Trade Finance in Africa: Challenges, Opportunities And The Role of Risk In Reducing The Financing Gap

LAGOS (Capital Markets in Africa) – Trade finance in Africa offers a mixture of intertwined challenges and opportunities. Take for instance the continent’s contribution to global GDP and trade, which stands at just 3 percent in contrast to its population, which accounts for 17 percent of the world’s total. Numerous factors contribute to this mismatch including, in the financing space, a lack of transparency, lack of access to adequate trade financing facilities, lack robust financial records on the part of corporates along with inadequate track records and collateral, and legal systems that fail to adequately prioritize creditor rights. It is also widely observed that there are insufficient facilities to address the needs of Small and Medium-sized enterprises (SMEs), which contribute the largest share to the GDP of most African countries.

This latter point about SMEs is critical because the continent’s development progress hinges on its ability to address the trade financing gaps in this important sector. If these companies, which typically tend to be small and sometimes family owned, are not able to access financing needed to grow, to employ more people, provide a greater contribution to their country’s economy, Africa’s development will be stunted.

Perhaps one of the biggest underlying obstacles to progressing trade finance in Africa is perceived risks. For too long Africa has been seen as the mysterious continent, rife with misgovernance, war and disorder. Although today, Africa boasts six of the 10 fastest growing economies in the world and it has produced tremendous innovations such as mobile money applications and has greater stability and trade opportunities than ever before, the risk perception remains. The fact is most

African countries have poor sovereign credit ratings, which in turn negatively impact on the borrowing power of corporates based within their borders. This is because international lenders assign prudential limits to countries based on their sovereign ratings, resulting in low lending limits for sub-investment grade countries and a higher cost of borrowing.

An extract from the INTO AFRICA July 2019 Edition: Trading Africa’s Prosperity. The article is written by John Lentaigne, Acting CEO at the African Trade Insurance Agency (ATI). To read the full article, please download by clicking: INTO AFRICA PUBLICATION: July 2019 EDITION.

John Lentaigne was appointed Acting CEO at the African Trade Insurance Agency (ATI) in June 2019. Prior to this appointment, he was the Chief Underwriting Officer of ATI, a position he assumed in late 2016. John has over 14 years of experience in the credit and political risk sphere, as well as prior entrepreneurial experience. In 2018, ATI underwrote some US$4.8 billion of exposure and registered a 48% increase in Gross Written Premium.