Has trade finance been leveraged adequately to facilitate trade in Africa? It is a known fact that trade finance is a difficult product to use in Africa as investors and banks are not willing to support cross-border partnerships due to a lack of publicly available information about the African private sector as a whole. Private companies in Africa have a significant trade market across their borders, yet they lack the right support to exploit these opportunities. The majority of African countries do not have sufficient supply to meet local demand for goods and services, a supply imbalance typically spotted by any business and leisure traveler.
So what is the solution? The solution is quality information and analytics for both the trading company as well as trade finance banks, financial institutions and stakeholders. At least five databases from competitive information providers with good quality information on African local companies are required to facilitate more risk-managed trade. Once in place, the pricing of trade finance facilities such as commodity finance, letters of credit and trade guarantees become cheaper to access for private companies. The negotiations of the African Continental Free Trade Area (ACFTA), accepted by 99% of African states, has shown the level of maturity and transparency that cross-border trade requires if such a trade pact is implemented.
Once the limitations of trade finance in Africa are cleared, the free trade market can open its doors to attract private equity and alternative investors into various economic sectors. Private equity is an important partner in trade because it is already exposed to the real economy in Africa. The right transparency and market place may even create trade finance facilities within the private equity product range of Private Credit.