Mr Paul Jennings, Deputy CEO & Chief Banking Officer, BACB, a specialist trade finance bank, has said that the biggest challenge facing traders seeking to expand their business in Africa is access to finance.
He said the continent’s trade finance gap is estimated to be $120 billion.
Jennings spoke to radeArabia in an interview on various challenges facing businesses in Africa and the opportunities offered by the great continent.
Specialist banks like BACB can help close the funding gap by leveraging extensive local networks and providing much-needed liquidity, says Jennings.
Intra-African trade, which has been given a boost by the launch of the African Continental Free Trade Area (AfCFTA) in 2021, will redefine Africa’s economic prospects for the future. By lowering barriers to trade in goods and services, the new free trade zone will provide great incentives for those looking to do business across the continent, he says.
Excerpts from the interview:
What are BACB’s focus areas in Africa, particularly northern Africa? Why is it focused on these areas?
BACB is a trade-focused institution, which sees its role as facilitating trade flows between Africa and the rest of the world. Historically, by virtue of its North African shareholders, the bank was focused particularly on North Africa and the Middle East, with a physical presence in Tripoli and Algiers.
But the bank has now expanded its coverage to the rest of the continent and become a truly pan-African financial institution. Unlike other London banks, our area of expertise extends across the breadth of the African continent, reaching many smaller markets – both Anglophone and Francophone – which are often overlooked by other international banks.
What are the key challenges facing Africa with the full impact of COVID-19 still to be overcome? The vaccine programme is still a challenge for much of Africa. Restricted travel means restricted trade. With a lower level of vaccination when compared with other regions, Africa may take longer to recover economically than more developed parts of the world. Naturally, this has implications for businesses on the ground, many of which thrive on face-to face interactions.
Africa sometimes suffers from a perception problem – the risk of doing business there is often perceived to be higher than it is in reality. Being able to visit, to put your feet on the ground and explore a new market, enables investors to build reassurance and break down barriers of perceived risk. The impact of travel restrictions hinders that.
How can trade be increased between Africa and the Middle East, particularly the Gulf?
The role of financial institutions in facilitating cross-regional trade cannot be understated. The biggest challenge facing traders seeking to expand their business in this part of the world is access to finance – Africa’s trade finance gap is estimated to be $120 billion.
Specialist trade finance banks like BACB can help close this gap by leveraging extensive local networks and providing much-needed liquidity. They are also able to engage in capacity building, creating additional risk appetite for specialist markets and ensuring that people on the ground have the resources to structure deals efficiently.
What are the major opportunities and what are the impediments?
Intra-African trade, which has been given a boost by the launch of the African Continental Free Trade Area (AfCFTA) in 2021, is clearly set to redefine Africa’s economic prospects for the future.
By lowering barriers to trade in goods and services, the new free trade zone will provide great incentives for those looking to do business across the continent. It therefore represents a significant milestone in the journey towards remedying Africa’s trade imbalance. Greater intra-regional trade would be a boon for African economies that could help offset uncertainty and build resilience – the need for which has only increased amid the financial pressures wrought by the pandemic.
But there are some obstacles to realising this more interconnected vision of Africa’s future. The lack of adequate cross-border infrastructure links remains one of the main barriers to the establishment of a thriving pan-African trade area. Financing the necessary infrastructural projects will require the wider international banking community to rethink their risk appetite.
This acute need for financing is only set to increase as ESG considerations become ever more relevant to investment decisions. For example, all projects related to mining are now somewhat challenging from a sustainability point of view. But there are some significant infrastructure projects planned to improve connectivity within Africa – the Algerian Trans-Sahara highway, for instance.
How can Arab and African-owned banks, together with other international banks, help in Africa’s growth drive?
In the context of Africa’s trade finance gap, it is crucial that specialist international banks deploy their risk appetite for the region in an optimal manner. By partnering with local banks and export credit agencies (ECAs), international financial institutions can effectively increase Africa’s access to liquidity. BACB has risk appetite for African markets, but there needs to be a stronger group of Arab and African-owned banks – as well as other international banks – to collaborate, share knowledge and convert expertise into opportunities.
BACB, through its origination and distribution function, also shares African risk with the banking and insurance market – increasing the pool of risk appetite and liquidity available for specialist markets.
International banks can also act as trusted intermediaries to facilitate intra-African trade. If you’re buying, say, a bunch of flowers in Nigeria, it’s likely that they were grown in Kenya but have been imported from the Netherlands. Linking up those markets directly, through an extensive network of partners, helps build trust between African markets and promotes further trade integration.
What is something that the world can learn from Africa as countries move on the path to sustainability?
African countries have demonstrated a huge amount of resilience throughout the pandemic. Many markets have shown a willingness to think outside of the box, often finding new ways to solve liquidity and financing issues. Digital payments, for instance, have become ubiquitous across East Africa where many people went directly from not having a bank account to handling all their personal finance needs through a mobile app.
Of course, African communities need the finance to develop and support the community-led projects that underpin this resilience. In 2020 BACB worked with the Rwandan government to help finance an ambitious classroom-building project. As social distancing requirements increased the amount of space required by schools, the government built 22,500 new classrooms and other essential facilities – for which BACB facilitated the importation of steel from Egypt.
Our swift LC confirmation process helped enable a long-term solution to what is a short-term problem. Some more highly-developed countries, where decisions are often taken within five-year political cycles, have much to learn from Africa’s tenacity and its long-term thinking.
Of course, beyond this, the West has a special responsibility to help finance development in Africa. Africa has a right to industrialise, and it is in the interest of the international community that this development is carried out in a sustainable way. And renewable energy is already gaining traction across the continent, most notably in North Africa and Ethiopia. If African markets can set a trend for sustainable development, the rest of the world will no doubt take notice.
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