Financing Africa’s trade

Financing Africa’s trade

Membership of the Prague Club was later extended to Africa but commercially viable risk protection and medium- or long-term credit is still very rare in parts of the continent. Trade finance is likely to take much longer to take root in sub-Saharan Africa than in Eastern Europe because there is relatively little manufacturing and industrial capacity: these two sectors have traditionally made most use of trade finance.

Many of Africa’s most important sectors do not need to make use of medium- or long-term export credit. Rising exports over the past decade have not been hindered by the lack of credit because commodities such as oil, gas, copper, bauxite and iron ore dominate exports. Oil is normally sold under a system of spot trading, while natural gas is sold under marketing deals lasting 10 or 20 years.

Nevertheless, the Berne Union and other international financial organisations are seeking to promote an export mentality in Africa. There are now 79 companies among the combined memberships of the Berne Union and Prague Club, so most countries are without a member. In 2012, the members of the Berne Union alone insured $1.8 trillion of exports and foreign direct investment, accounting for about 10.5% of total international trade.

Export credit agencies have been very active since the global financial crisis of 2008–09, indemnifying about $22bn for exporters and investors, protecting them from losses suffered due to buyer defaults in all regions of the world.

African export credit agencies
There are two African members of the Berne Union: African Trade Insurance Agency (ATI) and Export Credit Insurance Corporation of South Africa (ECIC SA). There are also three African members of the Prague Union: BECI Botswana, Export Credit and Guarantee Company (ECGE Egypt) and National Agency for Insurance & Finance of Exports of Sudan (NAIFE Sudan). Credit Insurance Zimbabwe Limited (Credsure) was previously a member of the latter.

ATI, the only cross-border African export credit agency, was set up by Common Market for Eastern and Southern Africa (Comesa) member states in 2000. Its membership comprises Burundi, Eritrea, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda and Zambia.

A specific aspect of ATI’s operations is that member states directly assume financial liability for the political risk losses that could affect trade within their own countries.

For the past decade, it has offered cover against terrorist-related physical damage risks and now works alongside the Multilateral Investment Guarantee Agency (MIGA) to promote investment in Africa, including via risk-sharing agreements on reinsurance and coinsurance projects.

Some members of the Berne Union also set up operations in likely supplier countries to gain what some in the industry describe as ‘buyer information’. This provides data on local risk that can then be used to set credit limits.

Canadian trade finance agency, Export Development Canada (EDC), is to open a Johannesburg office next year to serve African deals.

Canada’s minister of international trade, Ed Fast, says: “South Africa is Canada’s most important commercial and political partner in Africa and is the only country in Africa – and one of only 20 around the world – to be identified by our government’s recent Global Markets Action Plan as an ‘emerging market with broad Canadian interests’. When most Canadian businesses look to South Africa, they think it’s impossible to trade with it. The EDC will change that.”

South Africa’s President Zuma has called on Canadian companies to invest more heavily in African mining and infrastructure projects.

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