Johannesburg
Sub-Saharan Africa trade flows are facing headwinds from weaker commodity prices, but because market performances will vary across the region, demand from corporates for transactional and trade financing solutions are on the rise, says Standard Bank, Africa’s largest lender by assets.
Vinod Madhavan, Head, Transactional Products and Services, South Africa at Standard Bank Group, says while growth and trade have slowed, the future projections remain strong despite the challenges.
“Although there are some testing times ahead, there are still a number of unique opportunities across the continent,” said Madhavan. “Our growth rate for sub-Saharan Africa is still one of the fastest in the world.”
The International Monetary Fund (IMF) cut sub-Saharan Africa’s growth forecasts to 4 percent for this year and 4.7 percent for next year in their report in January, off prior expectations of 4.3 percent and 4.9 percent respectively.
What is becoming ever more important is the ability to understand the regions and countries in which trade is being done more closely so that corporates and financial institutions can navigate the risks and seize the opportunities when they arise.
Globally, risk has two aspects, real risk underpinned by fundamentals and “perceived” risk. “When looking at data points about Africa from the outside, the level of perceived risk will certainly be higher than those levels of risk as perceived by someone who is on the ground and understands the local nuances and fundamentals,” said Madhavan.
However, due to the high perceived risks and also the real risks caused by the fall in commodity prices, Africa faces the challenge of foreign institutions and investors de-risking their African exposures.
“Falling commodity prices are real and there is a belief commodity prices will continue to remain at subdued levels, which does create fiscal stress for our countries. But any de-risking that takes place in these conditions does not mean the financial system will halt, rather it creates opportunities for others,” says Madhavan.
In his view there is “almost a moral obligation” for regional African banks to step in and fill the gaps created by the de-risking.
“There is certainly an opportunity for regional and local banks, but apart from local banks who know the markets best, there is also a role for government in the various markets to encourage change by ensuring policies support the growth of local markets and financing,whereby more public private partnerships are encouraged,” said Madhavan.
In current conditions, risk mitigation and meeting compliance standards will be even more crucial than before. This is why Standard Bank is seeing growing demand for tailored and bespoke transactional and trade finance solutions.
“You can only truly pick up risk if you are on (or) close to the ground in Africa with local understanding. Closer ties and trust helps a bank like Standard Bank, with its large footprint across 20 countries, take a more informed view on risk and thereby support our clients to get through the storm and achieve their growth objectives,” said Madhavan.
“A strong footprint and sector expertise in each of the different countries is at the heart of the solutions most needed in Africa, right now. This is the key to supporting businesses on their long-term growth journeys in Africa,” he said.