Trade Finance Gap ‘Stifling African Economic Growth’

Lack of access to affordable trade finance is holding back the economic and employment potential of African countries, claims Standard Bank.

It cites the African Development Bank’s (ADB) recent report on trade finance in Africa, which puts a conservative estimate for the value of unmet demand for bank-intermediated trade finance at between US$110bn and US$120bn – significantly higher than an earlier estimate of US$25bn.

“Imagine the number of jobs that would be created if small and medium enterprises (SMEs) in Africa, could do the cross border transactions that would have been supported by the unmet gap in demand for trade finance,” said Vinod Madhavan, head, transactional products and services, South Africa at Standard Bank.

“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.”

Madhavan, who was recently appointed as a member of the Banking Commission advisory board to the International Chamber of Commerce (ICC), adds the African market is clearly underserviced from a trade finance perspective.

“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.”

Madhavan adds that South-South trade in the developing world would be significantly increased if trade finance could meet demand.

According to the World Trade Organisation (WTO), not all developing countries participate equally in international trade, with Africa having the smallest slice of world exports. The WTO’s World Trade Report 2014 notes that the potential of trade in supporting development has not yet been fully realised. 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 expects no change in 2015.

“There is a need for education; and by that I don’t mean just training corporates and businesses about trade rules and risk, but also the market participants and regulators,” said Madhavan. “Regulators also need to understand that when they make a change it has both a direct and an indirect – sometimes unintended – impact on what happens.”

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