A lack of understanding of the processes and procedures, as well as how trade finance facilities operate, is the biggest barrier to exporters and importers obtaining trade finance, according to Duane Newman, joint MD of Cova Advisory. He told FTW that despite economic challenges experienced in the country, South Africa’s financial sector remained “solid, dependable and strong”. “Therefore, if exporters and importers do their homework properly, access to trade finance should not be a major challenge, although of course it is trickier with the small, medium and micro enterprise (SMME) sector,” said Newman. He agreed that the lower credit ratings by agencies such as Fitch and Moody’s would mean a “slightly higher” interest rate due to additional risks associated with government corporations facilitating trade finance. “But there financing is available for those who need it,” said Newman. He conceded that while the information around trade financing and export incentives was out there – on the Department of Trade and Industry, the Industrial Development Corporation (IDC) and the African Development Bank websites, amongst others – it wasn’t always easily understandable for those whose day job was not finance. “Then it makes sense to ask for help upfront,” said Newman, pointing out that his company had often been asked to step in after the contract had already been signed and it was often too late to negotiate a better deal. “Every bank has different sets of priorities and it pays to do your homework to try and match your product or service with a bank that has prioritised your sector,” he explained, noting that a mismatched trade finance deal was very expensive. “Matching the wrong product with the wrong bank results in high interest rates whereas the opposite is true as well. If a financial institution sees a low risk profile with potentially high rewards, it could result in a lower financing interest rate,” commented Newman. The current trend banks were looking at as “low risk with high value” were the so-called “green products” – from solar panels to wind turbines, he added.
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If exporters and importers do their homework properly, access to trade finance should not be a major challenge.” – Duane Newman
