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The growth rate of Africa’s supply chain finance (SCF) market far outstripped the rest of the world last year, but uptake remains hampered by a lack of digitisation, limited company information and regulatory barriers, UN research finds. 

The market for payables finance in Africa grew to US$41bn last year, a 41% increase from the year before, according to a study published this month by the UN Conference on Trade and Development (UNCTAD). 

That growth rate is nearly double the global average, and far higher than the 28% figure for Asia, the next fastest-growing region. 

However, despite Africa’s increasingly crucial role as a supplier of critical minerals, the report finds that in volume terms its SCF market is a fraction of the global total of nearly US$2.2tn. Programme volumes are less than a tenth of those in Asia and Europe. 

“This is not enough,” UNCTAD says. “The continent can mobilise more funds by removing barriers to supply chain finance, including regulatory challenges, high-risk perception, and insufficient credit information.” 

SCF programmes could help improve access to working capital for smaller African suppliers, providing a cushion for purchasing inventory and investing in technology, ultimately improving growth and employment, it argues. 

The report says payables finance allows suppliers to take receivables off their balance sheets, improving credit metrics, while invoice factoring can transfer credit risk to a higher-rated buyer. 

However, there is a “disproportionately high-risk perception” of such firms. Credit information is often lacking, with suppliers unable to provide detailed financial records, credit histories or collateral, meaning the cost of carrying out due diligence proves prohibitively expensive for buyers. 

Another issue is limited use of digital technologies among SME suppliers. Integrating payables information into buyers’ procurement systems improves access to data and lowers costs, but funding gaps and skills shortages mean this is often not possible. 

“Across the continent, there is insufficient digitisation and adoption of technology in the financing process,” the report says. “Processing financing applications remains a highly labour-intensive process, with excess paperwork.” 

At the same time, a lack of harmonised regulatory frameworks means there are concerns among creditors over enforcement in cases of conflicting claims.  

“The legal framework is usually unable to facilitate the use of assets as collateral. This makes the expansion of supply chain finance, or generally credit financing, difficult,” it says, adding it is “essential” for African countries to create a more enabling environment for SCF. 

UNCTAD says optimising Africa’s supply chains could bring significant rewards as demand for consumer technology and renewable energy increases. 

In terms of raw materials, the continent has at least a fifth of the world’s reserves of 12 metals that are critical to the energy transition, including vast amounts of aluminium, cobalt, copper, lithium and manganese. 

African economies could also play a greater role in processing raw commodities locally, manufacturing intermediate products such as electric vehicle batteries and smartphone screens, it says – a long-standing ambition across the continent. 

In Kenya alone, the size of the potential market for SCF is estimated at nearly US$25bn – in terms of annualised value of payables, receivables and inventory – yet totals less than a tenth of that today. 

Nigeria’s estimated market for SCF totals a further US$6.6bn, driven by a growing manufacturing sector. 

To realise these opportunities, UNCTAD calls on financial institutions and governments to work on developing innovative credit assessment and financing tools, backed by guarantee schemes and sustainability criteria that could prove more attractive to investors. 

There are signs of progress. In June this year, the African Export-Import Bank (Afreximbank) agreed a memorandum of understanding with SCF company Fiducia.  

Afreximbank says the partnership aims to improve access to factoring facilities across the continent via Fiducia’s platform, and will explore opportunities to collaborate to bring payables finance to a wider market. 

In June last year, Citi signed a US$100mn master guarantee facility enabling British International Investment to act as a guarantor for SCF facilities provided to SME suppliers and underserved segments. 

Citi said at the time it planned to increase annual SCF volumes on the continent by as much as US$400bn.