In the past few months, as the world faces one of the biggest health and economic crises, the need for reliable banking partners committed to facilitating trade flows to and from Africa has become even more acute, writes Jeff Fallon, Head of Client Coverage at BACB.


Our objective, at British Arab Commercial Bank (BACB), has always been to bring more access to liquidity to African markets and play our part in closing the trade finance gap in the region – a gap that the International Chamber of Commerce (ICC) estimated could be as high as US$120bn pre-pandemic, and will likely widen further during the aftermath of the crisis.

African countries have, to date, performed well in managing the social effects of the coronavirus pandemic. Indeed, this is underscored by how quickly the continent’s gaze could turn to addressing the economic ramifications of the crisis, which now seem to be the main consequence following the virus’ outbreak.

In our experience, there’s no doubt that the decline in global trade – which fell by around 27% during the second quarter of 20201 – hit the region hard. The impact of the crisis on the auto and energy industries (of which many African countries hold a large market share) has been substantial, with trade dropping by 41% and 44% in these sectors respectively from the first quarter of 2020 into April. Instability in the global commodity market in recent months has not helped, either. With many of the region’s economies, such as Algeria, Libya and Nigeria, reliant on the export of oil, the slump in oil prices – which reached negative figures in mid-April – piled on the pressure. Nigeria’s exports plummeted by 40% in April, for instance.


Relationship banking provides a path forward

Historically, perhaps the most significant threat to trade in Africa has been the disparity between perceived and actual risks. Contrary to popular opinion, pre-pandemic, trade finance in Africa was steadily becoming a less risky proposition for lenders. Between 2016 and 2017, for instance, weighted by obligor, default rates on letters of credit (LCs) declined from 0.59% to 0.05% for export LCs, and from 0.48% to 0.14% for import LCs. Even in today’s crisis environment, the revised outlook for Africa is more favourable than some regions, with a few countries even maintaining positive growth projections of between 1.2% and 2.5% depending on duration and severity of the crisis.

The approach to trade, therefore, needs to be one of managing risks and working to disprove unfounded, or disproportionately negative, perceptions. And this is why relationship banking remains so important to the continuity of trade flows with Africa. Working in these markets has always required an intimate knowledge of local business customs, while also being sensitive to the needs and concerns of exporters. But we now face rapidly-evolving and increasingly complex market conditions. Volatility and uncertainty are on the rise, which means financial institutions must retain a sensible approach in their financing decisions.

Yet, in our view, the fundamentals to serving our clients in Africa – profound local-market expertise and a relationship-driven approach to banking – have not changed. These two ingredients alone allow us to discern between the real and the perceived risks, enabling us to keep our clients’ business moving forward fluidly with the financing they need.

For this reason, and despite political sensitivities in some of the countries, BACB continues to operate representative offices in Algiers, Tripoli and Abidjan, where regional relationship managers are on hand to provide direct service to clients. In April this year, despite the many challenges that the coronavirus outbreak has brought, BACB brought its Abidjan rep office up to full strength, bringing two new hires on board to provide on-the-ground support to clients where it is most needed. We see this as integral to our offering – a hands-on and personal approach can only come from having people on the ground.


What will the future hold?

Understandably, the crisis has raised concerns about a shift in perception on globalisation, with some countries beginning to incline towards protectionist ideologies with the aim of safeguarding national interests. But trade will be crucial to global economic recovery. The Europe-Africa and UK-Africa trade corridors had been showing signs of great potential pre-pandemic, and it will be to the benefit of all to ensure that progress in this respect does not fall by the wayside – particularly as the regions look towards fast-tracking economic recovery.

In March this year, the EU published its ‘Comprehensive Strategy with Africa’, a progressive roadmap outlining future collaboration in a range of areas, including trade, digitalisation and sustainability. The future direction of the relationship will be a key focus of the EU-African Union (AU) Summit in October. If managed correctly, it could reap substantial and mutual benefits in the longer term, as well as spur new opportunities as both blocs enter their recovery phases of the current downturn.

We may also see a more permanent shift in global trade and supply chains, too, and the aftermath of the crisis may afford corporates an opportunity to reset or re-evaluate their current strategies. With the dangers of over-dependence on Chinese manufacturing capabilities now exposed, European and UK corporates may well look to diversify their exposures by remapping supply chains to providers closer to home. Africa, as the nearest regional neighbour and with fast-developing manufacturing capabilities, could stand to benefit from this shift.

Throughout this difficult period, we are acutely aware of the challenges faced by many of our clients, and have done everything in our power to support them and remain a vital connector between African markets and trading companies in developed markets. As specialists in the African marketplace, we remain fully committed to serving our clients in the region and working to expedite recovery – both economic and social – on the continent.


Your banking partner for specialist markets

BACB is a UK commercial bank, owned by North African Sovereign Shareholders, specialising in trade solutions for African markets. We seek to be a vital connection between corporates and financial institutions in North and Sub-Saharan Africa, and companies in the UK, Europe and the Middle East, providing value-add trade solutions to facilitate trade flows with Africa. We offer a comprehensive range of trade-related instruments, including LCs, standby LCs, bills of collection, payment guarantees, bid bonds and trade loans. We also provide commodity finance, treasury and real estate finance services that are complementary to the core trade finance business.


BACB named ‘Best Trade Finance Bank in North Africa’ in the GTR Leaders in Trade Awards 2020

As one of the few banks operating in all six countries in North Africa, with proven commitment to the region and excellent client relationships, BACB was delighted to be named Best Trade Finance Bank in North Africa in 2020 by GTR for the second year running.