Weak commodity prices are taking its toll on trade finance, says BACB CEO

The global fall in commodity prices has not only taken its toll on Africa’s major exporters over the last two years, but the slump has also been a key driver for the withdrawal of international banks out of Africa, said Paul Hartwell, chief executive at London-based British Arab Commercial Bank (BACB).

“Over the last seven to eight years, the volume of international trade finance has grown steadily but with the recent fall in commodity prices the value of this has fallen,” he said. “This has restricted the amount of trade that people can afford to do, and because of this the business of doing trade finance globally as well as in and between emerging economies has become riskier.”

 Declining growth and risk perceptions in emerging market have increased, leading to some of the larger international banks pulling withdrawing from Africa, according to Hartwell. Most notably, Barclays Bank is still looking for a buyer for its African operations, and in October, the bank offloaded its Egyptian business to Morocco’s Attijariwafa Bank.

“Société Générale, Credit Agricole and BNP Paribas are either pulling out or making local subsidiaries stand on their own feet without group support,” Hartwell said. “Large international banks are geared to doing high volume, vanilla transactions in and between developed markets, predicated on well proven legal economic documents and framework.”

Global commodity prices took a tumble towards the end of 2015, in large part due to China’s dwindling demand for natural resources. As a result, economic growth in Africa’s major commodity exporters has fallen.

Nigeria, Angola, Ghana and Zimbabwe are just some of the countries that have suffered, with some of them making huge adjustments to their budgets. In August of this year, Nigeria slipped into recession as growth contracted in the first and second quarters. The IMF projects that Nigeria’s growth will be at -1.8% for 2016.

Small and medium-sized enterprises (SMEs) across the continent are bearing the brunt. According to the Africa Development Bank, there is a $120bn funding gap for SMEs in sub-Saharan Africa.

“SMEs drive economic growth and if they can’t get access to finance, growth stagnates,” said Hartwell. “But for us, supporting SMEs and facilitating trade finance in Africa is where our expertise lies. For us, this is a huge opportunity.” 

 You can read more about British Arab Commercial Bank and trade finance in the Q1 2017 edition of African Banker out in January.