Standard Bank, Africa’s largest Bank by assets and market capitalisation, is seeing a continuation of demand for its services from international commodity traders and rapidly expanding regional and local businesses in Africa. This follows the withdrawal of several global lenders from the continent in the wake of the global financial crisis.
The pull-back forced on global banks by the global economic slowdown, the European debt crisis and tougher capital requirements on international banks is occurring at a time when Africa’s trade continues to grow across a broad front of geographies and sectors. This issue was unpacked at the 6th annual East Africa Trade and Commodity Conference held in Nairobi, Kenya, from May 22-23, 2014.
“The financing gap left by the European banks continues to manifest itself but we believe this provides an opportunity for Pan African banks such as Standard Bank to step into the breach,” says Gwen Mwaba, Standard Bank’s executive vice-president, Structured Trade Finance, who was speaking on the side-lines of the conference, which is widely accepted as the most important annual gathering of influential business leaders and trade finance practitioners in East Africa.
“Standard Bank aims to be the bank of choice in Africa and given the number of new clients we’re on-boarding, particularly in the oil and gas sector, we expect the demand for locally-grown banking services to help propel us into that position.”
The scale of the trade finance opportunity in Africa is significant considering that the continent’s total exports alone grew to US$498-billion in 2013. The tightening of global credit availability due to the withdrawal of traditionally dominant international financiers has forced African businesses, particularly those engaged in global trade and regional expansion, to turn to domestic banking institutions for their financing needs.
Her views come as exports from key East African countries (Kenya, Tanzania, Uganda, Rwanda and Burundi), ranging from soft commodities (such as tea, coffee and grains) to natural resources (such as oil and metals) reached about US$12,5-billion in 2013. Mwaba says a significant driver of this growth has been the rise in intra-African trade, which is growing at 9.1% p.a. currently.
“There’s significant opportunity to support a lot of intra-Africa and intra-regional trade at the moment,” said Mwaba. “A lot of our East African clients are expanding beyond their home bases into their neighbouring countries and this is helping to boost regional trade in all the major economies of the region, but particularly in Kenya, Uganda, Rwanda, Burundi, Tanzania and the Democratic Republic of Congo.”
The advantage that many African banks enjoy over their international competitors is not only local knowledge but also their increasingly stronger balance sheets, the necessary capital and liquidity, sufficient risk appetite and competitive funding costs. This has created a huge opportunity for Pan African banking institutions to be more creative in providing trade finance solutions to their clients.
Mwaba says that while the East African trade finance landscape is currently dominated by oil and gas as well as agricultural commodity transactions, the growing need for power and energy generating equipment is fast emerging as an additional financing opportunity.
With many African countries boosting imports of capital equipment for investment in their physical infrastructure – ranging from energy to transport and communications networks – there is significant opportunity for funding solutions to be made available.
“Many African countries are trying to encourage Independent Power Producers to enter their markets to boost the supply of electricity and this creates a natural demand for trade finance to support the huge capital good import requirements that comes with this capital expenditure,” says Mwaba. “The same goes for machinery imports, equipment needed to boost road, rail and water infrastructure as well as renewable energy projects.”
