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As trade between Africa and China continues to hit record highs, industry insiders are calling for wider adoption of technology that can digitalise manual processes and connect banks and corporates in real time. 

On the eve of this year’s Sibos event in Beijing, GTR speaks to Michelle Knowles, pan-Africa group head of trade and working capital at Absa, and Ashutosh Goel, chief executive and co-founder at fintech firm Xalts, to discuss how digitalisation can accelerate further growth in trade between the two markets. 

 

GTR: Trade between Africa and China has grown remarkably in recent years. How significant an opportunity is this on the trade finance side, and how are your institutions responding? 

Knowles: Over the past two decades, Africa’s trade relationships have changed significantly. China has become Africa’s second-largest single trading partner, creating significant commercial opportunities for both regions. Many of Absa’s presence countries are among China’s top 10 trading partners in Africa, and Absa has expanded its physical presence in China by establishing a new non-banking subsidiary that will provide local support to Chinese clients and stakeholders for transactions across the African continent.  

There is a growing demand for trade and working capital solutions from Chinese companies operating on the continent, driven by trade in goods and services. This expansion reflects Absa’s growing international footprint and its dedication to creating new opportunities between Africa and China. Trade makes up a sizable portion of the total corridor revenue, and our ambition is to double the trade finance contribution over the next couple of years. 

Goel: Africa-China trade reached US$262bn in 2023, meaning China has become Sub-Saharan Africa’s largest bilateral trading partner. Africa’s trade with the world is growing rapidly, especially with Asia, where we have extensive coverage and connectivity with China, Asean and India. Our strategy is to continue working with financial institutions in Africa and Asia to simplify connectivity and reduce the associated cost and time involved in trade. 

 

GTR: What initiatives are underway to digitalise this trade corridor, and what benefits would that bring to banks and corporates in both Africa and China? 

Knowles: To address the high costs of accessing trade finance, there is a shift towards digital trade finance. This shift aims to simplify access to finance for companies of all sizes and reduce costs. Digital tools can automate and streamline trade finance processes, leading to cost reduction, inclusivity and improved availability of financing for African businesses. Collaborating with other key players in the trade ecosystem presents an opportunity to increase liquidity and deploy innovative solutions to enhance access to trade finance. 

We are in the process of digitalising trade from multiple angles and have committed to a multi-year programme. Significant investment has been made in digitalising the financial supply chain, and banks have embraced digital solutions, bringing benefits such as cost reduction, improved visibility and faster decision-making. We continue to enhance our digital and data capabilities using a combination of technologies to realise our ambition around digital trade. 

Goel: Our vision at Xalts has been to provide enterprise-grade, real-time connectivity between financial institutions and businesses across key trade corridors. Our network today reduces time, cost and manual effort in managing treasury and trade finance processes. Digitalisation through real-time connectivity enables businesses to be capital efficient and to optimise their liquidity and credit limit management. 

 

GTR: What specific technologies are proving useful in these efforts? 

Goel: Our trade network provides digital connectivity between corporates and financial institutions, while abstracting away a lot of bespoke integrations that corporates may need to do for each bank. This not only saves a lot of upfront time and cost required to build digital connectivity, but also reduces costs of maintenance and upgrades. 

We leverage a modern technology stack, including APIs, blockchains and orchestration layers, to digitalise these complex workflows and financial processes, while integrating seamlessly with various bank back-office and corporate ERP systems. 

This digital connectivity powers our product-specific solutions, such as digital letters of credit and treasury management. The unique bit about this is we recognise that each bank and corporate has its own processes, security architecture and rules, and we are able to cater to all of that while creating an end-to-end digitalisation experience for trade processes which are currently handled manually. 

Knowles: We use a combination of technologies to digitalise trade finance, aiming to drive growth and efficiency through optical character recognition, blockchain and AI capabilities. Our client portal, which is based on open-source technology, along with our back office, seamlessly integrates with different ecosystems. 

Technologies like APIs, distributed ledger technology (DLT) and AI play a key role in this transformation. Trade digitalisation needs APIs for smooth integration between various stakeholders, DLT for secure transactions, and AI for automation. We continue to adopt a combination of these technologies to digitalise trade finance, including by partnering with fintech companies. 

 

GTR: What challenges need to be overcome to ensure wider adoption of digitalised trade in these markets? 

Knowles: The trade ecosystem has yet to become fully digital, and this is understandable due to the complexity of the different players across multiple jurisdictions. The challenge lies in integrating various systems for interoperability and ensuring online security.  

Overcoming these hurdles requires a balanced approach, involving the adoption of technological innovations and the fostering of collaboration among industry stakeholders to establish secure, standardised and interoperable digital trade environments. To improve the situation, it’s crucial to strike a balance between leveraging new technology and encouraging industry-wide cooperation to create secure, standardised and user-friendly digital trade set-ups. 

Goel: Trade is fundamentally complex with multiple different ecosystems which are not interconnected. From a corporate business perspective, it’s their internal systems, banking partners, counterparties, shipping and more. Similar to other non-interconnected large problem statements that have digitalised over the last two decades, the path to digitalising trade lies in collaboration between different players, one problem at a time.