WORK IS NEEDED FOR
WORK IS NEEDED FOR AFRICA TO GROW EXPORTS Export finance is a key component in getting Africa to take up the full potential that exports offer, argues Inwang Akpan, Head of Trade, Transaction Banking at Standard Bank. The African Continental Free Trade Area (AfCFTA) is designed to enhance trade, which in turn will require commercial banks and development finance institutions to collaborate so that African can close the trade finance gap which is currently more than -billion. Improved export protocols will help African traders at every level 18 PHOTO TOP: Jean Papillon on Unsplash
EXPORTS . It is estimated that one in every six African exporters fail to meet their export sales targets due to a lack of funding for the input, production and export stages of their operating life cycle. The result culminates in a loss of approximately 000 per trade or per transaction, per small and medium-sized enterprise (SME) per year, according to the African Development Bank. This inadequate financial support ultimately culminates in a trade finance gap of more than -billion that the continent currently faces, the bulk of which affects SMEs the most. Inwang Akpan, Head of Trade, Transaction Banking at Standard Bank explains that African countries, typically rich in natural resources, are heavily reliant on exports to generate alternate foreign direct investment and capital flows. As a continent classified as a net importer, however, the challenge is that the demand for foreign capital is much larger than industry exports, at least for most countries. There is therefore a growing acknowledgement that exporters need to be supported via grant schemes or tax incentives in Special Economic Zones (SEZs) if countries want to grow their exports. In Africa, export finance is typically provided through export credit agencies, development finance institutions, multilateral development banks and even government bodies. Where possible, commercial banks and private investors have supplemented access to export financing through traditional trade finance facilities. At times, the latter category of trade financiers will face a risk appetite calibration informed by regulatory prescription and may struggle to serve the magnitude of the export funding requirement in a market, reveals Akpan. “When commercial banks partner with development finance bodies, additional liquidity is injected into a value chain and the effective cost of capital provided to exporters can be optimised and the value of purchases made in international markets is enhanced through more competitive landing costs,” he says. “Export finance promotes exports by making financing mechanisms and instruments available that mitigate risk and accelerate liquidity into an exporter’s working capital cycle.” Despite accounting for 17% of the world’s population, Africa accounts for only 3% of global trade and 2% of manufacturing output. It has the lowest proportion of intra-regional trade than any other part of the world and is overly dependent on the export of raw materials, almost ensuring that the majority of the continent’s citizens live in poverty. Various studies and economic models have revealed that if Africa were to increase its share of world trade by just 1%, that increase would generate around -billion of additional income for the continent. Boosting intra-Africa trade The establishment of the African Continental Free Trade Area (AfCFTA) plans to accelerate intra-African trade and boost Africa’s trading position in the global market by creating the world’s largest free trade area. The creation of a tariff-free continent is intended to grow what has traditionally been low levels of intra- African trade and in the process, grow local businesses, drive GDP growth and reduce poverty levels. Once fully implemented it will eliminate tariffs on 90% of goods and reduce barriers to trade in services, potentially increasing Africa’s income by 0-billion by 2035. AfCFTA is predicted to grow intra-African trade by 3.9% per annum. “Once trade barriers have been removed, capital will be required to support increased intra-African trade,” says Akpan. “Africa needs significant investment into infrastructure including roads, railways and bridges to physically provide easier accessibility. The continent also needs to invest in technology and digitalisation. Kenya’s appetite for Special Economic Zones is growing. Tatu City is a privately funded multipurpose project in Kiambu County. PHOTO BOTTOM: SEZs Authority 19
