Addressing Africa’s trade finance gap impossible without digitisation

Africa's trade finance landscape is at a critical juncture, with a widening gap that experts say can only be bridged through digital transformation. Chimenem Nnwoka, the Co-founder and CEO of Breeze, emphasized the necessity of moving beyond traditional practices to revolutionize trade and unlock unprecedented economic potential. In a recent interview with CNBC Africa, Nnwoka underscored the imperative for Africa to embrace digitization as the key to addressing the continent's $120 billion trade finance deficit. The current trade finance deficit in Africa paints a stark picture of the challenges facing the continent. With the deficit steadily increasing from $90 billion in recent years, Africa finds itself lagging behind the global trade landscape, accounting for a mere 3% to 5% of global trade. Nnwoka highlighted the historical significance of trade in driving economic prosperity, referencing past empires and kingdoms whose wealth was intrinsically tied to robust trade networks. He stressed that without tackling the trade finance gap, Africa risks remaining economically stagnant and isolated from global trade opportunities. One of the critical barriers hindering Africa's trade finance sector is the lack of digitization. While the world advances towards digital trade platforms, Africa remains ensnared in manual processes and paper-based documentation. This outdated approach not only hampers access to trade financing but also exposes businesses to risks such as fraud and delays. Nnwoka pointed out that the absence of digitization complicates credit assessments for financiers, leading to biased decisions and suboptimal funding allocations. To remedy this, he advocated for a comprehensive digital overhaul of Africa's trade finance ecosystem, encompassing not only the movement of goods but also the digitization of critical banking processes like letter of credit workflows. Furthermore, Nnwoka highlighted the disparity in bank-intermediated trade finance directed towards intra-African trade and SMEs. Currently, only a fraction of banks' trade finance portfolios benefit small businesses, with the majority of funds channeled towards large corporations. Addressing this imbalance necessitates enhanced credit information systems, transaction de-risking mechanisms, and improved trade finance accessibility for SMEs. Nnwoka shared insights from Breeze's partnership with Inverity, emphasizing the importance of robust data sources in facilitating credit decisions and fostering trust among financiers and businesses. Looking ahead, Nnwoka outlined key sectors poised for growth and investment in Africa's trade finance landscape. He cited agriculture and mining as primary areas of interest due to Africa's abundant arable land and mineral resources. Nnwoka emphasized the value-added potential in these sectors, particularly in processing and manufacturing. With initiatives like the African Continental Free Trade Area (AfCFTA) unlocking new trade opportunities within the continent, Nnwoka expressed optimism for increased inter-regional trade and global partnerships. In conclusion, Nnwoka's insights underscore the urgency for Africa to prioritize digital transformation in trade finance to catalyze economic growth and facilitate global trade integration. As Africa navigates the evolving trade landscape, embracing digitization and fostering strategic partnerships will be instrumental in bridging the trade finance gap and propelling the continent towards sustainable prosperity.