$120bn trade finance gap is holding back African growth opportunities, cautions Standard Bank Group

May 13, 2015

“Lack of access to affordable trade finance is holding back the economic and employment potential of African countries,” says Vinod Madhavan, Head of Transactional Products and Services, South Africa at Standard Bank Group.

According to the African Development Bank’s recent report on trade finance in Africa, the conservative estimate for the value of unmet demand for bank-intermediated trade finance is between US$110 billion and US $120 billion, which is significantly higher than estimated earlier figures of US$25 billion.

Trade finance has a direct impact on employment and Mr Madhavan, who was recently appointed as a new member of the Banking Commission advisory board to the International Chamber of Commerce (ICC), the largest business organisation in the world, says 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,” he says.

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 Madhavan.

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.

Mr Madhavan's Banking Commission appointment is in line with the Banking Commission's goal to penetrate new markets, particularly in Africa and is timely ahead of the 2016 ICC Banking Commission’s Annual Meeting to take place in South Africa.

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