As Britain’s post-Brexit trade policy pivots to re-establishing links to the Commonwealth and emerging markets in the East such as India and China, one region which is often overlooked is Africa. But for British businesses, the continent’s growth rates, urbanising population and growing consumer market represent myriad opportunities – given the right support.
Home to nine of the fastest-growing economies on earth, Africa’s mineral and agricultural resources have fuelled global growth and provided tea, coffee, chocolate and cotton to consumers around the world. Today, as its economies grow, so too does demand for goods and services, transforming the continent into a new frontier for European exporters. With a market of 1.3 billion people and a rapidly expanding middle class, McKinsey research predicts consumers in Africa will buy more goods and services than Russia by 2020 – and only slightly less than India.
As Africa’s industrialisation drive continues apace, it is projected to spend at least US$6tn on infrastructure by 2040, which translates into a greater need for imports of machinery, fuels, and chemicals. However, it also translates to a gap in financing of infrastructure projects of as much as US$108bn a year, according to the African Development Bank (AfDB). And with international banks once again withdrawing from Africa, corporates need solid financial support in order to enter this promising market.
“We are starting to see a number of UK and mainland European firms that are starting to look to Africa for a market where they can sell their manufactured goods, be those machinery or even services, such as some of the IT and technical services that come out of London, for example,” says Patrick Gutmann, Managing Director, Corporate & Institutional Banking at BACB, a UK-based bank with four decades of experience in Africa.
Amid a building boom in transport, energy, and shipping infrastructure, several cement production plants have been set up across Africa, with Europe exporting its engineering expertise in machinery and servicing parts. “This opens up opportunities for small to mid-tier companies in Germany and other European countries. They have an open market in Africa for their services and their manufactured goods, but what they need is a bank looking into Africa with the right sort of risk management and understanding of the market to support these industries,” says James Cantamantu-Koomson, Managing Director, Client Coverage at BACB.
Africa’s industrialisation could also get another boost from the African Continental Free Trade Area (AfCFTA) agreement, signed in March. This – the world’s largest free trade agreement – could open the door to the removal of non-tariff barriers and harmonisation of standards across borders, allowing for the creation of supply chains spanning the continent. But with an unmet need for trade finance estimated by the AfDB at over US$90bn annually, the potential benefits are currently limited.
That isn’t to say the demand doesn’t exist. The Rethinking Trade & Finance report by the International Chamber of Commerce outlined that after Western Europe and China, the Middle East and Africa combined offer the largest opportunity for proposed trade finance transactions by region, in terms of percentage of global value of transactions.
“That gap is there because there isn’t the level of financial support from external banks to put the necessary level of imports back into Africa, as many have stepped back from the continent due to derisking,” says Cantamantu-Koomson. He adds that the question when it comes to trading with Africa isn’t one of high or low risk; it’s about understanding the risks involved. “Firstly, you need to ensure that you have the most robust checks in place. Banks with a hands-on approach to regulatory requirements can give clients the assurances that come from banking within a highly regulated environment,” says Gutmann.
In addition, banks based in the UK have the added advantage of being able to call on the breadth and depth of the London job market to assist their clients. “We can hire people who have expertise in practically every market that we want to go into and are in, which is quite unique to London,” says Gutmann.
As its population grows and its economies develop, Africa has also become a market for technologically-driven goods and services. Mobile banking – already a runaway success in countries such as Kenya – has been highlighted by the City of London as an entry route for UK fintech firms into the continent. Meanwhile, the United Nations Environment Programme has underlined a need for annual investments of about US$7-$15bn by 2020 as green-minded governments seek to harness Africa’s enormous renewable energy resources to provide the continent’s 600 million-strong off-grid population with electricity, with Malawi one of the latest to put out requests for bids from EPC contractors.
Today, UK exporters have a unique opportunity to unlock fast-growing sectors in Africa, but in order to be successful in building long-term, sustainable relationships, they need banking partners who can combine access to export finance with access to the local knowledge needed to enter new markets.
“Any bank that is committed to more challenging markets such as those in Africa for the long term will offer reassurance and security. Relationships, local knowledge and teams take many years to establish and maintain. Although the digitalisation of trade finance is often heralded as the future, the banks that are making the difference and putting their customers first are still offering the human touch and expert eyes on every last detail,” says Gutmann.
In times of geopolitical volatility, doing business with challenging markets requires a steady hand. London-based BACB’s regulatory robustness and more than 40 years’ experience in Africa and the Middle East make it the ideal partner, whether you trade yourself or provide trade finance services to your clients.
From its headquarters in London and five offices across Africa, the Middle East and Europe, BACB offers a specialised trade finance service from a multilingual team of 200 professionals with in-depth knowledge in structuring transactions, international banking regulations and practices, as well as local requirements.
To find out more, contact our trade finance team
020 7648 7777