In late 2023, GTR brought together trade finance leaders in South Africa to discuss the current landscape and future trends in trade and supply chain finance across the Southern Africa region. Topics ranged from FX challenges to digitisation efforts and the role of ESG in fostering sustainable development.


Roundtable participants:

  • Kunal Bid, head of trade client solutions, Sub-Saharan Africa, Citi
  • Louis du Plessis, head of trade and working capital, Rand Merchant Bank (RMB) (host and chair)
  • Bohani Hlungwane, group head of trade and working capital, Absa
  • Justin Milo, executive, head: trade (South Africa), Standard Bank
  • Bleming Nekati, chief trade finance officer, African Development Bank (AfDB)
  • Niron Rampersad, divisional executive: trade, Nedbank
  • Natalie van Graan, trade product manager, Standard Chartered
  • George Wilson, head of institutional trade finance, Investec

Pictured: From left to right, standing: Kunal Bid, George Wilson, Niron Rampersad, Louis du Plessis, Bleming Nekati; seated: Bohani Hlungwane, Justin Milo, Natalie van Graan


du Plessis: How would you assess the trade and supply chain finance landscape in South and Southern Africa in 2023? What have been some of the major trends driving demand, appetite and capacity?

Bid: From our perspective, there’s a global lens, and there’s a local lens. Globally over the past couple of years, there have been what we call the ‘challenging Cs’: the chips shortage, Covid-19, container logistics issues, conflict with Russia and rising commodity prices. There are also local issues, such as the 2023 floods, and South Africa is grappling with significant electricity shortages. Increasingly, clients are finding their cost of credit and working capital are going up. Their purchasing patterns have changed – what used to be just-in-time purchases are now just-in-case, meaning an increase in working capital requirements. We’re also seeing companies look at embedding financing within the way they operate, for example through their payables and receivables. We are also seeing an increased use of negotiable instruments like bills of exchange and promissory notes. Additionally, there is more attention on merging insurance and financing solutions for companies’ portfolios, with a shift to more structured solutions that can also include export credit agencies (ECAs). In summary, we’re seeing more blended structured solutions as opposed to just traditional trade finance.

Milo: On economic trends, supply chain constraints, sticky levels of inflation and increasing input costs, we have seen a significant increase in the demand for working capital funding solutions – both across supply chain finance and overdrafts. Across the continent, there have been liquidity challenges and foreign exchange shortages, with corporates and financial institutions requiring liquidity support. South African exporters and global multinationals are increasingly looking for ways to mitigate their African counterparty payment risk. So, we are also seeing elevated demand for letters of credit (LCs) and LC confirmation structures. The last trend to highlight is the increased appreciation for sustainability and supply chain continuity, with increased demand for ESG-linked trade and supply chain finance solutions.

van Graan: Covid-19 significantly impacted supply chain finance, particularly affecting smaller suppliers due to increased costs. Many of these smaller suppliers were forced to close down as a result. Larger entities acting as anchors between suppliers were affected by heightened demand, leading to increased expenses. Additionally, the sourcing of goods from overseas escalated costs further. There was a lot of anxiety among suppliers.

Hlungwane: For me, there’s been two significant developments in the economy. One is the availability of FX: it’s a big challenge, and I don’t think we have yet found a solution. Whether in Angola, Kenya or Tanzania, there are currency shortages, particularly of the US dollar. Another important development, when I reflect on the engagement with our partners, is that there is a lot more co-operation with development finance institutions (DFIs) and ECAs to try and find specific solutions for trade and working capital. The response to the question of SME financing remains quite challenging even with the engagement with the DFIs, and obviously, the whole African free trade pact hinges on getting SMEs and women-owned businesses access to finance, so for me, that remains a big challenge.

In terms of ECAs, I always find that although there’s a lot of talk about ECAs, the model just doesn’t seem to stack up when it comes to short-term lending. We’ve done one ECA deal over the past 12 months or so and have had conversations with all kinds of ECAs. My observation is that when it comes to the short term, it just appears to be a waiting market but an important one to unlock. If you do unlock it, it will improve access to trade finance and solve some of the issues on the lower end in terms of risk sharing.

Nekati: If you look at total trade within Southern Africa in 2022, it was sitting at around US$500bn, of which approximately US$240bn is bank-intermediated, and that figure is growing at 8% per annum. What is driving that? There are a number of factors at play here. We are seeing that intra-African trade within Southern Africa is quite sizeable, particularly in comparison with the average percentage that you see across the continent, which is around 16%. It is more than 23% for Southern Africa. This intra-regional trade has really been pushing the demand for trade finance within Southern Africa, driven primarily by South Africa as a dominant player within the region. We also see that there’s increased funding coming from DFIs like the AfDB. We pride ourselves on leading the pack in this regard. Africa is our only market, and we are doing a lot of work in terms of de-risking by providing solutions that will enable commercial players to do more within the region and beyond. Some of my colleagues sitting at this table, namely RMB, Nedbank, Standard Chartered and Absa, are in ongoing partnerships with us in which we provide our triple-A-rated guarantee solutions to help them do more to support trade across the continent.

van Graan: The industry figures we have seen indicate that there hasn’t been genuine growth in South and Southern Africa. This lack of growth is primarily due to the current increase in interest rates and the ongoing impact of the pandemic. The reported growth in the region isn’t actually reflecting real progress.

Nekati: For goods such as fossil fuels/oil, for example, the growth has been largely inflationary. But with some agricultural goods and other precious metals, we’re even seeing prices coming down. However, what is not in dispute is that we are seeing increasing trade finance limits being required by issuing banks to cover larger volumes/values that are being traded.

Rampersad: Something that hasn’t been mentioned is access to credit. Often, you find on the corporate and commercial banking side that these clients do not get access to credit or that they’re getting pushed towards more structured solutions, such as borrowing base and receivables finance facilities. It’s also an SME challenge because banks lend well in certain segments on the corporate side; however, on the SME side, those clients often don’t have access to trade finance. SMEs may end up going to some boutique suppliers where the cost of credit is very high. If they are declined, that really affects their business liquidity. I think that plays into the SME challenge. The question of where we get more access to credit leads into the conversation about ECAs, DFIs and insurance. Some investment banking transactions have been done well, but we don’t see as many transactions on the trade and supply chain finance side. There have seen some locally, but I think more can be done.


du Plessis: What is the demand for supply chain finance like in Africa at the moment? What can be done to boost uptake?

Hlungwane: Anywhere else in the world, especially Europe and the Americas, you see a lot of successful supply chain finance programmes, but in Africa, these kinds of programmes face more struggles. The monetisation of open account trade has been a big challenge and I think part of the problem is that we take some of the solutions as they are from Europe and try to transplant them in Africa. When I ask colleagues how many supply chain finance programmes we have in our bank, it’s very few, which also applies to other banks in South Africa. In other countries on the continent, there are maybe one or two supply chain finance programmes – if any. The right structure for open account solutions is ripe for innovation. It’s possible that receivables finance is the solution, but particularly in the rest of the continent, we’ve struggled to deploy supply chain finance programmes as we’ve done so in South Africa.

Bid: We recently did some research and found that the fastest-growing supply chain finance programmes are in South Africa, followed by East Africa and Nigeria. We realised that in Southern Africa, there is a big gap between what the original programme had envisioned in terms of size, compared to what was actually being utilised and how many vendors were participating. This came down to subtle changes in operation and delivery, which made a fundamental difference. When we enquired about the reasons for low utilisations, a lot of it came down to education, communication and awareness. The moment we flipped to automatic participation, rather than selective participation, we started seeing increased rates of utilisation. Since then, there has been an uptick in volumes and vendors coming through and an increase in limits and buyers in our multinational programmes. We’re also trying to improve our capability on deep-tier supply chain finance and partnering with DFIs to do so.

Rampersad: For supply chain finance adoption to increase, there needs to be clear cash flow benefits for buyers, and not just their suppliers. If the buyer already has the appropriate terms, they’re not getting any benefit because these programmes consume their credit lines with their banks, with only their suppliers reaping the rewards.


du Plessis: What impact are FX shortages having on trade, trade finance and debt sustainability in the region?

Wilson: The FX challenge is largely the same across Africa, and it is driven in very large part by inflation and interest rates going up considerably coming out of Covid-19. What that’s done is sucked out FX, trade capital and liquidity capacity from banks. It is perhaps an overlooked fact that trade credit in Africa comes from banks, and their capacity to lend is being used up as costs rise. A cargo that used to cost US$20mn now costs US$80mn, for example, but at the same time, bank limits have stayed the same. It’s worse because a lot of the top transactional banks are de-risking from Africa. The terms of trade are very clear; all of these countries in Southern Africa export a lot less in US dollars than they need for their dollar import bill. So there’s already a massive deficit, and on top of that, there’s the effect of inflation on available credit in the banking system. DFIs are trying to do what they can to fill that gap; there’s only so much they can do. DFIs try to manage their risk by offloading it to the insurance market, but there is only so much capacity in that market. Enormous amounts of capacity have been taken out of the market, and it only seems to be going in one direction at the moment.

Milo: I completely agree with George; there are significant capacity constraints. But in the absence of trade finance, these countries have very few options. So even though there is reduced capacity, I am encouraged that through trade finance solutions, there is an ability to manage and mitigate this risk, to understand this risk at a transactional level, and to pool and share this risk with other banks – which provides a solution to a huge problem.

Hlungwane: Capital requirements regulation has also hindered the amount of capacity available, and that’s another reason why the SME space is challenging for us. For example, supply chain finance programmes are meant to help solve these access to finance issues, but in reality, you find you can only work with 10 suppliers in Kenya, for example, which still leaves a huge chunk of SMEs without access. It’s a challenging one, and while we need to continue to lobby and try to influence those capital requirements regulations, they are making it even more difficult for us to innovate.

Wilson: Banks are commercial enterprises and have to make a profit with the capital and liquidity they have available. These second- or third-tier banks in Southern Africa are not withholding trade facilities from their clients because they’re evil or clueless; it’s because current global regulation makes it much more profitable to deploy capital elsewhere. The Basel rules require banks to hold a tonne of capital in reserve for trade lending, despite the favourable default rate data. So banks have the choice of offering SMEs trade facilities and making a loss and burning through their capital, or buying government bonds without holding any reserve capital and getting a 15% return.


du Plessis: How can ESG elements be incorporated to help fix some of these problems?

Wilson: There is a school of thought that says that African trade finance, and particularly SME trade finance in Africa, is sustainable by definition. The SMEs in these countries employ up to 85% of the workforce. Trade contributes more than 50% of GDP and up to 30% of GDP growth in these developing countries. Those SMEs employ people, those employees become consumers, they become taxpayers, and it literally becomes self-sustaining. That is the only believable model that can work. The issue becomes how we support SME trade finance, whether it’s supplier or receivables finance, invoice discounting, or even just working capital facilities. How do we support them at the base level? The answer should be DFIs, as this finance is developmental. However, the problem is the level of evidential substantiation that those institutions want. They need proof as to who the buyer was and who the seller was, what the goods were, and they want some kind of sustainability reading on every single transaction.

The banks in Africa are very good at trade – even the lower-tier banks. They’re staffed by career professionals; they really know their market and they are well-governed. If there was a level of trust on the part of DFIs that those banks are doing the right thing from an SME trade perspective, they could guarantee the portfolios with triple-A-rated wrappers and do something practical about the trade gap and get to those SMEs. No one else in the world can touch those SMEs apart from those lower-tier banks.

Nekati: To respond to your point about the level of detail DFIs need for transactions: requests for granular detail may seem superfluous, but we need that level of information to ensure that the interventions we’re making are actually reaching the intended beneficiaries. We can debate the framework and see how we can improve it, but that is why that information is needed. It would be desirable to trust that the beneficiary banks are doing the right thing from an SME trade perspective, using resources provided by the AfDB. Indeed, it is likely, more than not, that this is actually factually true. However, without verifiable evidence to prove this, it becomes extremely complicated to corroborate such a bold assertion.

Hlungwane: There’s a problem with global ESG standards. There are a lot of clear standards around the impact of the ‘E’ of ESG but very little on the ‘S’, which is one of the most pertinent aspects of it for Africa. I think we’re desensitised to the social ills. We all make a lot of noise when there’s a flood or some sort of disaster, but there’s a whole range of social disasters going on every single day on the continent. We need to take the lead in defining the standards because I don’t think these things are as important to the West as they are to Africa. There has also been a lack of ESG transactions in the trade and working capital space, compared to investment banking. A reason for this might be that our systems aren’t measuring the right things, for example determining which customers are women-owned.

Milo: There is a strong link between international trade and economic growth, which translates into greater human development and poverty alleviation – the ‘social’ aspects in the ESG framework. It follows that we should provide more trade finance to drive these outcomes, but the question is: why isn’t more trade finance being done? I think it’s a matter of credit capacity, and the missing link is making capacity available for SMEs. Perhaps there is a role for commercial banks, governments and DFIs to partner in the sharing of risk to help increase credit capacity to drive desirable social outcomes. The Covid-19 loan scheme implemented in South Africa is an example of such a partnership. These partnerships would also complement the efforts undertaken by commercial banks in driving the adoption of ESG-linked trade finance solutions.

Nekati: The most important thing is to realise that DFIs like us are wholesalers working with commercial partners. We come from the development angle, but we need commercial players and complementary institutions to help us deliver on our mandate. With the realisation that the AfDB can only effectively function at a wholesale level – rather than retail – we have been championing the establishment of new institutions. For example, an institution such as the African Guarantee Fund was established with a mandate of providing access to finance for SMEs that require the type of support we’ve been talking about. Another institution I would like to mention is the Africa Trade Insurance, of which the AfDB is a shareholder, which is intended to help commercial banks de-risk their trade activities. The AfDB also launched the Affirmative Finance Action for Women in Africa initiative, with the aim of unlocking finance for women-led businesses and enterprises. This initiative also provides technical assistance aimed at helping financial institutions report on the support they are providing to women-owned businesses.

Bid: Technology can play a big role here in terms of traceability and authenticating that the financing has been useful. Most African countries have mobile money payments, but how many banks actually embed that into a trade finance solution?  A consistent framework across banks to be able to combine the two and have some sort of traceability audit embedded within that is required.

Wilson: The standardisation of ESG reporting is not just an African problem, it’s a global one. There has been a complete and utter failure to launch any kind of sustainability reporting standards. Part of the reason for that is the conversation has been driven by the securities and investment markets, as well as people who do not understand trade products. ESG has no relationship with sustainable development goals, and in Africa, it’s all about sustainable development. You can’t transpose ESG reporting standards designed in Europe on a continent where’s 600 million people without access to electricity. It’s difficult, even in Europe and with its huge banks, to create a standardised reporting mechanism to determine whether a transaction is sustainable. Something has to change in the way we look at this problem, or the trade finance gap will just get wider, and the environment in Africa will continue to get worse.


du Plessis: What strides have been made in digitising the region’s trade landscape over the last few years and what does the future hold?

Rampersad: Technology is something banks are looking at a lot because, from a banking perspective, we’re not as agile as we’d like to be. There are a lot of tech providers in the supply chain finance space who can pivot and shift quicker than we can, and I think we need to use these a lot more. Fintechs can also help banks integrate SMEs into that digital framework.

Milo: When you think about it, what is the concept and purpose of digitalisation in trade? I think it comes down to the quest for efficiency. Banks want to make their operations more efficient and simultaneously make the client experience more streamlined and efficient as well. There have been huge strides over the past couple of years, including the implementation of modern customer platforms, the use of AI to automate previously manual tasks such as LC document checking, fintech platforms for supply chain finance and even simple innovations like digital signatures. The Electronic Trade Documents Act in the UK also paves the way for trade to become more digital globally in the future.

Hlungwane: I think we have moved on from a few years ago when there was huge excitement around digitisation, but it was detached from the experience on the ground. Now we are applying digitisation to specific problems. The digitalisation of the global value chain is a long journey, and from a readiness perspective, I think we have a long way to go. Banks are profit-driven, so there is always pressure to justify the cost and whether an investment in technology is worth it. But the landscape is changing.

van Graan: Often we are listening to what we want as banks, but not listening to what our clients want. The clients are saying to us: ‘I want to bank easily; I want to sell you an invoice and get our suppliers paid immediately.’ For that, you need a digital system where everything happens quickly and digitally. Supply chain finance is so critical in our markets, and I think we need to start listening to our clients. We’re looking to solve our challenges as banks, instead of understanding how we’re going to make it easy for that supplier to get the money. These clients are becoming very smart, and if banks don’t evolve, they are going to go to the fintechs or insurance houses and we’re going to lose out. So digitalisation is something we need to take very seriously.

Hlungwane: But we are deceiving ourselves if we think we can give the client exactly what they want all the time. A client might want 100 things, but we can only afford five of those, and we have to find a way to communicate that. We all carry iPhones and would love to be able to send trade finance documents with them, but none of us can do it because no one wants to make the investment.

Bid: Most banks focus on digitising processes that have the most value for their clients, given the lack of standardised documents. Hence you pick your battles, you pick what you need to digitise to improve your efficiency and proposition for clients, and you work with that.

Wilson: The capital requirements issues we discussed earlier also have an impact on digitisation in Africa. Given the pressure banks are under to maximise the return on available capital, if trade finance bankers put that capital into a digital platform – which has to be at the layer of the buyers and the sellers of those invoices – they would be fired. Management would say, ‘this is a commercial institution; our shareholders demand that we make a profit, and you’ve just made a massive loss’.