Is Intra-African trade the key to sustainable economic development in Africa?

Intra-African trade has long been touted as the key to sustainable economic development in Africa, yet challenges persist in the realm of trade finance. Total merchandise exports by Africa currently stand at US$555 billion, with only US$98 billion coming from intra-African trade. The disparity in these figures highlights the need for increased focus and attention on fostering trade within the continent. Joined by Hogan Lovells' Partner, Lodewyk Meyer, CNBC Africa delved into the challenges faced in trade finance in Sub Saharan Africa and the opportunities for growth and development in this crucial sector. Meyer emphasized the importance of innovative credit products, de-risking techniques, and the need for more access to financial services at a local level to bridge the existing gap in trade finance. One of the key challenges highlighted during the discussion was the lack of intra-Africa financing transactions, with a significant portion of financing coming from outside the continent, particularly for outbound African transactions. While some inbound Africa transactions do occur with countries like China, India, the US, and Latin America, the volume of intra-Africa transactions remains low. The volatility in commodity prices and global markets further exacerbates the challenges faced by local traders and exporters. Meyer pointed out that the ability of local traders to source hard currency locally to support their trading activities is crucial, especially in the face of dollar exposure and foreign exchange risks. As a result, the cost of hedging against these risks in volatile markets can be prohibitive for traders. However, there is a glimmer of hope on the horizon, with alternative suppliers of finance entering the market and providing much-needed dollar liquidity to both local consumers and regional banks. These alternative capital providers offer a lifeline to bridge the gap left by traditional banking institutions that have been de-risking. The shift towards alternative sources of finance signals a changing landscape in the trade finance industry, with new opportunities for collaboration and growth. Despite the challenges, Meyer expressed optimism about the potential for innovation and development in the trade finance sector. He stressed the need for more innovative credit products tailored to African traders, highlighting the role of development finance institutions and local banks in driving this change. Traditionally, credit availability for traders has been tied to the intrinsic value of commodities being traded, but Meyer emphasized the need to move away from this outdated model. Instead, de-risking techniques such as analyzing the trader's supply chain and off-takers can provide a more holistic view of creditworthiness, particularly for traders with weaker balance sheets. From a legal and regulatory perspective, Meyer called for increased innovation and access to products and services at a local level to meet the growing demand for trade finance solutions. By fostering a more conducive environment for trade finance innovation and collaboration, African countries can unlock the full potential of intra-African trade and drive sustainable economic development across the continent.