How to bridge the trade finance gap in Africa

Africa is on the path to fulfilling the dream of economic integration through the implementation of the African Continental Free Trade Area (AFCFTA), which aims to facilitate trade among the continent's countries. To achieve this ambitious goal, there is a pressing need to bridge the trade finance gap in Africa, which is estimated to be between 80 to 100 billion dollars annually. Bohani Hlungwane, the Managing Director and Group Head of Trade and Working Capital at Absa Group, highlighted the progress made so far in harmonizing financial systems and the challenges that still need to be addressed. Hlungwane emphasized the importance of collaboration between financial institutions, development finance institutions, export credit agencies, and fintech companies to enhance trade finance in Africa. Despite the setbacks caused by the COVID-19 pandemic, efforts to close the trade finance gap have been reignited with a focus on digitization and innovation. Hlungwane discussed the current state of financial fragmentation on the continent, pointing out initiatives to build payment platforms that would enable seamless cross-border transactions. While significant progress has been made in aligning financial systems and enhancing payment platforms, there is still a need for further integration to facilitate trade in local African currencies. The AFCFTA and various financial institutions are working towards creating a more centralized financial framework to support intra-African trade relationships. Fintech companies have been identified as key players in bridging the trade finance gap in Africa. Despite the growing number of fintechs in the market, the impact on trade finance has not been substantial so far. Hlungwane highlighted the importance of fintechs focusing on addressing specific pain points in trade finance, such as providing transparency and data visibility for SMEs. By leveraging data analytics and digital platforms, fintech companies can enable financial institutions to make quicker and more informed decisions when financing SMEs. Collaborations between banks and fintechs are essential in creating tailored solutions that address the unique challenges faced by SMEs in accessing trade finance. While there is still progress to be made, the increased engagement between financial institutions and fintech companies indicates a positive shift towards bridging the trade finance gap in Africa. The collective efforts of stakeholders in the trade finance ecosystem, including commercial banks, development finance institutions, and fintechs, are essential in building a robust financial ecosystem that supports intra-African trade. By leveraging technology and data-driven solutions, Africa can enhance financial integration and ultimately drive economic growth and prosperity across the continent.