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Solving the African Import-Export Problem

Trade finance in Africa is like finance everywhere else, except for one detail. There are two major legs of any export: from production source to port, and from port to foreign destination. The inland leg is fairly easy in the developed world, but rather more complex within Africa. Likewise, for imports: local banks generally cannot tie up their capital for the period of time it takes for an order to be produced elsewhere to be then shipped for settlement against shipping documents.

One bank CEO in West Africa told me that their bank would finance commodity movement from the interior to the port only for the very largest customers. This is understandable, as local African banks are rarely well capitalized, and cannot tie up money very long for most clients.

The Exporter Solution

The next tier of traders may best be served by private groups specializing in trade finance throughout Africa. It's more common for the financier to fund upon receipt of the cargo at the loading port. But there are some funds that can finance from secure spots in the interior once they have control of the cargo.

The Importer Solution

The same issue that hinders exporters also hinders importers, whose banks will find it difficult to tie up capital for the several months required for the supplier to produce goods, ship them, and submit shipping documents. We have access to letter of credit facilities that allow the importer to initiate the order based on assurances that they will settle the import transaction against provision of copies of shipping documents by the supplier.

The Processing Solution

There's another gaping hole in the infrastructure that will allow businesses on the African continent to capture more of the profits from raw products produced on the continent. African traders generally buy from inland suppliers and ship their products to factories, often in Asia, who process the product for consumption and further sale to consumer countries. A broad network of factories in Africa to do that processing is still lacking. This is significant, because the margins in processed commodities are much higher than the skinny margins captured by trading the raw product.

We have the beginnings of a solution for this. Feel free to reach out if this of interest to you. We hope to help African entrepreneurs capture greater financial benefits from their native products, rather than shipping the profit opportunity to someone else.

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