Independent Trade Economist, REBECCANOMICS LIMITED
◾ Dr Robert Besseling, CEO, PANGEA-RISK
◾ Simon Evenett, Professor of Geopolitics & Strategy, IMD Business School, Co-Chair, World Economic Forum Global Future Council on Trade & Investment
◾ Dr Alisa DiCaprio, Former Chief Economist, R3

What was covered:

• How Trump’s trade policy differs from Biden’s (if at all).
• US-China trade relations and economic wargaming – how increasing tariffs on 818 categories of Chinese goods impacts 2025 policy.
• How a second Trump presidency could impact trade relations between the US and Africa and the Middle East.
• What does the decline of multilateral trade agreements mean for ongoing negotiations and existing trade pacts (think: withdrawal from the Trans-Pacific Partnership and replacing NAFTA with the USMCA agreement)?
• Money markets: with US stocks surging and European renewable stocks falling, how Trump’s stance on climate change and energy policy might impact global commodity markets and trade flows.
• What we can expect Trump’s impact to be, on trade and SCF.
• What regions are likely to be singled out from a more combative trade policy, and what methods there are for assessing and monitoring as the effects of Trump become realised.
• The impact of protectionist trade on currency markets and international capital flows.

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Nedbank Corporate and Investment Bank, the Johannesburg-based bank, has announced a strategic partnership with UAE logistics provider DP World Trade Finance to increase the availability of trade finance solutions and boost trade in Sub-Saharan Africa. 

The two will collaborate to establish risk-sharing agreements and provide supply chain finance to DP World’s suppliers in the region. This is expected to help businesses in sub-Saharan Africa to facilitate the movement of goods, improving trade flows both within the continent and globally. 

The initiative was designed to address the working capital challenges faced by businesses across sub-Saharan Africa: the IFC and WTO estimate a trade finance shortage of as much as $14 billion each year for the four biggest economies in the region, causing exports to be stifled by up to $26 billion. 

Businesses in sub-Saharan Africa face persistent barriers to trade finance access, stemming from limited data on their creditworthiness – which contributes to perceived risk – and a lack of control over the underlying trade transactions. This makes it difficult for companies to secure the financing they need to expand operations to global markets.

As part of this collaboration, DP World has launched a supply chain programme on its platform to provide its sub-Saharan African suppliers with early payment access on approved receivables. This programme, with Nedbank as the financier, provides a more affordable trade financing solution compared to traditional options and is expected to address companies’ working capital constraints in a widely accessible way.

Anél Bosman, Group Managing Executive at Nedbank CIB, said, “Our partnership with DP World Trade Finance highlights Nedbank’s commitment to drive sustainable growth and support growth across sub-Saharan Africa. By combining our expertise in structured finance with DP World’s logistics network, we are well-placed to resolve some of the region’s trade finance challenges.”

Mohammed Akoojee, CEO & Managing Director for sub-Saharan Africa at DP World, said, “By combining our logistics capabilities with innovative financial solutions, we are not only enabling our suppliers to thrive but also fostering a more transparent and efficient trade ecosystem. This collaboration underscores our commitment to transforming trade and unlocking opportunities for sustainable economic growth in the region.”

This partnership would improve sub-Saharan African trade by enabling businesses to access much-needed working capital and helping them grow. 

By combining their financial and logistical expertise, Nedbank CIB and DP World hope to improve transparency in the wider trade finance ecosystem and facilitate sustainable development in the region. 

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Sub-Saharan Africa’s most important countries for trade stand at a political and economic crossroads. Nigeria, Ghana, and South Africa could become crucial players in the global economy: their trade opportunities in oil, minerals, and maritime hubs, along with quickly growing economies and longstanding peace, all make them attractive trade partners in Africa. 

However, challenges such as crumbling infrastructure, inflation, corruption, and internal unrest could have wide-ranging effects on supply chains and export capabilities, impacting trade flows worldwide. Nigeria and South Africa have just elected new leaders in hotly contested elections, while Ghana is set to do so in December 2024. 

The new presidents promise ambitious infrastructure investments and reform but must balance it with a cautious economic policy to reduce inflation and comply with IMF loan terms. 

A crucial trio for trade

Macroeconomic changes in Sub-Saharan Africa will be consequential to global trade. Nigeria is one of the most populous countries on earth, with a population set to surpass that of the US by 2050; it is an important crude oil exporter, with exports that have grown in recent years and are projected to keep doing so. 

South Africa is crucial for global trade because of its strategic position and long coastline; it is also the world’s largest exporter of precious metals like platinum and vanadium, in high demand to fuel the green energy transition. Ghana, long hailed as one of the best-run countries in Africa, is a hub of stability on the strategically important Gulf of Guinea, an important cocoa exporter, and a large African import market for Western goods. 

All three countries have solid economic growth rates of around 2 to 3% annually, democratic governments, and a highly educated and growing population, making them attractive trade partners and investment opportunities. 

Crumbling infrastructure and energy systems in South Africa

However, challenges abound. South Africa has been experiencing serious infrastructural issues, among them energy shortages and the breakdown of transportation. Frequent planned blackouts, locally called “load shedding,” leave the country without power for hours on end, for a record total of 280 days in 2023. 

Medium and large businesses make do with expensive diesel generators and solar panels, but small enterprises are forced to shut down until power returns. South African state energy company, Eskom, has been battling crumbling infrastructure, corruption, criminal activity, and an antiquated model almost entirely reliant on coal. 

If this continues, it could have a devastating effect on South African exports, as many countries in the EU and beyond enact regulations to ensure imported goods meet a minimum environmental threshold. South African ports and railways are poorly maintained and crumbling under years of use, which has led to an increase in road transportation, causing traffic and delays. 

This not only worsens the energy crisis, as transporting coal in trucks is much less efficient and leaves trucks vulnerable to theft; it also directly affects export markets, causing long delays and disrupting supply chains globally. Attacks by the Houthi militia in the Red Sea have led to the diversion of trade to the southern African cape, with many ports reporting a 50% increase in traffic. 

In the Durban container terminal, 79 vessels have been forced to wait at sea for months, and average delays are 10 days or more. Imported and transiting goods are further delayed by the breakdown in railway transportation, creating large backlogs. 

A difficult economy in Nigeria

In Nigeria, double-digit inflation, soaring food and fuel prices, and corruption have affected production and exports, leading to disappointing growth in the last few years. Fuel subsidies, which made Nigerian oil among the cheapest in the world but were a significant burden to state finances, were removed in May 2023, causing a spike in transportation costs which snowballed into high inflation. Corruption on many levels of government makes oil production much lower than it could be and has distorted exchange rates. The arrest of a former Central Bank chief accused of corruption as well as recent monetary policy changes led to a massive devaluation of the local currency. 

Energy and debt in Ghana

Ghana, whose economy is closely tied to the rest of Africa’s, has been feeling the impact of Nigeria’s economic troubles. The country imports much of its energy from Nigerian power stations and has recently announced a round of blackouts reportedly caused by infrastructural issues on Nigeria’s side. 

The government will need to import around £400 million worth of other fuel like natural gas in order to make up for the shortfall, which added to the already existing almost £1 billion debt to various energy suppliers could spell trouble for the state’s coffers. A recently announced IMF bailout may carry terms that would further disrupt the economy. 

Effect on exports

In the short term, the transportation breakdown in South Africa will mean delays and supply chain disruptions become more common, especially if more goods are diverted from the Red Sea. The Nigerian and Ghanaian energy crises are likely to affect oil prices and may reduce exports from the region as factories scale back production due to blackouts. 

In the short to medium term, the economic effect of these issues will further affect trade: rising inflation might mean a struggling economy is less open to trade, while the currency devaluations happening in Nigeria may boost exports but will make many imported goods unaffordable. The higher-level effect of all this may be popular unrest: if the Kenyan protests of the past month are anything to go by, any meaningful response from the government to end inflation or promote austerity could lead to widespread disorder. 

New policies and developments

This moment of crisis could spell the region’s demise or accelerate its rise as an important hub for trade and industry. South Africa and Nigeria’s new leaders are fighting for the latter outcome, as will the winner of the Ghanaian December 2024 elections. 

Nigeria’s president Tinubu, who took on the role in May 2023, has been enacting a series of economic policies to diversify the economy away from oil and drive down inflation. While critics say the short-term effects of his so-called “Tinubunomics” are unbearable for the population, the measures are likely to attract foreign investment and lead to more economic stability in the long term. 

South Africa’s newly elected coalition congress has promised concrete measures to end the energy crisis, including substantive investments in green energy sources and an end to the Eskom monopoly on the electricity market. 

Foreign investments in port infrastructure, including a recently announced £2.3 billion project financed by an Emirati firm, may make South Africa a new trade hub, its stability a welcome change from the turmoil in the Red Sea. Ghana’s elections will usher in a new president, who will have to tackle high inflation and an IMF bailout as well as significant trade challenges. 

These changes, if successful, could cement Nigeria, Ghana, and South Africa as regional leaders and place them at the centre of global energy and commodities trade. The ultimate driver of their success will be the direction their newly elected political leaders take, and whether the reforms they enact can deliver on promises of growth and increased trade. 

The post Nigeria, Ghana, and South Africa: Challenges and opportunities for the Sub-Saharan giants appeared first on Trade Finance Global.

This funding follows TDB’s earlier achievements in backing pioneering off-grid solar initiatives in its region through a notable $415 million allocation from the World Bank’s Regional Infrastructure Financing Facility (RIFF) in 2020.

This initiative forms part of the initial stages of the IDA’s $5 billion ‘Accelerating Sustainable and Clean Energy Access Transformation’ (ASCENT) scheme, aiming to extend electricity access to nearly 100 million individuals in Africa over the forthcoming seven years and assist in meeting SDG 7.

Additional components of this phase include the ASCENT COMESA Regional Acceleration Platform, managed by the COMESA Secretariat, alongside programmes in four pioneering countries chosen as ASCENT representatives due to their varied energy access levels and regional contexts.

The support is backed by IDA funds and a contribution from the Energy Sector Management Assistance Programme (ESMAP). With the funds provided to TDB, the ASCENT Regional Energy Access Financing Platform (REAF) will be set up and executed. The ASCENT REAF is anticipated to enable electricity access for approximately 5 million people, enhance clean cooking facilities for around 1 million individuals, and contribute up to 35MW of energy capacity in the area.

Financing will be available for DRE and clean cooking firms through direct loans, co-financing, or on-lending via financial intermediaries, with smaller loans for SMEs through the TDB Group’s Trade and Development Fund (TDF).

Additionally, performance-based grants will be offered to assist businesses in entering new markets, trialling new innovations, and fostering sector growth. This is alongside technical support, capacity enhancement, and the introduction and testing of financial innovations for TDB, TDF, and their clients to boost the sustainability of their DRE and clean cooking initiatives.

Special emphasis will be on developing pipelines, implementation resources and technology, environmental and social considerations, climate resilience, gender issues, and novel financing mechanisms.

Recent global challenges and economic difficulties have hindered progress in human development indices and electrification rates in Africa. Electricity is crucial for the region’s poverty reduction and sustainable development, enabling children’s education, fostering inclusion, and empowering the private sector—including MSMEs and large corporations—to create employment, stimulate economic growth, and promote innovation and industrial advancement.

Furthermore, access to clean energy, particularly for cooking, is essential for reducing indoor air pollution and enhancing productivity and health outcomes, especially among women.

Admassu Tadesse, TDB Group President and Managing Director said, “With African energy demand projected to grow rapidly alongside growth in population and incomes, there is an acute need to boost the intermediation of financing, including of concessional finance which can be leveraged to crowd-in more private capital, and make a substantial difference towards greater access to sustainable and clean energy in Africa. Together with several other strategic engagements with World Bank Group institutions, TDB Group is delighted to further elevate its partnership with the World Bank’s IDA through ASCENT which stands to bolster the efforts the Group has been deploying towards a just energy transition, including by adding low-carbon energy capacity in its markets, thereby enhancing their energy security and sustainable growth, while reducing GHG emissions.”

Boutheina Guermazi, World Bank Director for Regional Integration in Africa and the Middle East said, “Access to sustainable, reliable, and affordable energy is at the crux of Africa’s development and poverty reduction efforts. The World Bank is pleased to build on our strong partnership with TDB Group, and we look forward to leveraging our combined efforts to unlock even more sources of financing for a host of private sector actors through the new ASCENT Regional Energy Access Financing Platform (REAF).”

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Europe remains one of the most important continents for African trade, but recent years have seen a decline relative to other regions, with a notable uptick in flows from China and MEA regions.  

Prior to COVID-19, Africa’s trade finance gap was closing, decreasing from $120 billion in 2011 to around $81 billion in 2019. 

However, the macroeconomic disruptions and geopolitical uncertainties that followed have caused that gap to widen again. In the years following, Africa’s recorded cross-border trade has grown relatively modestly in recent decades and currently accounts for between 2-3% of global trade.

Trade agreements are key. The EU maintains open and transparent trade policies, albeit they can be somewhat fragmented. 

Post-Brexit, the UK has actively sought to negotiate or refresh trade agreements, resulting in several Economic Partnership Agreements with African nations. 

In early 2024 the UK will host the UK-African Investment Summit with the aim of strengthening UK-Africa ties further, another significant indicator of the optimism and opportunity surrounding the continent. 

International diplomacy and initiatives are a vital step forward in closing Africa’s trade finance gap, but there is further reason to be optimistic as we move towards a golden era of digitalisation in trade finance.

The transformative potential of digital trade solutions is vital to empowering businesses through technological innovation and collaboration. By automating and streamlining trade finance processes, digital tools can significantly reduce costs, foster inclusivity, and enhance the availability of financing for African businesses.

1. Collaboration is key

The pandemic has accelerated the adoption of digital trade finance, beginning a transformation of an industry that remains highly paper-based. These manual processes slow down access to finance and increase the cost and complexity which further exasperates the challenges faced by SMEs.

However, while innovative technologies are readily available, their efficacy relies on regulatory and legal reforms. This makes collaboration between policymakers, banks, financial institutions, and development finance institutions (DFIs) paramount. 

Initiatives such as the African Continental Free Trade Area (AfCFTA) provide a further avenue for collaboration and establishing standards tailored to African trade while remaining aligned with global standards. AfCFTA, underpinned by robust political momentum, offers a prime opportunity to dismantle barriers to trade, and digitalisation is the cornerstone. 

Efforts within the AfCFTA framework are continuously focusing on implementing policy advice, adjusting regulations, and setting up digital norms, creating a favourable environment for digital trade.

2. The ESG convergence 

In the post-pandemic, AfCFTA-enabled, hyper-digital world, trade technologies and environmental, social, and governance (ESG) principles are converging and are of particular importance to global investors. This is paving the way for impactful and sustainable transformation across economies and societies.

European consumers are increasingly socially and environmentally aware and prioritise seeking out products which have appropriate certifications. Whilst this could present a barrier for some exporters, it unlocks a significant opportunity for those able to comply.

There is an important need for digital supplier financing solutions which directly influence supply chains and align with sustainability principles. 

As a consequence, corporate buyers can accelerate the payment collection of trade receivables for their suppliers, offering instant liquidity. This approach not only bolsters the sustainability of suppliers’ financial well-being but also contributes to a more robust and resilient supply chain for corporate buyers.

3. Empowering SMEs

Digital trade technologies hold significant benefits from an ESG perspective, particularly through sustainable financing solutions. These solutions focus on aiding SMEs, including women and young entrepreneurs, who make up approximately 80% of Africa’s economic activities.

It’s vital that there is a drive towards empowering SMEs with more inclusive access to finance. In recent months The African Export-Import Bank (Afreximbank) has proposed the formation of public and private Export Trading Companies (ETCs) to bring together the continent’s SMEs so that they can compete effectively in international markets.

Additionally, the industry needs to focus on the development of digital solutions to help with day-to-day financing concerns, which take into account local needs and nuances. 

Further, to level the playing field, there must be an emphasis on creating solutions that reduce the cost of these instruments and the complexity which can create barriers to access.

A promising future for African trade

As Africa continues to promote itself as a centre of global trade, the synthesis of trade technologies, innovation, and ESG principles is vital for the continent’s future growth and prosperity.

Integration and adoption of digital platforms will require pulling a combination of levers to solve the challenges faced by SMEs. The easy win will be the development of innovative new technology, and there are already some notable examples of this.  

But without regulatory and legal reform and increasing the necessary support for foreign currency liquidity, they will gain limited traction.

Despite hurdles posed by global geopolitical shifts, inflation, and supply constraints, Africa’s steadfast commitment to economic growth through trade remains unwavering. The increasing drive towards digitalising trade finance emerges as a beacon of hope in the face of these challenges. 

The post Three keys to enhance African trade potential in the digital age   appeared first on Trade Finance Global.

The African trade landscape has navigated its own complex journey through market turbulence and volatility, with rising inflation and supply limitations posing hurdles. Despite this, the continent stands resilient, propelled by some of the world’s fastest-growing economies, with trade emerging as a crucial driver of economic growth and recovery. 

In Sub-Saharan Africa, this year’s growth projection of 3.6% – despite a global slowdown – underscores the resilience of the economies in that region. Africa’s aggregate cross-border trade, though modest in recent decades at 2-3% of global trade, is gradually evolving, with intra-regional trade now accounting for 17% of Africa’s exports. 

This determination to bolster economic ties does not stop at Africa’s shores. Europe remains a prominent trade partner, closely followed by China, and the Middle East and Africa (MEA) are witnessing increased flows, indicative of a broader uptick in bilateral trade activity. 

Despite the clear importance of trade, limited access to trade financing continues to loom large for small and medium-sized businesses across Africa, hindering their growth and potential. This complex issue is influenced by many factors, including the costs associated with trade finance instruments, perceptions of risk, data challenges, and regulatory hurdles. 

While the continent’s trade finance gap was narrowing pre-pandemic, shrinking from $120 billion to around $81 billion, subsequent geopolitical uncertainties in regions like Ukraine and Taiwan, coupled with broader macroeconomic dynamics, have since led to a widening of this gap. Spiralling input costs and supply chain bottlenecks further exacerbated the situation. 

In this context, the digitalisation of trade finance emerges as a beacon of hope, holding promises for banks and SMEs alike. By automating and streamlining trade finance processes, digital tools can significantly reduce costs, foster inclusivity, and enhance the availability of financing for African businesses.

Through all of this, we can see the transformative potential of digital trade solutions, which is helping Absa Bank’s concerted efforts to bridge this gap and empower businesses through technological innovation and collaboration. 

The journey to digital innovation

Headquartered in South Africa and fully operational in ten African markets, we are attuned to the critical nature of expanding access to trade finance by enhancing its digital capabilities. 

The transformational potential of technology in bridging the African trade finance gap is undeniable. Trade finance, as a convergence of physical, information, and financial flows, stands uniquely positioned to benefit from digital innovation. 

The COVID-19 lockdowns served as an initial catalyst for the adoption of digital trade finance solutions, disrupting traditional paper-driven processes that hindered swift access to finance. Over the course of the pandemic, Absa witnessed a substantial uptake in the adoption of our digital trade solutions across the continent. 

While innovative technologies are readily available, their efficacy hinges upon regulatory and legal reforms, making widespread collaboration among policymakers, banks, financial institutions, and development finance institutions (DFIs) paramount – something that Absa is actively involved with. 

Initiatives like the African Continental Free Trade Area (AfCFTA) provide a further avenue for collaboration and establishing standards tailored to African trade while remaining aligned with global standards. AfCFTA, underpinned by robust political momentum, offers a prime opportunity to dismantle barriers to regional trade, with digitalisation as a cornerstone.

Ongoing efforts within the AfCFTA framework actively address policy recommendations, regulatory adjustments, and the establishment of digital standards, fostering an environment conducive to digital trade. 

Combining global and local lenses 

When exploring the realm of tradetech, it becomes evident that a dual perspective – both global and local – is essential to fostering comprehensive and impactful growth. 

Integrating a global lens ensures the improvement of regional value chains and bolsters seamless integration into the broader global value chains. This approach acknowledges the interconnectedness of economies and the benefits of collaboration across borders. 

However, it is equally imperative to adopt a local lens, recognising the nuanced intricacies of emerging markets that demand tailor-made solutions and a deep understanding of local dynamics. 

Notably, East Africa has exhibited robust momentum in trade digitisation, intertwining payment capabilities and unveiling digital platforms that empower small businesses to expand their trade horizons. 

The triumph of initiatives like M-PESA in mobile money underscores the potency of localised approaches. Initiatives like the Africa Trade Gateway, pioneered by Afreximbank, further exemplify the commitment to driving digital transformation. 

Africa’s innovation landscape in trade digitisation is vibrant, yet success hinges on fostering a collaborative environment for effective economic transformation. 

When it comes to trade digitalisation, collaboration is key

Absa’s approach to digitalising trade is rooted in a multi-faceted strategy, reflecting our commitment to innovation and seamless integration across the complex landscape of platforms, standards, and players. 

Central to our strategy is a client portal built on open-source architecture. This portal empowers the bank to seamlessly integrate with various ecosystems through application programming interfaces (APIs), ensuring it can connect with strategic partners and systems efficiently. 

Moreover, Absa is harnessing the power of big data and artificial intelligence (AI) to optimise key processes. By leveraging these technologies, we are not only staying ahead of increasing regulatory demands but also automating checklist processes, leading to lower overall client costs. 

Our partnership with Traydstream, a pioneering AI platform in the trade space, is a great example of our innovation journey. This collaboration has enabled Absa to automate crucial steps within the trade lifecycle, transforming labour-intensive document-checking processes into streamlined digital workflows. 

The solution went live in December 2022 and is anticipated to deliver substantial benefits. With estimated wait times of 2-5 days reduced to 10-15 minutes per stage, enhanced accuracy, and improved client experiences, the resulting cost reduction is projected at an impressive 60-70%. 

Moreover, our commitment to creating connected and trusted ecosystems is embodied by our status as the first African bank to join the Contour Network. This decentralised technology platform unifies banks, corporations, and ecosystem partners, fostering the seamless flow of reliable data across global trade routes. 

As Absa navigates the intricate trade finance landscape, its comprehensive strategy underscores its dedication to driving digitisation, automation, and integration that ultimately empowers smoother, more efficient, cost-effective, and more sustainable trade processes.

Trade digitalisation is also great for ESG

Digital trade technologies also hold significant benefits from an environmental, social, and governance (ESG) perspective, aligning with Absa’s commitment to fostering a just and sustainable economy.

As a notable example, Absa’s sustainable financing solutions are geared towards supporting SMEs, including women and youth, who constitute a significant portion of the economy. 

This commitment is mirrored in Absa’s emphasis on addressing environmental and social imperatives, especially given the continent’s priority to alleviate poverty and drive economic growth in line with the United Nations Declaration on Financing for Development.

One of our central focuses is empowering SMEs with more inclusive access to finance, exemplified by initiatives like the Supplier Financing solution, which directly influences supply chains and aligns with sustainability principles. 

Through this digital platform, corporate buyers can accelerate the payment collection of trade receivables for their suppliers, offering instant liquidity. This approach not only bolsters the sustainability of suppliers’ financial well-being but also contributes to a more robust and resilient supply chain for corporate buyers. 

As Absa continues our journey as a catalyst for positive change, the convergence of trade technologies and ESG principles pave the way for impactful and sustainable transformation across economies and societies.

Pioneering progress in trade finance

In a world marked by complex challenges and dynamic shifts, Africa’s trade landscape has proven resilient, driven by determined economies and a burgeoning trade spirit. Despite hurdles posed by global geopolitical shifts, inflation, and supply constraints, Africa’s steadfast commitment to economic growth through trade remains unwavering.

Absa Bank’s approach to digitalising trade finance emerges as a beacon of hope in the face of these challenges. By harnessing the transformative power of technology, Absa stands committed to bridging the trade finance gap that hampers SMEs’ growth potential. 

As we continues our journey as a catalyst for impactful change, the synthesis of trade technologies, innovation, and ESG principles paints a promising picture for the continent’s future. 

The post Bridging the trade finance gap: Absa’s digital journey in Africa appeared first on Trade Finance Global.

Gaining access to finance is one of the most critical hurdles for micro, small, and medium-sized enterprises (MSMEs). Nowhere in the world is this more evident than in West Africa.

In a region where MSMEs make up the majority of domestic employment, supporting their expansion is vital for sustainable economic growth, reduced poverty, and future stability. However, barriers such as conflict, a lack of banking participation, and inadequate support structures stand in their way. 

Regional challenges

As China has become an important partner and a source of economic support in West Africa, several governments in the region are under pressure from rising debt and liquidity issues associated with expensive borrowing and a rising US dollar. Whilst alternative support is available, including the Partnership for Global Infrastructure Initiative announced by the G7 in June 2022, making sure any funding facilitates growth in a sustainable way remains a challenge.

Trade between the UAE and Africa has recorded steady growth in recent years, with the UAE becoming the fourth-biggest investor in Africa in 2021 by investing in 71 different projects worth USD$5.64 billion (with the active support of Etihad).

Etihad Credit Insurance (ECI), in association with its British counterpart UK Export Finance (UKEF), supported a major initiative in the Republic of Senegal – bolstering Senegal’s national emergency response capabilities with a USD$152 million deal.

However, sovereign risk remains a critical issue, noticeably under the shadow of Nigeria’s enormous national debt. Amid ongoing tension, the region’s strongest local supporter – South Africa and its export credit agency (ECA), ECIC – has retreated from subscribing to higher foreign risk since the start of 2022, reducing its medium- and long-term guarantees on large projects. 

Like some ECAs in other parts of Africa, ECIC is now focused on providing short-term credit insurance guarantees, which are much needed by its local economy, and lower in risk.

In November 2022, ECI took part in the coverage of sovereign risk in Ghana, signing with the Israel Export Insurance Corporation (ASHRA) to guarantee the building of four hospitals. However, the country defaulted in that same month. An agreement was formed with the IMF for USD$3 billion of support in May 2023, with an immediate disbursement of USD$600 million. 

Such incidents tend to make African and regional credit insurers and reinsurers much more cautious about medium- and long-term coverage and are something the new CEO of ECI, Mrs Al Mazrouei – who took over in December 2022 from Massimo Falcioni – will probably pay close attention to before signing medium- and long-term deals in Africa.

Already troubled by local conflicts, the war further afield in Ukraine that is driving inflation with rising food and fuel costs has only increased the chances of further civil unrest in the region.

With inadequate governance, higher military spending, and a lack of investment, West Africa’s average human development index – a measure of average human achievement in areas including a long and healthy life, knowledge, and living standards – sits concerningly at around 0.5, and is significantly lower than other developing regions. 

A youthful advantage

The World Bank estimates that West and Central Africa’s real GDP is set to decline to 3.4% in 2023, from 3.7% in 2022. Per capita, this is even lower, due to rapid population growth. In sharp contrast to an ageing global population, almost half of West Africans are under the age of 15, and the region is projected to be home to 10% of the global population by 2059. 

West Africa’s youth represent a significant opportunity and hold the key to driving economic activity and political stability, but only if given the tools to do so. Ensuring access to employment will depend heavily upon the region’s MSMEs. In some countries, they account for 80% of all jobs, and are owned and run by locals, ensuring profits are circulated back into the local economy.

Under the banking radar

Whilst MSMEs may hold the key to employment and economic growth, many do not have access to critical financing that would allow them to do so. In developing countries, the MSME financing gap is valued at approximately USD$5 trillion. For West Africa, where MSMEs make up almost 50% of GDP, the lack of inclusive finance is a major hindrance. 

Ghana alone has USD$4.9 billion in demand for MSME financing, yet USD$2.2 billion of that demand remains unmet. 

Whilst the concept of supporting MSMEs appears to be simple, the challenge in West Africa is that most businesses operate entirely outside of the banking system. Without the knowledge or resources to comply with the banks’ requirements, they cannot provide any proof of their financials through traditional methods, meaning that they appear to have no collateral or guarantee to offer up to the banks. 

Therein lies the main problem. 

Whilst the banks may have the capacity and appetite, how can they lend money to a business that appears to have nothing? 

For example, although Nigeria is becoming more and more dynamic, and is a country where small businesses are responsible for over 80% of the nation’s employment, only 15% reported having a bank loan or line of credit. 

Without the ability to borrow from the bank, MSMEs are resorting to friends, family, or donations to access capital, which usually comes at a higher cost or places limits on their potential.

The case for short-term credit insurance

Recently, short-term credit insurance has been recognised as a potential domestic solution to support MSMEs, offering guarantees and facilitating access to vital finance.

Countries such as Kenya and Ethiopia are already working towards this, providing small guarantees directly to micro businesses.

However, in West Africa, short-term credit insurance is in its infancy. The presence of government ECAs is low, and where they do exist, their function is usually solely focused on supporting large-scale projects through medium- and long-term credit insurance. 

These projects do not necessarily support the businesses and communities that need it most. Whilst there is talk among many countries of developing a solution for small businesses as part of a new or existing ECA, the local resources, knowledge, and expertise required are not always readily available.

Short-term credit insurance, being less risky and requiring a shorter commitment than its medium- and long-term counterparts, provides a commercial opportunity for local private insurers and reinsurers to serve as a crucial link between businesses and banks.

The absence of banking records remains a challenge. One creative solution?

Work in partnership with mobile phone networks. Thanks to its youthful population, smartphone usage rates have soared in the region. 

More people across Africa now use their smartphones to pay, reducing the personal risk of carrying cash. Mobile phone networks have become the real banks, and the custodians of important information such as a user’s payment history and purchasing habits.

Whilst government regulation would need to develop to enable sharing of data and the protection of private information, telecommunications companies such as Vodafone, Telefónica and Airtel could share a business owner’s payment history and habits, filling the void left by a lack of banking information. When a business loan size may be only around USD$5000, this should be an adequate amount of information to qualify. 

At a time when innovation means that satellites can analyse a single plot of land for its nutrient content and identify the best crops to plant, the opportunity to support MSME financing through innovative assessment methods is an exciting prospect.

Not only can banks and insurers now support homegrown businesses, but they can also identify those that show the most potential and target their support accordingly.

Harnessing opportunity

While West Africa’s youthful population continues to boom, the region is at risk of being unable to capitalise on its dynamic potential. Rather than just increasing military interventions in response to rising conflict, providing access to secure employment should be seen as the pathway to long-term stability. 

Enabling homegrown businesses to expand and thrive will depend on how the region addresses the growing finance gap and the hurdles that stand in the way. With several countries lacking the governmental capability or knowledge to run their own ECA, and with most small businesses excluded from the banking system, the region has its work cut out for it.

For private insurers and reinsurers, this represents an untouched market with an opportunity to deliver local support through innovative short-term credit insurance solutions. 

The post The critical need for short-term credit insurance in West Africa appeared first on Trade Finance Global.

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The trade finance industry has long strived for inclusivity. It recognises the importance of embracing an overarching vision that fundamentally reimagines its practices. To fully realise this vision, it is imperative to actively engage African voices in trade finance discussions.

Creating avenues for African voices to be heard in the trade finance space can lead to the identification of effective trade finance strategies that genuinely reflect the aspirations of the African economies. Through an inclusive approach, trade finance can empower African countries to fully participate and benefit from global trade. 

Given the inherent complexity of sustainability and ESG in trade finance, and with the current focus of the international sustainability standards on addressing developed markets, the distinctive requirements of the African economy have yet to be acknowledged and integrated.

To gain a comprehensive understanding of the African trade finance ecosystem and the obstacles hindering the continent from implementing the existing sustainability and ESG principles, Trade Finance Global’s (TFG) Deepesh Patel spoke with George Wilson, Head of Institutional Trade Finance at Investec.

The importance of trade finance in the African economy

With trading activities contributing to up to 40% of GDP growth in some African economies, it is evident that trade finance is the most direct pathway to sustainable development in Africa, embodying the principle of ‘trade, not aid.’  At the heart of the African economy are its Micro, Small, and Medium Enterprises (MSMEs), which employ 85% of the continent’s workforce. 

As Wilson stated, “These employees ultimately become consumers, contribute to tax revenue, and fuel self-sustaining development”, further reinforcing the role of trade finance in creating a self-perpetuating cycle of growth and prosperity.

The transformative power of trade finance can be seen in success stories like China and India. Over the past three decades, these nations have successfully traded their way out of poverty, leading to a remarkable reduction in global poverty concentration rates, from 40% to 10%. 

Unfortunately, the remaining 10% of the world’s impoverished population is still concentrated in Africa. A reality that underscores the importance of trade finance as a vital tool in combating poverty and driving sustainable development across the African continent.

Understanding the root causes of the African ‘Trade Gap’

Africa’s trade finance gap has widened over the years and remains susceptible to global supply chain disruptions and geopolitical events. 

According to Wilson, the African ‘Trade Gap’ primarily stems from the international regulations on investment banking capital and the limited liquidity available for trade financing within the continent.

The implementation of international compliance regulations, such as the Basel reforms and AML policies, originally intended for international investment banks following the global financial crisis, has had unintended negative consequences on African transactional banking. To adhere to these regulations, international financiers had to de-risk their trade finance transactions in Africa, limiting access to credit facilities for African traders. As a result, their only option to access credit facilities is through local African banks.

Nonetheless, local African banks face their own set of challenges in profitably financing merchant trade activities. They struggle with high regulatory costs and pressure from regulators to comply with Basel regulations. In addition, compliance regulations continue to incentivise local African banks to prioritise purchasing government bonds over providing trade finance to traders. 

Wilson accentuated the dilemma by stating, “The African banks had a choice. They could either use their scarce capital and liquidity to offer loss-making trade finance facilities to their merchant clients, or they could buy government bonds, fulfil all their regulatory ratio requirements, and have zero risk-weighted assets (RWAs) with a 15% return.”

ESG sustainable trade finance in Africa: The challenges

The challenges of implementing ESG sustainable trade finance in Africa are multifaceted. 

Following the COP27 summit, ESG sustainable finance was anticipated to be a catalyst for positive change in addressing sustainability issues within the trade finance sector. However, as highlighted by Wilson, it has yet to meet expectations, particularly regarding its impact on Africa. 

A lack of consensus on standards and definitions, along with ineffective initiative launches, has posed significant hurdles to the integration of the ESG industry into sustainable trade finance. Additionally, ESG sustainable finance does not fundamentally align with Africa’s unique landscape and realities, considering the continent’s economic conditions.

ITFA’s latest positioning paper on ‘Sustainable Trade Finance and African Trade’ sheds light on a key factor contributing to this disconnect: the lack of involvement of African trade practitioners in shaping the global ESG frameworks. This is partly due to the decision-making and drafting process being predominantly driven by first-world policymakers. 

Therefore, it is crucial to recognise the key differences between trade finance in developing countries, like Africa, and trade finance in developed countries, to ensure contextually relevant sustainable finance practices. African trade finance involves products with a specialised approach, unlike the ESG frameworks built on debt and project finance models. Similarly, designing sustainable finance models for Africa must consider market conditions such as limited access to digital infrastructure and electricity.

Moreover, subjective interpretations and conflicting priorities also contribute to the obstacles facing African sustainable finance. The initial development of ESG frameworks without African input has led to Western perspectives shaping the interpretation of the UN Sustainable Development Goals (SDGs) into ESG regulations. 

Subjectivity becomes apparent when examining ESG ratings, as they can vary across different ESG rating agencies despite using the same inputs. Resolving dialectically conflicting components of trade, which is often encountered in African trade finance, requires subjective resolutions on prioritisation due to the varying sustainability aspects and environmental impacts. These subjective interpretations may not align with Africa’s economic development priorities. 

Evidently, Africa needs its own sustainable trade finance framework that echoes its own specific approach and priorities in establishing ESG credentials.

Empowering African trade financiers: Collaborative solutions for Africa’s success

In response to the challenges surrounding sustainable trade finance in Africa, concerted efforts have been made to develop practical solutions through collaboration. 

BAFT and ITFA have established global working groups with dedicated African sub-working groups focused on ESG. The proposed approach acknowledges the subjectivity and difficulties of capturing all data within the current ESG frameworks. It suggests that African trade financiers can make sustainable trade finance designations on the ground, similar to the Know Your Customer (KYC) process conducted by African banks.

By amplifying African voices and promoting indigenous solutions, there is an opportunity to attract capital back into African trade finance, narrowing the gap between sustainability goals and practical implementation. 

With a dedicated commitment to collaboration and a keen focus on addressing Africa’s actual needs, a promising future for African sustainable trade is undoubtedly within reach.

Disclaimer
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