Pan-African Head of Trade & Working Capital Digital Propositions
Absa Group
It’s an open secret that Africa accounts for most of the fastest-growing economies in the world, with the East Africa region being the continent’s front runner. However, the continent’s, contribution to global trade remains dismal, posting less than 3 percent, according to a 2024 assessment report by the United Nations Economic Commission for Africa.
Unknown to most people is that trade finance, which is a bank lending function focused on facilitating both domestic and international trade, is a key enabler of domestic and international trade. This then raises the discourse about deliberate strategies, especially by African banks to bridge the perennial trade finance gap stymying both intra and inter African trade especially by SMEs.
Latest data by the Africa Development Bank (AfDB) shows that the deficit between demand and supply for trade finance to African businesses has grown to as high as $120 billion. This is an reversal of the gains recorded before the Covid-19 pandemic when the continent’s trade finance gap narrowed from $120 billion in 2011 to about $81 billion in 2019.
This is exacerbated by the prevailing global supply chain challenges stemming from macroeconomic disruptions and geopolitical uncertainties, leading to an increase in interest rates and dollar exchange rates to the detriment of traders in Africa. As global supply chain disruptions continue to push the continent towards self-sufficiency, the role of evolving initiatives like the AfCFTA digital trade protocol in mitigating Africa’s trade finance gap are gaining currency.
Digital trade solutions have immense transformative potential to bridge the trade finance deficit and empower businesses through technological innovation and collaboration. Automating and streamlining trade finance processes can significantly reduce costs, foster inclusivity and contribute towards bridging Africa’s trade finance gap.
Commercial banks and credit providers utilise trade finance techniques and instruments to finance and protect trade parties from trade-related risks. The synthesis of changing client needs, rapid globalisation and technological advancements is spontaneously driving international trade towards digital transformation. Consequently, trade finance banks are digitally transforming their market offerings and operations to futureproof their business and gain a competitive advantage.
Cross-border trade is an infamously complex process, highly manual and dependent on the high-volume exchange of paper documents. As assessed by World Trade Organisation (WTO), a typical international trade transaction involves multiple actors and on average requires the exchange of 36 documents and 240 copies.
These manual processes hamper access to finance and increase costs and complexity, aggravating the challenges faced by international traders, especially Small and Medium-sized Enterprises. Therefore, for Africa to entrench itself as a center for global trade, a blend of trade technologies, innovation and Environmental Social Governance (ESG) principles is key for the continent’s future growth and prosperity.
Mutune is the Pan-African Head of Trade & Working Capital Digital Propositions at Absa Group.
