“There are a number of issues at play particularly in Africa. After the 2008 global crisis many banks reviewed what their capital and liquidity requirements were and as a consequence of restrictions in both of those areas, restricted what their strategic ambitions were in different regions and as a consequence many pulled back out of Africa,” Standard Bank global head of structured trade and commodity finance Craig Polkinghorne told CNBC Africa on Thursday.
“By way of example, many of the French banks particularly active in energy finance and also soft commodity finance pulled back from Africa. So that has left a gap. Many of the regional banks are picking that up so the South African banks have stepped up in terms of what they do across Africa for trade finance.”
Establishing effective trade corridors in Africa has been a subject of much discussion in recent years and the increase in international banks’ establishing of African bureaus indicates substantial room in Africa’s trade finance sector.
The continent is seeing new players enter the trade and finance sector from Indian and Chinese banks participating in African transactions and significantly, the emergence of trade finance funds.
“Trade finance is a very strategic and important business focus for us in Africa. Trade finance really dominates the African space when it comes to predominantly all banks operating on the continent. This is largely predicated by the growing intra-regional trade flows between countries,” said Suresh Chaytoo, the sector director of banks and financial development Institutions at Rand Merchant Bank.
“Borders are starting to open up and we’re seeing a substantial amount of intra-regional trade flows between countries.”
Intra-Africa trade is, however, still significantly low. According to UNCTAD, the average share of intra-Africa exports totalled 11 per cent from 2007 to 2011.
Eastern Africa intra-trade figures for the same period were recorded at 13.9 per cent for exports and 12.7 for imports. Southern Africa’s export figures were at 2.1 per cent and import figures were at 7.9 per cent. West Africa recorded 9.0 per cent of exports and 10.2 of imports.
Europe’s figures were the highest compared to Africa, Asia and America, with intra-trade figures for exports at 70 per cent and imports at 64.4 per cent.
“When it comes to bank risk, all the banks who are regional are operating and growing the amount of trade portfolios in terms of intra-regional trade risk. More importantly, we’re starting to see big growth out of India, out of China from an export propensity perspective, which means there are a lot more opportunities in Africa for us to look at structured trade and commodity financing,” said Chaytoo.