TradeMark East Africa CEO: How to bridge the trade finance gap in East Africa

The trade finance gap in Africa has been a longstanding issue, with a 2019 report from the African Development Bank highlighting that the gap stood at a staggering $81 billion. In East Africa, Kenya leads the pack with the highest trade finance gap estimated at $2.8 billion. To delve into how this gap can be bridged, CEO of TradeMark East Africa, Frank Matsaert, shared his insights in a recent interview with CNBC Africa. Matsaert emphasized the need for various strategies to address this gap, including tackling the high risk perception associated with trade finance, supporting banks to be less risk averse, and leveraging innovations in financial technology (FinTech) to lower costs. Additionally, he highlighted the importance of tailored financial products for key sectors like agriculture, construction, garments, and textiles, as well as the significance of partial risk guarantees to mitigate high-risk perceptions. With the onset of the COVID-19 pandemic, trade has faced significant challenges due to border closures and heightened risk aversion among financiers, further exacerbating the trade finance gap. However, Matsaert underscored the importance of enhancing trade finance to leverage opportunities presented by initiatives like the African Continental Free Trade Agreement. The CEO also discussed the potential impact on inequality, particularly among small and medium-sized enterprises (SMEs) and border communities, emphasizing the need for initiatives like Safe Trade Zones to support informal traders. Addressing the perception of Africa as a high-risk continent for trade finance, Matsaert stressed the importance of better understanding cash flows across different sectors and promoting de-risking products like insurance and risk guarantee mechanisms. He highlighted the need for tailored financial solutions for SMEs and the importance of transparency in buyer balance sheets to attract more investment. The discussion also touched on the varying levels of trade finance supply across different regions in Africa, with East Africa exhibiting lower supply despite higher growth rates compared to other parts of the continent. Overall, Matsaert presented a comprehensive view on how various stakeholders can work toward bridging the trade finance gap in East Africa, highlighting the importance of collaboration between governments, financial institutions, and innovative solutions to unlock the region's trade potential.