‘Optimistic’ sentiment for 2020
• African countries, however, need to improve road infrastructure across the continent to realise full benefits
Trade tariff wars, uncertainty around Brexit and a slowdown in global GDP growth combined to ensure a tough year for trade in general during 2019. The start of 2020 has been marred by the spread of the Coronavirus which is anticipated to have a longerterm impact on trade flows out of China.
Despite these issues, sentiment around international trade for the year ahead is cautiously optimistic, says Vinod Madhavan, Head of Trade at Standard Bank Group. “We expect to see increased rates of digitisation and more efforts made to establish focused trade corridors. The expectation is that the African Continental Free Trade Area (AfCFTA) will go live as planned in July 2020, in the process creating the largest trading block globally, since WTO. This could potentially mean a seismic change for trade in Africa,” he says, adding that the bank is working closely with regulators and clients to ensure it is well positioned to realise the benefits of AfCFTA.
From a sub-Saharan Africa perspective, there has been an easing of trade barriers to stimulate much needed economic growth in the region, reveals Thandiwe Legwaila, Head of Trade at Standard Bank South Africa.
“Despite the fact that SA is not expected to grow much beyond 0.9% in the year ahead — and even that figure could be overly optimistic — the major oil markets in the region, including Nigeria, are seeing good growth. We expect that AfCFTA will open up numerous opportunities for local exporters and make it easier for them to move goods into the region.”
African countries, however, need to improve road infrastructure across the continent to realise the full benefits of AfCFTA. Legwaila believes the political will to address the challenge of transport infrastructure does exist. Encouragingly, a number of projects have been greenlighted to improve road infrastructure with the aim of creating trade corridors.
“The removal of trade tariffs, one aspect of AfCFTA, will stimulate trade flows although the real impact of the agreement will only be felt in three to five years’ time,” she predicts.
It is expected that as more private enterprises come on board to support the vision of AfCFTA, this will augment political will, says Madhavan.
He believes the agreement will solve some of the intractable problems that have existed around intra-African trade in the past, including levels of intra-continental trade which are significantly lower than other continents. “Growth of intra-African trade could go some way towards addressing SA’s unemployment problem,” he says.
The China-Africa trade corridor, in particular, has huge potential for both the continent and SA, says Madhavan. “Ironically, the more the US and China don’t see eye to eye on trade, the more it plays into our court locally.”
Predicting lower first quarter growth emanating from China as the Coronavirus impacts trade flows, Madhavan says the situation will rebound in the second quarter. “SA is well placed to realise value from that rebound.”
He says the bank has created opportunities for its clients by assisting African importers source and validate quality goods safely and efficiently from competitive suppliers in China and helping African exporters to find buyers in China by leveraging its partnership with ICBC, currently the largest bank by assets globally.
Digitisation, he adds, will become a key enabler of increased trade flows, primarily by reducing friction in trade, making it easier to find buyers and sellers, easing the financial supply chain and reducing operational inefficiencies such as ensuring certificates of origin are issued more quickly.
“Traditionally, only physical documents have been recognised as transferable records in international trade. That’s all going to change with increased digitisation and national laws will have to be amended in order to give recognition to electronic records. This will allow banks to execute trade finance much more quickly than in the past, while at the same time allowing for full visibility to all relevant parties throughout the trade process,” says Legwaila.
Far from competing with financial institutions offering trade finance facilities, Madhavan says fintech companies should be regarded as partners. For its part Standard Bank has partnered with Traydstream, a fintech provider which provides innovative solutions that leverage disruptive technology, for example, to check documents for discrepancies.
“Essentially, it’s about using machine learning and optical character recognition (OCR) technology to augment human expertise,” he says.
The first decade of this century were the heydays of economic growth, characterised by, for example, high oil prices. The second decade was a period of re-calibration, says Madhavan, as African countries realised that the pool of funds was not endless and as disruptive technologies started coming to the fore.
“The current decade will see a number of economies bottoming out and changing business models as disruptive technologies become increasingly more prevalent. In this environment, unemployment will continue to be a problem, particularly for SA, which is concerning.”
He adds: “Increased intracontinental trade — while not a total panacea — has the potential to drive growth in Africa which will go some way towards creating more jobs, reducing inequality and ensuring a better future for the continent’s citizens.”