Greater levels of trade will fuel Africa's growth but companies need to be better positioned to seize the opportunities by improving their working capital management capabilities and access to finance to fund these opportunities, says Standard Bank Group.
Africa's dynamic and ever changing market conditions not only present enormous opportunities but it also constantly threatens the ability of companies to expand and trade to their full potential. The banking industry is evolving and aligning their capabilities towards creating innovative solutions that among other things reduce paper based flows, alleviate credit risk and improve access to financial intermediation that assist in these companies' growth and working capital needs.
"We believe in Africa and want to help create a continent that is better positioned to compete internationally, trade is fundamentally important to that," says Kent Marais, Head of Product Management for Transactional Products and Services at Standard Bank Group.
Prior to the 2007/8 financial crisis, global trade growth was twice that of the average rate of global GDP growth. Since then these statistics have not been matched. Mr Marais is confident that Africa, in particular, has the potential to outstrip even the pre-crisis levels of trade growth seen elsewhere in the world.
But supporting SMEs in the value chain will be critical to optimising trade growth. "Supply chain financing is needed to link buyers and sellers with financial institutions to optimise the availability of working capital between transacting parties. The unmet demand for trade finance is significant and growing. Providing this finance throughout the value chains ensures the wheels of commerce to continue and support job creation," says Mr Marais.
More risk-managed, efficient and cost-effective solutions are needed to facilitate these transactions and services across industries where access to cash and cost thereof can differ greatly.
Mr Marais says trade specific solutions tend to provide a better understanding of the underlying transactions which lowers the associated risk and subsequently the capital needing to be held against those transactions. Ultimately this should result in a more efficient cost to the customer. Corporate treasurers are under pressure to improve working capital life cycles and ensure they have enough cash on hand to effectively operate. Their daily tasks include managing the cash on hand, debtors, creditors and the financing needs in their supply chain, which is getting tougher due to the weak economic conditions.
A major challenge is to improve access to finance, especially for local corporates and SME's. "We want to enable trade and provide finance in a responsible manner. This type of business growth supports employment, greater GDP growth and makes economies more competitive in the global arena," says Mr Marais.
Suppliers or buyers will look at how they can better participate in the entire value chain, which would include looking at opportunities to obtain access to finance that would benefit various participants across the value chain. But the level of sophistication of participation may differ, based on the size of the organisation, their upstream and downstream integration in the value chain, their strategies and ultimately their working capital needs. Bigger companies, for example, would want to support the entire value chain to ensure reliable and sustainable flows. This would include meeting obligations across the entire value chain to support small and medium-sized businesses and thereby helping to ensure it is a fully inclusive value chain.
"As a bank we need to ensure we are providing financial solutions that aim to address the needs of the various participants involved in the value chain, this for example could be the SME involved in the supply side or the large MNC involved in the manufacture and sales side," says Mr Marais. Placing more capital into the system in a responsible manner ultimately ensures the sustainability of the supply chain and parties involved in the process, while correct credit evaluations and support across operational processes are becoming increasingly important as risks of defaults rise. "The risks posed just by flow of documents is a reality as a discrepancy on just one word can see a buyer dispute a transaction and open the entire supply chain to risk," says Mr Marais. Standard Bank is investing in the area of supply chain finance - it is not only making supply chain finance more accessible to its clients, but is also investing in systems to improve processing capability by automating the product offering.
Standard Bank Group has also introduced the first phase of a new automated supply chain solution. The African growth story is on everyone's lips but Mr Marais says that companies that are at the forefront of solution innovativeness will be well poised to capitalise on Africa's growth opportunities.
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