5 key takeaways from GTR Africa
We went to a leading conference on Africa in London to discuss the evolving trade landscape across the continent with our industry peers.
Last week, we attended Global Trade Review’s conference on Africa in London. Being able to pause the Zoom calls and meet in-person with leading figures across African trade to discuss important trends on the continent proved interesting and insightful.
It is clear the pandemic has exposed structural weaknesses in African economies, from pressure on public finances to political risks and fragmented regulation. What else is clear, though, is the resilience of markets and companies and their ability to innovate, which will be essential in overcoming the damage brought by Covid-19.
Our top takeaways from GTR Africa:
One theme discussed was how crucial data will be in ensuring resilience across African supply chains. Enhancing digital infrastructure and deploying intelligent technologies will enable comprehensive data collection and analysis to help lenders better understand the needs of smaller companies, building up credit profiles to support them.
Technology is not being fully utilized in our industry. Players are hesitant to adopt solutions they do not completely understand – but if we are to transform the trade finance offering across economies in Africa and deploy liquidity to the many small businesses on the front line, we must embrace technologies of the future now.
‘Flight to quality’
A worrying trend highlighted during one panel was that Covid has accelerated a retreat of international banks from the African correspondent banking network because of stringent know your customer and anti-money laundering rules. A wave of frauds across the commodities sector has added to global banks’ nerves, triggering some to reduce their exposure to trade and commodity finance.
A “flight to quality” in which banks only work with the largest corporates on the continent leaves smaller traders without the capital to do business. In this landscape, multilateral institutions must continue de-risking trades, while technology will be essential in streamlining on-board and compliance processes as well as detecting fraud in real-time.
Emphasis on ESG
With the Cop26 climate summit ending this week, focus turned to the environmental, social and governance (ESG) risks in trade, commodity and project finance. In the context of Africa, the transition to cleaner projects – for example in energy and mining – must balance jobs as well as the needs of economies.
Lenders have a significant role in the transition and, as one panelist working for a global bank said, they will continue to finance ESG and “non-ESG” projects across the continent to support economies’ shift to low carbon.
Africa is experiencing a “three-speed recovery”, according to Robert Besseling, of consultancy Pangea-Risk. Countries set for the highest growth this year include markets boosted by rising commodity prices, those that enacted better fiscal policy amid the pandemic, and economies whose GDPs experienced the sharpest declines in 2020.
The second group, accounting for the majority of African markets and which will fail to match the global economic growth rate of above 5% this year, are suffering from low vaccination rates. Lastly, the slowest markets to recover will be those with deep structural weaknesses, such as Angola, and those in conflict zones.
There has been much talk of debt sustainability globally as governments deployed fiscal support to prop-up economies during the pandemic. For Africa, most countries are expected to experience “significant increases” in their debt-to-GDP ratios this year, especially resource-intensive economies, according to the African Development Bank.
Africa needs physical infrastructure to support trade – and that is not free, as one panelist pointed out. Governments must take on more debt to build and improve infrastructure. The question of how this debt can be made sustainable was discussed at length – banks, export credit agencies and development finance institutions all have a role to play. Tenors for loans must be longer and concessionary terms offered.
Read our report to learn more about the trade opportunity across Africa, and why technology will be pivotal to enabling smaller businesses that spur growth access to finance.