Richard Snookes, head of financial crime risk and money laundering reporting officer at British Arab Commercial Bank (BACB), shares his outlook on North Africa.


North Africa is Europe’s primary gateway to the rest of Africa, and it is no coincidence that international traders have long been eager to unlock the economic opportunities presented by the region, one rich in resources and home to a young population. Yet many international businesses struggle to obtain the trade finance required to mitigate the associated risks – hindering their expansion into promising new markets.


Why is North African trade considered risky?

Naturally, entry into any new market brings with it both opportunities and risks – but for many international traders and investors, North Africa sits at the higher end of the risk spectrum. Whilst this perception is sometimes exaggerated, the region’s distinct circumstances do lend it a unique risk profile. The geopolitical instability that has rocked the likes of Tunisia and Libya in recent decades continues to spook foreign investors. But while both economies are on the road to recovery, having achieved hard-fought stability, challenges remain for foreign businesses looking to tap into these markets.

Many of Africa’s developing economies have less mature regulatory frameworks in place when compared with their international counterparts, not only at a government level but also with respect to individual financial institutions. Furthermore, North African markets often have a relatively high proportion of informal economic activity and undocumented cross-border trade, with some remaining heavily cash based.

Certain governance issues add to the region’s risk profile – indeed, several markets face restrictions from international bodies, serving as evidence of ongoing concerns, including corruption, money laundering and the financing of terrorism. This should not necessarily serve as an obstacle to trade, but it does mean that risks must be managed carefully – and traders will undoubtedly be aware that financial institutions often approach North Africa with caution.


How can specialist banks support trade?

These concerns can be addressed given the right risk management strategy, with an approach to trade not only involving robust due diligence procedures and compliance checks, but also providing expertise and understanding. The role of a smaller, specialist trade bank can be to not only mitigate risks but also to bridge the knowledge gap between understandably wary traders and potentially fruitful markets.


  1. By mitigating the risks for traders

With specialist markets in North Africa often categorised as high risk, international banks like BACB can play a key role in bringing credibility to trade flows, guaranteeing and financing international transactions through strict transaction monitoring processes.

Specialist trade finance banks, with on-the-ground knowledge, support this process by carrying out risk assessments of their customers – providing a system of checks and controls that reassures all sides of a transaction. By fostering a dialogue with customers, and actively soliciting customers’ queries on how to improve processes and procedures, banks like BACB can also help inform local partners on how to improve their profiles, raising them to an international standard.

The benefits of this approach are far-reaching, as ultimately, the day-to-day monitoring of transactions supports the integrity of key trade flows.


  1. By promoting higher compliance standards in the markets themselves

Raising governance standards within African markets reduces the aforementioned risks, but the building of more robust compliance capabilities requires both investment and commitment from local governments. Progress is being made in this area, with many African economies working hard to raise both regulatory and corporate standards.

Financial institutions in the region are also establishing processes and building control frameworks. International banks, themselves operating within stringent regulatory regimes, can play a crucial role to support their African partners in this process.

Indeed, BACB has a proven track record of sharing its expertise with many local institutions over its 50-year history, something it continues to do as part of the bank’s strategy of safe, sustainable growth. Operating from London, with representative offices in Africa, BACB benefits from the regulatory guidance provided directly by the UK government, Prudential Regulation Authority and the Financial Conduct Authority, whilst being able to maintain a deep understanding of the needs of its counterparties based in the bank’s core African markets.


  1. Organising compliance training sessions on the ground

Helping build institutional resilience is a key component of BACB’s growth strategy. Through the provision of extensive training for colleagues in its London headquarters as well as its representative offices in Algiers, Tripoli and Abidjan, BACB can demonstrate its commitment to upholding the highest regulatory and compliance standards across all activities.

BACB also organises specialised regulatory and compliance training workshops for its banking partners operating in North African markets, aimed at strengthening the capabilities of the region’s financial institutions.

The most recent of these training sessions took place in Tunis in July 2022, following on from a larger conference held the previous month in Tripoli. The ongoing commitment of specialist banks like BACB in aiding the continuous improvement of the governance standards of the markets they operate in will ultimately lead to the expansion of international risk appetite for African markets, resulting in greater prospects for growth.


  1. Capacity building: origination and distribution

The African Development Bank estimates the annual gap between demand and supply for trade finance in Africa to be around US$81bn. The need to bridge this gap has never been more apparent, and the role that international financiers can play to promote the financial inclusion of developing countries is significant. Operating a strong trade asset distribution function from one of the world’s financial capitals, BACB sources capacity from international providers for quality trade assets originated in its African markets. BACB has a trusted name, deep knowledge of African markets, and proven experience in the origination of safe, sustainable trade assets, coupled with longstanding partnerships with global traders. This strong foundation provides BACB with the capacity to work with banks and insurers in the UK to generate larger risk appetite and greater pools of liquidity for Africa.


Supporting African markets: spotlight on Libya


Economic recovery

Libya is a natural gateway for trade with North Africa, as well as a link between Europe and Sub-Saharan emerging economies. The impact of conflict and the pandemic has left Libya reckoning with significant social and economic damage to its communities. Furthermore, the associated risks of working in Libya have meant that global banks are often reluctant to handle Libyan businesses, leaving the country with limited opportunities to access the global financial markets.

Specialist international banks operating in Libya, like BACB, play a strategically important role in keeping the North African country connected and trade flowing. BACB is pre-eminent in the UK as an issuer of letters of credit for corporates working in the Libyan oil sector, creating a vital link for Libya to access the global financial system.

Of course, navigating such a specialist market comes with a unique set of challenges. Aside from handling oil exports, BACB also supports the difficult process of economic rebuilding in Libya – including the issuance of letters of credit for the importation of parts to repair damaged factories and infrastructure. To reduce delay, Libyan banks place their trust in London-based BACB to receive and check shipping documents, and to make payments on their behalf. This is a testament to the strength of BACB’s local relationships and the bank’s ability to provide solutions for its clients.


Building compliance capabilities

Working with the Central Bank of Libya, BACB jointly held a high-profile banking conference in Tripoli in June 2022, focusing on upskilling top Libyan financial institutions in the areas of governance and compliance. The Libyan Banking Conference on Compliance 2022, hosted by the Central Bank of Libya, was the first major banking conference to take place in Tripoli since 2011, and included senior representatives from all commercial banks in the Libyan financial sector. Several training sessions were delivered by BACB’s in-house experts to an audience of CEOs and chairs from Libya’s top financial institutions.

Helping to build the institutional resilience of African financial systems is a key part of BACB’s strategy, demonstrating the bank’s steadfast commitment to its core markets. Governance and transparency play a crucial role in rekindling risk appetite towards the continent, and BACB’s presence on the ground makes the sharing of expertise with local partners even more effective.


This article has been prepared from sources BACB believes to be reliable but we do not guarantee its accuracy or completeness and we do not accept liability for any loss arising from its use. The information herein is expressed as of the date of writing and may change without notice. BACB reserves the right to remedy any errors that may be present in this article but BACB is under no obligation to ensure that such updates are brought to your attention. The material and information contained are provided for general information only and should not be used as a basis for making business or investment decisions. If you are to rely on the information you are strongly recommended to take your own independent advice.