Market optimism has positive impact
• SA, and Africa in general, will enjoy growth in trade, writes Alf James
Unlike the past decade the sense of optimism in 2018 is palpable with the IMF increasing the global GDP forecast by 20 basis points for 2018-19 to 3.9%, according to Vinod Madhavan, group head, trade for Standard Bank.
He says more than 120 of the world’s economies, from the US, UK and Germany to emerging markets such as Brazil, Mexico, India and China, are expecting to achieve growth this year. Africa is no exception.
“This optimism is mirrored in SA by the strength of our exchange rate and the way markets and the economy is reacting,” says Madhavan.
However, he says the improved market sentiment has to contend with the following risks: the impact of Brexit; the general trend of de-globalisation; and the headwinds that international trade bodies such as the World Trade Organisation are facing.
Nevertheless, Madhavan believes SA, specifically, and Africa in general will enjoy a growth in trade in 2018, which will have positive consequences.
“Growth in trade is the surest way of addressing poverty and unemployment in emerging economies.”
He says key to sustainable growth in intra-African trade is the tripartite free trade area (TFTA), which is seen as a critical driver of regional growth through a developmental integration agenda on the continent as it will offer exporters preferential access that will provide better terms of trade than currently enjoyed and the development of regional value chains.
Madhavan points out that currently, intra-regional trade on the continent is very low.
“We could double intraAfrican trade and still be below intra-regional trade levels as seen in other regional trading blocs, like Asia. We need to move beyond the creation of the TFTA to actively facilitating trade by working with the national participants through their various chambers of commerce and banking industry in the market.
“However, one of the handicaps to the growth of intra-African trade is access to trade finance. For example, it seems to be easier to access trade finance for companies trading with Europe, the Middle East or Asia than it is for companies trading into Africa.
“Second, it is easier for large corporates to access trade finance than it is for SMEs even though it is the SMEs that, in most instances, need finance more urgently.”
Madhavan contends that the banking sector needs to adapt its trade finance offerings to provide SMEs and intra-African traders with easier access.
“What we at Standard Bank try to do is offer risk management solutions in addition to financing solutions that enable buyers and sellers to trade.
“Despite the depressed market and trading conditions over the past few years in global trade we have seen a growth in demand for trade finance and I would like to believe it is the same for other trade finance institutions.”
Madhavan would like to see attention paid to managing the risks associated with importing and exporting through having an in-depth understanding of credit risk, country risk and operational risks.
“Trade financiers have a clear role to play in working with their clients to manage risks across all those categories. However, I believe that Africa has a perceived risk that is higher than what the actual risk of doing business on the continent is.
“We spend a lot of effort trying to reduce the gap between the perceived risk and the real risk of trading in Africa.”
According to Madhavan, the strength of SA’s financial services sector has helped the country’s recognition as a primary trading and business gateway into Africa.
“Although London and Dubai also position themselves as ‘the’ gateway into Africa, SA is the one nation that can lay claim to being the risk intermediary for trade with Africa, because of its locality, mature financial services industry, leading financial infrastructure, common law and strength of the banking industry.”
He says another aspect of trade that needs promotion is digital transformation.
“Trade has three aspects — the physical supply chain; the financial supply chain; and the documents chain.
“The need for information from banks is driving the digitisation of all three aspects of trade, which reduces the cost of operations and margins of error, and allows for the distribution of risk in a much more efficient manner.”