Trade Finance a key enabler to driving Sustainable Growth in Africa

Many African countries – with South Africa, Kenya, and Nigeria as leaders – are working hard to decarbonise and fulfil their net-zero commitments. This presents a significant opportunity for growing renewable energy production on the continent. According to the UK-based think-tank Ember’s 2024 Global Electricity Review wind and solar generation accounted for 12% of the global power mix in 2023, up from 10% in 2022. Ember analysed electricity data across 78 countries representing 93% of the world’s electricity demand.

Energy security is crucial in driving economic growth in Africa, where only 51,4% of Sub-Saharan Africa has access to electricity across both urban and rural populations (World Bank, 2022). An estimated 600 million Africans do not have access to reliable or clean electricity. The issue becomes exacerbated when one accounts for power disruptions experienced in Nigeria, Mozambique, Zambia, Angola including South Africa and other key markets on the continent.

There is a developmental imperative on all of us who call this continent our home to help close this gap. The International Energy Agency (IEA) estimates $2.8 trillion was invested in energy globally in 2023, with $1.7 trillion of that geared towards solar, wind and other clean, renewable technologies. However, the IEA’s tracking of energy spending suggests that just $110 billion – a disproportionately low percentage of global spend – will be invested in funding the energy gap in Africa in 2024.

Core growth-drivers

At Standard Bank, we have identified 7 core areas of business in which we believe we have the greatest impact on society and the environment. These areas include:

• Financial Inclusion.
• Enterprise Growth and job creation.
• Climate change.
• Infrastructure.
• African Trade and Investment.
• Education.
• and Health.

These commitments align with the United Nations (UN) Principles for Responsible Banking (PRB), the Paris Climate Agreements, UN Social Development Goals (SDGs), South Africa’s National Development Plan, the African Union Agenda 2023, and nationally determined contributions to climate mitigation in our countries of operation.

We believe that Sustainable Finance will be part of the enablers of meeting these commitments, as such we have committed to mobilise in excess of R250 billion of Sustainable Finance by 2026 to fund various transactions across the continent, of which we have mobilised R105 billion by end of 2023.

These seven core areas identified align to the core growth themes identified in the burgeoning of trade activity on the continent, largely driven by themes which include a growing African youth population. Increased urbanisation and the need to fast track energy and infrastructure development to support the economic growth of the African continent. This has led to numerous sovereign nations on the continent focusing on driving gross capital formation through state expenditure programs and creating enabling regulatory environments, whilst focusing on driving political stability that also crowds in capital from the private sector that funds critical energy and infrastructure projects. Africa is also one of the fastest growing mobile phone markets in the world. This has driven a corresponding need for significant investment into telecommunications infrastructure development to increase digital connectivity that has enabled the growth in eCommerce together with fostering greater social and financial inclusion, access to educational materials and the digital transformation of industries enabling greater global interconnectivity and innovation.

Energy and infrastructure  

The substantial growth in trade activity in the renewable energy space in South Africa over the past few years has mirrored the country’s infrastructure growth, which has largely been underpinned by the National Infrastructure Plan 2050 and the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Both plans aim to close the gaps in priorities like energy security and unlock bottlenecks within infrastructure development to drive trade and boost economic growth. Gross fixed capital formation in South Africa is up 3.9% from 2022-23, which is a great proxy for infrastructure growth. We also observed double digit growth in the number of imports of core components of various renewable energy technologies like solar panels, batteries, inverters and wind turbines over the same period. This was mirrored in the growth of trade flows between 2021 and 2023, in particular related to trade instruments such as letters of credit and open account financing used to facilitate the importation of core input equipment coupled with bank guarantees issued on behalf of various participants in the renewable energy projects value chain. The growth and focus on sustainability has also led to Standard Bank implementing Trade finance solutions that integrate the clients underlying Trade finance requirements with their sustainability goals in order to ensure that we provide Trade finance solutions that have a positive impact.

There is an increased focus in building infrastructure and energy access across the continent, driven by collaborations between the public and private sector. Several African countries have embarked on significant capital-intensive projects to build critical infrastructure and increase access to clean energy that is reliable and affordable. We can see examples of this in the Kenya Roads project, REIPPP in South Africa and the Mozambique LNG opportunity. Countries across Africa are consciously working towards their decarbonisation pathways and working towards their net-zero strategies that are just.

We remain confident that a deliberate and considered approach to addressing challenges will enable the continent to build on the potential which we have seen across vital industries on the continent. Working in a concerted and determined way, we can continue to build this continent that we call home.