The critical challenges in the African ecosystem and how to address it in order to move forward.
After two years of physical disconnect, the moving parts of the African eco-system have the opportunity to come together at GTR Africa. A great opportunity to connect and network – but how can we ensure synergies to implement solutions between these parts when we all go home after the event? It has never been more necessary to have the discussion of how, than now!
The World Bank predicts that the African Continental Free Trade Area (AfCFTA) will boost regional income by $450 billion by the year 2035 and lift 30 million people out of poverty. This environment should be a game-changer for entrepreneurs on the African continent but there are some very real questions about whether the ecosystem for entrepreneurs is primed for this growth.
As an organisation which is positioning itself as the leading Pan-African banking group on the continent, we enjoy some unique insights into the ecosystem on the continent and we see critical challenges which need to be addressed before we can capture the projected growth. Let’s have a look at where we are now, before addressing how we can move forward.
While the Fintech eco-system has been the recipient of some significant investment and we have seen significant transactions concluded in places like Nigeria, Kenya and South Africa. African-focused entrepreneurs have voiced a key concern in relation to the alignment gaps which exist between the physical and financial “supply-chains”.
Consider the textile manufacturing market and trade between Ethiopia and South Africa. These supply chains need to, at some point, integrate in order to bring the entire trade finance ecosystem together end to end. This would make it easy for banks to be able to source data that will assist in providing funding to players in the trade finance space.
In another example, an entrepreneur who imports goods into Mozambique and then looks to move them through Zimbabwe ultimately to Zambia, will face a variety of administrative challenges both in physically moving goods across multiple countries but then also in managing multiple currencies and repatriating funds into their home country.
Until we can cut the red tape and make transacting seamless, we are going to struggle to stimulate intra-African trade unless we can both modernise logistics and financial systems simultaneously.
Big Data-Driven Decisions
Since 2013, blueberry exports out of South Africa have seen substantial growth. In 2013 total exports equated to under 2000 tons while in 2021 exports exceeded 20,000 tons. The demand for “super foods” from the UK has seen the berry industry become an export success story for the country, contributing significantly to the country’s current account.
Leveraging of big data with a focus on emerging trends should steer the decision being made with regards to tariffs, rebates and duties in order to sustain growth over time.
South Africa enjoys significant technology, data and financial services capabilities compared to many of their African peers. If we can’t identify what is happening on the ground in places like Kenya, Ghana and Nigeria, it will be very difficult to make decisions around pricing, supply and demand and the duties that will be payable for each region.
This is an area where Absa is investing substantially in technology and human-capital to help all stakeholders - both internal and external – to make smarter decisions. For clients looking to expand their footprint on the continent, they need to know that they not only have a banking partner who has a presence on the ground but one who also understands the social and environmental, regulatory, logistics, financial and has Access to Market opportunities in the desired market.
Developing the means of production
A key take-away from the Covid-19 pandemic – and more recently the events in Ukraine – is that it is very easy for global supply chains to be disrupted and in turn for emerging markets, like Africa, to become vulnerable.
The automotive sector is a perfect example of this. Countries like South Africa have benefited from major foreign investment by the likes of Ford, VW and Toyota and many jobs have been created through this investment. However, the disruption to the global supply of semi-conductor microchips has stalled new production capabilities.
Africa is a net importer of many goods and does not have sufficient local manufacturing capacity or skills. What should be a growth industry, is suddenly hamstrung due to a global shortage and a dependency on international supply.
Unless the manufacturing capacity on the continent is bolstered through long-term investment, AfCFTA will struggle to create an enabling environment for entrepreneurs who will be at the tail-end of the value-chain.
Manufacturing requires long-term capital commitments and we as banks are working closely with export credit agencies to create opportunities for growth. Development Finance Institutes (DFIs) are investing in incubation to help develop entrepreneurs across multiple sectors – unfortunately all of this takes time.
But … the opportunity is there
While there are very material challenges that the AfCFTA region faces in developing the entrepreneurship ecosystem, it is not all doom and gloom and we are excited about a number of growth sectors amongst our clients.
We are having a number of discussions with multinational technology businesses who want to develop a presence in Africa. US and European investors are excited by the scale of the African fintech story. Sizeable Venture Capital investments over the last 12months are proof of this excitement.
On top of this there are some very obvious success stories from the likes of the Chinese automakers who have come into Africa offering high quality, lower cost motor vehicle options and downstream opportunities for local businesses. Other success stories include agriculture, wine and the afore-mentioned berries exports.
$450 billion in increased economic activity represents a very real opportunity for entrepreneurs in Africa and if we can focus on creating an enabling environment for these entrepreneurs; jobs and economic prosperity will follow.
Absa has committed itself to being the lead Pan-African banking group on the continent and we look forward to working with entrepreneurs who want their slice of nearly half a trillion dollars.
By Mosa Tshabalala, Absa CIB head of FI, sales and risk distribution: trade product, and Kuben Pillay, Absa CIB head of sales, Southern Africa trade and working capital.