In Africa, sources of trade financing are often limited, difficult to access and expensive. Image: Waldo Swiegers / Bloomberg

Absa secures R2.64bn in trade-financing facility from UK body

The deal with British International Investment Plc aims to help ease the trade financing gap in Africa estimated at between $100bn and $120bn.

28 Oct 2024, 08:20 by Loni Prinsloo, Bloomberg · Moneyweb

South African lender Absa Group secured a $150 million trade financing facility with the UK’s development finance arm to boost small businesses in the continent.

The deal with British International Investment Plc aims to help ease the trade financing gap in Africa estimated at between $100 billion and $120 billion. The funds will be used to provide liquidity to small- and medium-sized businesses in Africa in sectors such as agriculture and health care, said Mosa Tshabalala, Absa’s head of fixed income trade sales.

“Absa and BII have been working together for the past five years to provide much-needed trade liquidity in countries such as Nigeria, Kenya and others to support over $1 billion in trade volumes,” Tshabalala said in response to questions.

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“This partnership has now been extended through the provision of a $150 million investment to Absa, ring-fenced and purposefully designed toward markets where there is high need for trade finance but not as much coverage from other commercial sources,” he said.

Trade financing refers to funds needed to buy and sell goods across borders. Third parties step in to cover costs such as shipping, insurance and raw materials, until a sale is made and payment received, providing funds or payment to the exporter, while the importer might also be extended credit to fulfill the trade order — making it far easier for businesses to trade.

In Africa, sources of trade financing are often limited, difficult to access and expensive. In many cases, the absence of trade financing has curbed Africa’s ability to scale cross-border trade and develop additional economic integration. Banks teaming up with development finance institutions, make it easier and cheaper for all parties involved to provide the necessary funds for cross-border trade.

The gap in trade financing of up to $120 billion was driven by the outbreak of the Covid pandemic, Russia’s war in Ukraine and supply chain disruptions in the Middle East, among other factors, said Tshabalala. With the current transaction with BII, Absa is able to support a larger client base and help claw back some of that gap. The parties are currently in talks on how to drive “specific initiatives for certain markets across the continent.”

Absa provides products and services in twelve African countries and three international offices, according to its website. “Our presence across the continent, combined with our global reach, enables us to facilitate the flow of capital and trade finance that African businesses need to scale and compete internationally,” said Absa interim chief executive officer Charles Russon.

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