Winds of change sweep through Africa’s finance sector

Trade finance in Africa is
changing fundamentally
with some key players exiting
the market and new models
developing.
According to Steven Gamble,
a director at Norton Rose
Fulbright Africa, this seems to
be the case for banking finance
in general on
the continent.
“We
have seen a
number of
key players on
the continent
who have
been active for
decades exiting
the market,”
he said. “New
sources of
finance are
required on the
continent. We are likely to see
greater innovation and more
hybrid transactions as shadow
banking or non-bank finance
players enter the market.”
He believes it will be a
key trend that will continue
for some time – particularly
given the increasingly difficult
regulatory world being
encountered.
“Banking generally is
becoming more difficult, with
increasing regulation affecting
the less developed world
markets disproportionately.
There is certainly a “flight
to quality” by international
banks,” he told FTW. “The
main dangers we see.
particularly for African
participants, are the costs
and risks of
increasing
regulation
that are
making certain
relationships,
in particular
with smaller
traders active
in countries
deemed risky,
no longer
worthwhile for
international
banks. Not
only are new clients not even
considered, but existing
relationships are being
terminated.”
He said Basel III was
making finance more
expensive. “Multilaterals are
responding to this challenge
by augmenting their offer of
products that are designed
to address this problem such
as guarantees to upgrade
credit ratings. They are also
looking at conditional sale type
structures with clients to avoid
the traditional debtor/creditor
relationship.”
Trade finance experts agree
that in Africa financing models
will have to change in the
future. It is understandable
that development finance
institutions (DFIs)
that have played a
significant role
in financing
transactions cannot
meet the everincreasing
demand.
With expectations
of the Africa-rising
narrative set to
continue, the playing
field is changing.
Different growth
rates and foreign direct
investment in different
parts of
Africa will increasingly become
the norm. Also, as different
countries manage to diversify
their economies from raw
commodities, they will enjoy a
greater share of this growth.
According to Gamble, all
eyes will remain focused on
East Africa which is
set to continue to
boom through
regional
integration.
INSERT & CAPTION
We are likely to
see more hybrid
transactions as nonbank
finance players
enter the market.
– Steven Gamble