With some of the highest trade finance rejection rates in the world, Africa has been disproportionately affected by the recent trend of bank de-risking. Although technological advancements should go some way to tackling this, automation and artificial intelligence cannot replace the need for face-to-face interactions in the industry. Trade, and the finance that supports it, is at its heart a ‘people’ business, and needs to remain so if the continent is to meet its goals of boosting trade integration and closing its trade finance gap.


With 20 of its economies set to expand at an average rate of 5% or higher over the next five years, home to 1.3 billion of the world’s people, a burgeoning middle class, and a growing trend towards integration, Africa presents unparalleled opportunities for growth. The African Continental Free Trade Area (AfCFTA) aims to capitalise on this, promising to create a single market with a GDP of US$2.5tn across 55 countries. Key to this vision is the availability of trade finance, however figures from the African Development Bank (AfDB) show the trade finance gap in Africa is around US$120bn.

“This unmet need for trade finance in Africa exists in great part because there isn’t enough financial support from external banks,” explains Susie Aliker, CEO of BACB. “Since the global financial crisis, many banks have stepped back from the continent entirely, believing that it’s too risky. We think that’s short-sighted: Africa is currently the world’s second-fastest growing region, with GDP growth forecast to reach 4% this year. Overall, the most significant challenge to trade in Africa is actually one of perception rather than fact. For us, it’s not as simple as high or low risk; it’s about having the expertise to understand and manage the risks involved in order to capitalise on the vast opportunities on offer.”

Understanding these risks has been precisely the problem. Taken as a whole, financing African trade is a relatively safe bet. AfDB’s analysis of non-performing trade finance transactions in Africa show a default rate below 5% compared to 12% non-performing loan ratios in general. However, the risk appetite of international banks has deteriorated dramatically in recent years. “Because banks have to satisfy not only their own regulator, but the regulators governing each of their correspondent banks, their capacity to support trade in the region has fallen,” says Aliker. The trade finance gap shows little sign of closing any time soon. The ICC Banking Commission’s 10th Global Survey on Trade Finance found that 50% of respondents from African banks expect the trade finance gap to widen over the next three years.

This pessimism is not surprising – the region has one of the highest rejection rates, 17% of all African trade finance requests are currently declined. Many banks lack the on-the-ground knowledge to support African trade, without in-country expertise, being able to comply with due diligence protocols is almost impossible. There are many promising initiatives to help tackle this, from centralised registries to fintech applications and mobile-phone-based client onboarding, the trade space in Africa is a hotbed of innovation. However, amid the focus on digitisation, care must be taken not to overlook the value of old-fashioned relationship-building. When it comes to paving the way for African companies to reach new buyers and enabling foreign firms to build ties with new counterparties on the continent, a solid understanding of the local dynamics gives clients and banks the edge in what is an increasingly competitive environment.

“When entering any new market, there are certain steps you have to take, such as getting to know the risks and the business customs as well as the opportunities. This goes for any market around the world. Clearly there are always risks, but such risks depend on the ability to know and understand the market with which you are dealing,” says Aliker. “As a smaller bank, our knowledge of these markets and our clients stretches beyond that of larger banks. We have operated in Africa for decades, with people on the ground, speaking to businesses in person, understanding the variety of cultures and ways of doing business like no other. We believe in a hands-on approach, which plays a major part in our ability to provide an effective and tailored service.”

BACB provides solutions that actually fit the needs of clients rather than cookie-cutter solutions which run the risk of the transaction being rejected. “Unlike other big banks we are able to lend smaller amounts in challenging markets, and we have found that this really helps exporters do business. Because we’re small, we can put together bespoke packages in a way other big banks can’t, avoiding the ‘computer says no’ issue that many exporters come up against when seeking trade finance,” says Aliker.


Ties across borders

A focus on personal relationships across borders will help achieve the goal of stronger trade integration. After forging ahead within existing regional economic communities, African policy makers took the step in 2018 to establish the AfCFTA, a milestone on the road towards a single continental market for goods and services. The African Union believes the agreement has the potential to boost intra-African trade by 53%, and to double trade on the continent if non-tariff barriers are also reduced. It aims to end the days where Africa solely exported raw materials for consumption and value-addition overseas.

Today, officials across the continent hope supply chains will link their countries together as manufacturing, production and marketing takes flight. Industrialisation, integration and foreign investment is helping economies to evolve and achieve revenue streams from a diverse range of industries and commodities. To maintain this momentum a change in mind-set is necessary, Benedict Oramah, president of Afreximbank, highlighted that the average African business seeking to trade internationally tends to overlook neighbouring countries, pointing out examples from Kenya, where leather traders purchase hides imported from Italy rather than Burundi; and Egypt, where butchers are more likely to buy in beef from the US than Chad.

“For historical reasons, from many places in Africa it is still easier to trade with Europe, the US or China than it is to deal with neighbouring countries. This results in missed opportunities for trading more value-added goods within the continent as opposed to exporting raw materials out and importing the finished product. There is a real need to focus on intra-Africa trade to make it more efficient for African countries to work with the neighbours,” says Aliker. While many are encouraged by the transformative potential of the AfCFTA on trade, it is likely to take several years for policy to be translated into reality. As well as infrastructure and logistics challenges, there are differing regulatory frameworks to overcome. This is why seeking out partnerships with banks and service providers who know the local market and its requirements remains crucial.

African trade finance has become increasingly sophisticated, and although transaction-based lending techniques can enable banks to serve the needs of large corporates in well-known markets, to avoid an uneven playing field where finance is concentrated in a handful of names, banks need to have boots on the ground – or at least have a trusted partner who does.


West Africa: Picking the right transactions in a challenging market


Q: What kind of presence does BACB have in West Africa?

A: West Africa is a key market for BACB; we have long experience in supporting trade in the region and have not followed the trend of de-risking and reducing exposures. Instead, we currently work with 54 financial institutions in 15 countries in the region, demonstrating our commitment by doubling the number of bank limits and opening an office in Abidjan.


Q: What is the bank’s approach to the region?

A: BACB’s success in West Africa is largely down to the bank’s own culture. Our trade finance professionals integrate their technical experience with cultural capacity when dealing with clients in those markets, leveraging their knowledge of the local languages and ways of doing business.

We adopt a ‘two-client approach’ in order to provide seamless end-to-end solutions to clients, Our strategy is rooted in financing imports and exports that contribute to a country’s development and stimulate quality trade flows of strategic goods; exporting commodities that generate foreign exchange and supporting trade flows for existential commodities such as oil or gas.