Assessing Africa's trade finance flows

Afreximbank, the largest multilateral trade financier in Africa, is on a mission to support and finance both intra-African and international trade. With a focus on improving intra-African trade finance and promoting economic growth on the continent, Gwen Mwaba, Director and Global Head of Trade Finance at Afreximbank, shared the bank's current key strategic priorities and initiatives during a recent interview on CNBC Africa. Afreximbank's strategic approach revolves around two main pillars - the Global Trade Bank, which oversees flows between Africa and the rest of the world, and the Intra-African Trade Bank, which hones in on trade within Africa. The bank is at the forefront of bolstering the implementation of the African Continental Free Trade Area (AFCFTA) by striving to enhance intra-regional trade, currently at a modest 15 to 20 percent compared to other regions like Asia and Western Europe where it stands at a much higher percentage. To bridge this gap, Afreximbank has devised various programs such as an industrialization initiative to establish industrial parks and special economic zones across Africa, focusing on light manufacturing to facilitate trade between different African countries. Moreover, Afreximbank supports companies venturing into Africa through programs like the EPC contractor scheme, which aids in securing contracts in other African nations. Financing is core to the bank's strategy, understanding that uplifting intra-regional trade necessitates funding for companies operating across the continent. Facilitating payments is also a key focus, with the launch of the Pan-African Payments and Settlement System enabling African businesses to trade among themselves using local currencies. Addressing the pervasive trade finance gap in Africa, Gwen Mwaba reiterated the estimated deficit of $90 billion to $110 billion annually, as per the African Development Bank's survey. Despite this, the bank remains optimistic about growth prospects in various industries over the next five to ten years. Rich in resources, Africa holds immense potential in the resource sector, but Mwaba stressed the need to transition from raw commodity exports to value-added goods for increased economic retention. Focusing on supporting small and medium-sized enterprises (SMEs) in Africa, Afreximbank strategizes to close the trade financing gap by exploring alternative financing methods. This includes initiatives like factoring and supply chain finance to penetrate the SME market further. Factoring has been pivotal, with the bank advocating for the establishment of factoring as a product within institutions and developing a model law for factoring in Africa, thus bolstering investor confidence. Supply chain finance, particularly payables finance, enables SMEs to access financing through large anchor buyers, expanding financial opportunities for smaller businesses. In fostering collaborations to enhance trade finance capabilities, Afreximbank has engaged in partnerships with local banks, positioning itself as the correspondent bank for African financial institutions. Offering letters of credit confirmation capacity, the bank aims to onboard 500 banks by December 2026. Additionally, emphasizing the importance of capacity building, Afreximbank will host the annual trade finance seminar in Windhoek, Namibia, from 5th to 8th November 2024, focusing on skills training and knowledge enhancement for industry stakeholders. Gwen Mwaba's insights shed light on Afreximbank's proactive approach in driving Africa's intra-African trade, paving the way for sustainable economic growth and development across the continent.