Increasing intra-Africa Trade and leveraging international trade corridors; key towards future growth says Standard Bank

As global trade sees continued slowdown coupled with a decline in global economic growth, sub-Saharan Africa has the potential to foster new trade opportunities and expand on existing trade corridors across the continent, according to Vinod Madhavan, Global Head of Trade for Standard Bank Group.

“Although we are seeing several challenges in the global economy, such as the escalating trade war between major economies, ongoing financial turmoil in both emerging and developing markets and a decelerating growth rate, there are a myriad of opportunities for Africa, that can arise out of the current circumstances,” says Mr Madhavan.

One of the key attributes of the slowdown in the global economy is the continued and volatile trade war between China and the US. This was anticipated to have been resolved by the G7 meeting in August this year, only to be faced with volatile tariff movements and trade related sanctions/regulations (before and after the meeting). In addition to the negative impact on secondary markets, this unpredictable turn of events does not augur well for trade sentiment.

Some of the trade related sanctions/measures further increase the burden of regulatory oversight for the banking industry as it requires several additional checks and balances, such as the validation of the source /the content of origin requirements, to be implemented.

The positive arising out of this unfortunate trade war however, is that when the US and China compete in, and reduce trade with each other, it offers countries in Africa the opportunity to conduct more trade with both of them.

The Brexit conundrum also offers African countries the opportunity to identify and expand on new trade corridors with both the United Kingdom and the European Union members.

Another opportunity for emerging and developing markets lies in developing the growing trade corridors that exist. China has realised the value of its trade corridor with Africa and is intent on deriving full value from this relationship. It has increasingly sought to curb the perception that it only exports goods. Last year, in Shanghai, China hosted the first China International Import Expo. This offered exporters from around the world, outside of commodities, the chance to showcase and sell their goods to consumers and corporates in China. This was followed by the inaugural China Africa Economic and Trade Expo in Changsha in June this year, which offered similar opportunities for African exporters and importers.

In addition to the above, the African Continental Free Trade Agreement (AfCFTA) is an idea whose time has come and where traction is critical to unlocking the potential of the African market. The creation of the world’s largest free trade area, AfCFTA, combining a population of 1,2 billion people with a combined GDP of USD 3 trillion will be a catalyst to accelerating the growth of intra-Africa trade.

Impediments to intra-Africa trade include logistics and tariff challenges, and this is what AfCFTA will look to address. Getting this logistical ‘hardware’ right, will facilitate the ease of African countries doing business with each other and enable the development of intra-African trade corridors.

Another theme that needs to be addressed is the diversification of the economy in our markets, the development of manufacturing hubs and of service industries on the continent. As the slowing down of global economies starts to have a direct impact on international trade, the demand on domestic and intra-regional trade will grow; augmented by localisation of supply chains across the African continent.

For the informal African fashion designer, for example, the introduction of the AfCFTA presents the opportunity to increase trade with nearer markets and benefit from the reduced cost of doing business with each other.

Another theme that will benefit and provide impetus towards adoption of the AfCFTA is what is referred to as the ‘software’ of trade i.e., the impact of the Fourth Industrial Revolution, being felt across the banking sector.

Digitisation will enable the movement of cargo across borders in a more efficient manner by assisting with finding counterparties, easing the flow of documents to name a few. The use of cloud computing, data analytics, blockchain, AI and machine learning offer the opportunity to realise risk management, financing and operational efficiencies.

“Standard Bank has been working on multiple fronts in this space,” says Mr Madhavan. “This includes a range of initiatives, from partnering Fintechs who are leveraging Machine Learning, who are leveraging data analytics in connecting buyers and sellers, to developing multiple proof-of-concepts in blockchain aimed at digitising trade documents and payment instruments, easing reconciliations and augmenting existing channels of client instructions, to name a few,” he adds.

Part of getting the ‘software’ right is assuming a sector-by-sector approach, focusing on financial services, communications, professional services, tourism and transport first in phase 1 of AfCFTA, and then moving on to investments and intellectual property in phase 2.

Standard Bank is excited to be working towards increasing traction in AfCFTA, which includes, amongst other efforts, working with the United Nations to set up a forum to ensure that the AfCFTA becomes a living document and that the practical measures that need to be undertaken to achieve its goals are dealt with.

“While the African Union has done a sterling job in bringing the AfCFTA to its current stage, we do believe that it is time for the private sector to get more involved and play a key role in turbo-charging growth of intra-Africa trade,” says Mr Madhavan.

Standard Bank remains resolute on its Africa strategy and will continue to play a leading role in facilitating trade and capital flows between Africa and prominent international trade corridors, as well as between African countries themselves.