Home to the world’s youngest demographic, Africa is on the brink of a technological revolution. But in order to give the continent’s digital entrepreneurs the support they need to grow, Africa’s banks need strong partners with local knowledge and expertise to replace correspondent banking relationships lost as a result of de-risking.


At over 400 tech hubs, accelerators and innovation spaces spread across the continent from Cairo to Cape Town, and Lagos to Nairobi, a new generation of ambitious innovators is transforming Africa into the next tech frontier. The continent’s first billion-dollar “unicorn” was minted in 2016, and a record US$195mn was invested into the sector in 2017. Today, expectations are rising among entrepreneurs and investors alike that the next big thing in agri-tech, blockchain, education or healthcare may come not from Silicon Valley, but from the Silicon Savannah.

“Technology plays to the developing entrepreneurship of young people in Africa. A lot of the continent’s future leaders that you speak to are interested in setting up start-ups in this space,” says James Cantamantu-Koomson, Managing Director, Client Coverage at BACB, adding that he believes that the growth of technology in Africa will far surpass the growth of technology in western countries.

Often, these young Africans are providing local answers to Africa’s problems, but also find that their technology solutions can be replicated all over the globe, from cross-border money transfer platforms to e-commerce and beyond. As a result, this new generation is looking not only locally but to the rest of the world, both to export innovations but also increasingly to import the components and equipment they need.

“Emphasis is being placed upon the tech sector by a number of African governments,” says Patrick Gutmann, Managing Director, Corporate & Institutional Banking at BACB. “Many countries are now starting to open up and establish technology hubs to attract both the technology labour force as well as the large technology companies. Meanwhile, fintech and established technology firms are looking to see how they can access the African market, and how they can leverage what is coming out of the African continent to further their product development efforts.”

Facilitating that trade across borders is imperative, yet access to finance continues to be a major drag. One reason for this is that over the last decade, global banks have been tightening operations to comply with regulations designed to curtail money-laundering and the financing of terrorism. As a consequence, global banks have been de-risking by limiting correspondent banking relationships with local banks in emerging economies. These correspondent banking services are essential to enabling companies and individuals to transact internationally and make cross-border payments, and without them, African importers trying to source goods and services will not be able to do business.

SWIFT data shows that almost every region in Africa has experienced a reduction in foreign counterparties, while a recent survey by the International Finance Corporation (IFC) described the negative effect of de-risking on trade flows as “subtle, complex and pervasive”. According to the survey, 33% of banks in Sub-Saharan Africa have lost correspondent banking relationships, versus 25% of emerging market banks overall. As a result, local banks in Africa are finding it increasingly difficult to serve their customers, and sometimes they and their clients are completely excluded from cross-border business.

“There aren’t as many trade finance experts anymore that are supporting the African banks, and therefore there is a need for local banks in Africa to seek out a banking partner that they can rely upon. Based in London, a highly regulated market, while many other international banks have withdrawn, we have remained,” says Gutmann.

De-risking has also had cross-border spill-over effects, with local banks under pressure from their correspondents to stop doing certain business in neighbouring countries in order to maintain their correspondent banking relationships. Consequently, dollar clearing has been terminated or restricted in several countries, limiting local companies’ ability to do business regionally and internationally.

While the effects differ significantly from institution to institution and from country to country, for tech start-ups, the challenge of accessing finance to import parts or export their inventions is particularly acute. Not only are they small in size, but they also tend to possess few tangible assets that can be used as collateral and often operate businesses whose economics are difficult to understand. Local banks are in many cases the only financial institutions close enough to these small-scale clients to be able to service them and help them negotiate trade corridors. But in order to continue to support them, they must now either rely on alternative arrangements or seek replacement correspondent banking relationships.

“Giving the banks in those markets access to London, or access to international markets, allows them to support their clients, many of whom are looking to trade internationally. These clients need their local African bank to have an international banking partner who can support and facilitate their cross-border trades and everything that goes with that,” says Gutmann.