By Patrick Gutmann, Managing Director, Corporate & Institutional Banking at BACB, a UK-based bank with four decades of experience in Africa.
Africa currently houses nine of the fastest-growing economies on earth within its colossal borders, and the pace is not slowing. As Africa’s unstoppable juggernaut of industrialisation rumbles onward, buoyed on a groundswell of projected infrastructure investments ($6 trillion by 2040), there exists an increasingly insatiable hunger for imports to power this progress, from machinery and chemicals to fuel such as diesel and gas. Meanwhile, the United Nations Environment Programme has underlined a need for annual investments of about $7-$15 billion by 2020 as governments seek to harness Africa’s substantial renewable energy resources to provide electricity to the 600 million people living off-grid across the continent.
In fact, the sheer pace of these infrastructure projects are producing an annual financing gap of as much as $108 billion, according to the AfDB.
Historically it has been the export of resources, from mineral to agricultural that have fuelled Africa’s global growth; providing consumers around the globe with everything from their morning caffeine hits to high quality cotton garments. Today, as its domestic infrastructure and economies grow, so too does its own consumerisation, creating a demand for goods and services flooding in as well as out. With a rapidly expanding middle class and a market of 1.3 billion people – the equivalent of almost 20 UKs – McKinsey predicts Africa’s consumers will out purchase Russia by 2020.
Africa is embracing tech like never before. Mobile banking, for example, is already mainstream in countries such as Kenya and is being taken up to such as extent that it has been highlighted by the City of London as an entry route for UK fintech firms into the continent. Heads are being turned and we are already seeing a number of UK and European firms looking to Africa for a market to sell their manufactured goods, from B2B machinery to consumer goods and services. They have found an open market in Africa.
When it comes to open markets, Africa’s may have far more to deliver thanks to the recent signing of the African Continental Free Trade Area (AfCFTA) agreement. Imagine the opportunities generated by cross-border harmonisation of standards and tariffs, supported by a network of supply chains spanning the continent, no longer stopping and starting at each border, or, in some cases, barely starting at all. With an unmet need for trade finance estimated by the AfDB at over $90 billion annually and until the gap in financing is closed these opportunities won’t be realised.
That is not to say the demand does not exist. Far from it. The International Chamber of Commerce Rethinking Trade & Finance report demonstrated that the Middle East and Africa combined sits behind only China and Western Europe when it comes to offering the largest opportunity for proposed trade finance transactions by region. This puts UK exporters in a strong position to unlock fast-growing sectors in Africa.
However, many banks see the situation differently and many have withdrawn from the continent due to perceived risk. This leaves corporations in dire need of a banking partner with presence on the ground, the right levels of risk management in place and enough local expertise to enable strong market entry. The situation is a shame, and in our view short-sighted, because the reality of trading with and banking in Africa is not as simple as high risk or low risk; it is about understanding a far more nuanced picture than that. That’s why where trading with Africa is concerned, the value of market expertise cannot be understated.
Any bank that has committed long-term to the more challenging markets such as those in Africa will offer reassurance and security. Relationships, local knowledge, and teams take many years to establish and maintain, yet in my experience make every ounce of difference. Although the digitalisation of trade finance is often heralded as the future, with blockchain as the buzzword of the moment, the banks that are making the difference are those still offering the human touch and expert eyes on every detail.