Magazine article International Trade Forum

New Directions For: African Financial Services: Debates Thrive between African and Developed Nations over a "Marshall Plan" for Africa, Debt Cancellation and Support for Small Firms. to Ensure Competitiveness, Africa's Own Financial Institutions Must Point the Way in Supporting Trade and Investment

Magazine article International Trade Forum

New Directions For: African Financial Services: Debates Thrive between African and Developed Nations over a "Marshall Plan" for Africa, Debt Cancellation and Support for Small Firms. to Ensure Competitiveness, Africa's Own Financial Institutions Must Point the Way in Supporting Trade and Investment

Article excerpt

As we enter an era in which it seeks to increase its share of global trade with traditional and emerging partners, Africa must develop new strategies to avoid being left behind. For trade, Africa's over-reaching challenge is replacing its reliance on commodity exports (oil, precious minerals, cotton and various other cash crops) with the manufacturing and export of finished goods and providing globally competitive services.

Transforming economies

Unique among services, the financial sector has the largest capacity for transforming economies through increased trade and investment. Ignoring the potential of Africa's varied financial sectors also disregards the largest dedicated source for growth on the continent.

The demand for trade finance in Africa far exceeds supply from commercial or non-commercial sources, foreign or local. Paradoxically, in many African markets, capital is not in short supply. For example, in the single-currency, eight-nation West African Economic and Monetary Union, over US$ 2 billion in excess liquidity lies dormant in the central bank.

Neither trade nor investment will grow sufficiently without an innovative and competitive regional financial sector that provides efficient access to structured capital. Ultimately, traditional notions of development assistance ignore or even supplant the regional financial sector.

African banks can fill the gap

The commercial banking sector across Africa is dominated by the affiliates of European global banking corporations whose core business is short-term trade finance of commodity exports. African banks, on the other hand, have a vested interest in filling the gap in the supply of trade finance to underserved sectors. These include unconventional long-term, value-added or smaller-scale trade deals.

For example, countries that produce crude oil but do not refine it can find markets in neighbouring non-oil producing countries with refinery capacity. Countries that produce cotton, such as Mali, can export semi-finished garments to neighbouring economies to finish them for re-export through strategically located ports in Ghana, Mauritania or Senegal that have quick access to the West.

Other countries have the ability to produce advanced housing construction materials for export. Still others have the benefit of financial markets and institutional capacity to issue mortgages.

Mitigating risk is key

What strategies and skills must African banks possess to pursue new classes of deals that the global banks reject systematically? The key is in achieving new levels of proficiency in assessing and mitigating risk. …

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