With the right financial support and local market understanding, the African continent could generate a plethora of opportunities for British commerce thanks to its increasingly urbanized population, steady growth rate and expanding consumer base.
According to the World Economic Forum, Africa houses nine of the world’s fastest-growing economies. Its growth globally is due to its provision of minerals and agricultural resources to consumers – i.e. tea, coffee, chocolate, and cotton. But now these economies are growing in tandem with the demand for goods and services, which is quickly setting up the continent as a gateway for exporters from Europe.
Today the African market comprises almost 1.3 billion people, including a middle class that is swelling at a rate of knots. So much so that the extent and speed of this growth have reached a point whereby projections from McKinsey & Company now indicate that the continent will buy more goods and services than Russia by the year 2020. The same projections also show that this would put them just behind India.
But Africa’s seemingly unstoppable industrialization does not stop there. According to the African Development Bank Group, by 2040 projected spending on infrastructure is expected to reach at least $6trn. And, although this would result in a far greater demand for the importing of machinery, fuel, and chemicals, it would also leave a gaping billion-dollar hole in the financing of infrastructure projects that could be as much as $108bn.
To capitalize on these opportunities and drive progress, these companies need help from experts with the right portfolio of risk management skills and local market knowledge
As an increasing number of UK and European-based firms turn to Africa to sell manufactured goods, now, more than ever, with international banks turning their backs on the continent because of perceived high risk, the corporates looking to break into the market need solid financial support to do so. To sell machinery or even services, these firms also need banking partners with decades of continental experience behind them.
Africa is now wide open and primed and ready for the manufactured goods and services created by small to mid-tier companies from the likes of Germany and other European countries. To capitalize on these opportunities and drive progress, these companies need help from experts with the right portfolio of risk management skills and local market knowledge.
After the ink recently dried on the world’s largest free trade agreement (the African Continental Free Trade Area (AfCFTA) agreement) in April this year, this opened the door to the removal of non-tariff barriers and harmonisation of cross-border standards, despite the limitations on unmet trade finance of approximately $90bn per year.
Plainly speaking, this unmet need for trade finance exists because there isn’t enough financial support from external banks. Many banks have stepped back from the continent believing that it’s high risk. To us that is short-sighted; it’s not as simple as high or low risk; it’s about having the expertise to understand and manage the risks involved.
That being said, navigating the African geopolitical and regulatory environment is no mean feat. What helps greatly is partnering with organisations that have access to local expertise from across the continent – something that London-based businesses are quite unique in being able to offer. What’s also essential is finding a partner with a hands-on approach to regulatory requirements, who can ensure that the most robust checks are in place.
With Brexit looming and EU trade plans changing, we are at a point in time when UK exporters undoubtedly have a chance to capitalise on the opportunities presented by booming sectors in Africa. However, long-term success will rely on sustainable, strategic, and prudent relationships with partners capable of honing the right blend of local knowledge and expertise.
Patrick Gutmann is managing director of Corporate & Institutional Banking at BACB.