Intra-African trade ‘will redefine the economy of the continent’

Middle Eastern companies see Africa as a major market for the future. However, the biggest challenge facing traders looking to expand their businesses in Africa is access to finance – the continent’s trade finance gap is estimated at $120 billion.

radeArabia speaks with Paul Jennings, Deputy Managing Director and Banking Director, BACB, a bank specializing in trade finance, about the various challenges facing businesses in Africa and the opportunities offered by the great continent.

Specialized banks like the BACB can help bridge the funding gap by leveraging extensive local networks and providing much-needed liquidity, says Jennings.

Intra-African trade, which was boosted by the launch of the African Continental Free Trade Area (AfCFTA) in 2021, will redefine Africa’s economic prospects for the future. By lowering barriers to trade in goods and services, the new free trade area will provide great incentives for those looking to do business across the continent, he says.

Excerpts from the interview:

What are BACB’s areas of intervention in Africa, particularly in North Africa? Why does it focus on these areas?

The BACB is a trade-oriented institution, which sees its role as facilitating trade flows between Africa and the rest of the world. Historically, due to its North African shareholders, the bank was particularly focused on North Africa and the Middle East, with a physical presence in Tripoli and Algiers.

But the bank has now extended its coverage to the rest of the continent and has become a truly pan-African financial institution. Unlike other London banks, our area of ​​expertise spans the whole of the African continent, reaching many smaller markets – both English and French speaking – that are often overlooked by other international banks.

What are the main challenges facing Africa with the full impact of COVID-19 yet to be overcome? The immunization program remains a challenge for much of Africa. Restricted travel means restricted trade. With a lower level of immunization than other regions, Africa may take longer to recover economically than more developed regions of the world. Naturally, this has implications for businesses on the ground, many of which thrive on face-to-face interactions.

Africa sometimes suffers from a perception problem – the risk of doing business there is often perceived as higher than it actually is. Being able to visit, put their feet on the ground and explore a new market allows investors to reassure themselves and break down the barriers of perceived risk. The impact of travel restrictions hinders this.

How to increase trade between Africa and the Middle East, especially the Gulf?

The role of financial institutions in facilitating inter-regional trade cannot be underestimated. The biggest challenge facing traders looking to expand their business in this part of the world is access to finance – the trade finance gap in Africa is estimated at $120 billion.

Specialist trade finance banks such as the BACB can help bridge this gap by leveraging extensive local networks and providing much-needed liquidity. They are also able to engage in capacity building, creating additional risk appetite for specialist markets and ensuring that people on the ground have the resources to effectively structure deals.

What are the main opportunities and what are the obstacles?

Intra-African trade, which was boosted by the launch of the African Continental Free Trade Area (AfCFTA) in 2021, is clearly set to redefine Africa’s economic prospects for the future.

By lowering barriers to trade in goods and services, the new free trade area will provide great incentives for those looking to do business across the continent. It therefore represents an important step in the journey towards correcting Africa’s trade imbalance. Increased intra-regional trade would be a boon for African economies that could help offset uncertainty and build resilience – the need for which has only increased amid the financial pressures exerted by the pandemic.

But there are obstacles to realizing this more interconnected vision of Africa’s future. The lack of adequate cross-border infrastructure remains one of the main obstacles to creating a thriving pan-African trade zone. Financing needed infrastructure projects will force the wider international banking community to rethink its risk appetite.

This acute need for funding will only grow as ESG considerations become increasingly relevant to investment decisions. For example, all mining-related projects are now somewhat challenging from a sustainability perspective. But major infrastructure projects are planned to improve connectivity in Africa – the Algerian Trans-Saharan Highway, for example.

How can Arab and African banks, as well as other international banks, contribute to Africa’s growth?
In the context of the trade finance gap in Africa, it is crucial that specialized international banks deploy their risk appetite for the region in an optimal way. By partnering with local banks and export credit agencies (ECAs), international financial institutions can effectively increase Africa’s access to liquidity. The BACB has a risk appetite for African markets, but there needs to be a stronger group of Arab and African banks – as well as other international banks – to collaborate, share knowledge and convert expertise into opportunities.

The BACB, through its origination and distribution function, also shares African risk with the banking and insurance market, thereby increasing the pool of risk appetite and liquidity available to the markets. specialized.

International banks can also act as trusted intermediaries to facilitate intra-African trade. If you buy, for example, a bouquet of flowers in Nigeria, it is likely that they were grown in Kenya but were imported from the Netherlands. Connecting these markets directly, through an extensive network of partners, helps build trust between African markets and promotes greater trade integration.

What can the world learn from Africa as countries embark on the path to sustainability?

African countries have shown great resilience throughout the pandemic. Many markets have shown a willingness to think outside the box, often finding new ways to solve liquidity and funding issues. Digital payments, for example, have become ubiquitous in East Africa where many people have gone straight from not having a bank account to managing all their personal financial needs through a mobile app.

Of course, African communities need funding to develop and support the community-led projects that underpin this resilience. In 2020, the BACB worked with the Rwandan government to help fund an ambitious classroom construction project. As social distancing requirements increased the amount of space required by schools, the government built 22,500 new classrooms and other essential facilities – for which the BACB facilitated the import of steel from Egypt .

Our fast LC confirmation process helped find a long-term solution to what is a short-term problem. Some more developed countries, where decisions are often made in five-year political cycles, have much to learn from Africa’s tenacity and long-term thinking.

Of course, beyond that, the West has a special responsibility to help fund development in Africa. Africa has the right to industrialize and it is in the interest of the international community that this development takes place in a sustainable manner. And renewables are already gaining traction across the continent, including in North Africa and Ethiopia. If African markets can set a trend for sustainability, the rest of the world will undoubtedly notice.
Source: Arabia Trade

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