Press release

$120bn trade finance gap is holding back African growth

opportunities, cautions Stanbic Bank
Dar es Salaam, 25 June 2015: 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 Banks recent report on trade finance in
Africa, the conservative estimate for the value of unmet demand for bankintermediated trade finance is between US$110 billion and US $120 billion, which
is significantly higher than earlier estimated figures of US$25 billion.
Trade finance has a direct impact on employment. A great number of jobs could
be created if small and medium enterprises (SMEs) in Africa, could do cross
border transactions that would have been supported by the unmet gap in
demand for trade finance. The gap means there are corporates out there who
would have liked to have done that business but just because they could not
access trade finance they could not do those trades.
There is an opportunity for trade financiers to help fill this void but there are a
number of barriers to trade that need to be removed. This is why creating uniform
rules and standards across various facets of trade will go a long way to closing
these gaps and removing these barriers, says Charles Kapufi, Head of Trade
Sales at Stanbic Bank Tanzania.
The International Chamber of Commerce (ICC), the largest business
organization in the world, says the African market is clearly underserviced from a
trade finance perspective.
The ICC Banking Commission produces universally accepted rules and
guidelines for international banking practice. ICC rules and guidelines on
documentary credits serve as the basis of US$ 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.
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According to the World Trade Organization (WTO), not all developing countries
participate equally in international trade, with Africa having the smallest slice of
world exports. The WTOs World Trade Report 2014 says the potential of trade in
supporting development has not yet been fully realized. 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 % 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 banks footprint across 20 countries in Africa enables it to provide
comprehensive trade finance solutions.
Ends//