According to the World Bank Group, over a billion people in different countries have been lifted out of poverty through open trade policies. This could have been more, but the trade finance gap has constantly clogged the wheel of global trade productivity. This is particularly true for countries and businesses in Africa.

Simply put, the trade finance gap is the vacuum between unmet and fulfilled demand for trade funding. Trade, whether in the form of goods or services, requires working capital. The unavailability of this capital to all categories of businesses creates the trade finance gap. Globally, the trade finance gap is pegged at $2.5 trillion; the figure sits at around $120 billion in Africa.

Over the last decade, trade experts and professionals have deliberated on how to close the trade finance gap. At the 51st Annual International Trade and Forfaiting Association’s (ITFA) Conference in Singapore, Gwen Mwaba, the Managing Director for Trade and Correspondent Banking at the African Export and Import Bank (Afreximbank), shared her thoughts with Mahika Ravi Shankar, Deputy Editor at Trade Finance Global (TFG).

How to solve the trade finance gap within Africa

Closing the trade finance gap in Africa requires taking a leaf from the continent’s Ubuntu Philosophy. Ubuntu, which roughly translates to “I am because we are,” is a school of thought emphasising empathetic and collaborative problem-solving approaches. Mbawa looks at the trade finance gap in Africa through the same lens. She said, “It’s quite clear that no single institution can solve the problems of this trade financing gap on its own, and collaboration becomes key.” It’s led to consortiums of trade industry shareholders, including multilateral development banks (MDBs), coming together to address the issue.

Considering their political and financial powers, international organisations are best positioned to address the trade finance gap. Here’s how they can make it work: 

1. Capital pooling: The burden of closing the trade finance gap is too herculean for one bank. Thus, there is a need for collaboration between multilateral development banks and other financial institutions. For instance, in 2024, the Afreximbank partnered with the Islamic Trade Finance Corporation (ITFC) to create a $250 million facility to promote trade between African and Arabic Countries. Pooling capital together will help increase the number of business beneficiaries and boost impact. 

2. Joint trade facilitation programs: Closing the trade finance gap goes beyond making capital available. It also involves training and preparing businesses to be fundable. MDBs can combine efforts to ensure that African companies adopt practices and standards that can improve their scalability. Workshops and seminars should be conducted to educate business owners, especially SMEs, on how to leverage tools like AI and navigate trade-related laws and policies. MDBs are well-equipped to provide these programs, considering they employ some of the best trade experts and specialists.

3. Sector-focused programs: Another way MDBs can close the trade finance gap in Africa is by weaponising the uniqueness of the continent. Over 60% of the continent’s population is under the age of 25, while about 24% are female entrepreneurs. These figures are the highest globally, giving the continent a unique advantage.  Considering the high numbers, it is safe to assume that a large percentage of the continent’s trade finance gap is from this sector of its population. A trade finance program designed specifically for young people and women entrepreneurs will go a long way in helping to close the trade finance gap. As Mwaba summarised, “We can’t finance them how we finance large corporates or larger SMEs.”

4. Sponsoring infrastructural projects and innovation: Digital infrastructures must be leveraged to build companies that can compete globally; unfortunately, in most African countries, this is lacking. One of the ripple effects of this situation is that it makes it difficult to build businesses that can attract and secure funding. MDBs can address the trade finance gap issue by building infrastructure to inspire business growth. When these infrastructures, such as high-speed internet connections and entrepreneurial incubators, are put in place, entrepreneurs on the African continent will build businesses with better chances of attracting funding. 

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The potential of the African market continues to grow over the years. The emergence of the AfCFTA has inspired a brewing momentum for development. However, the trade finance gap on the continent leaves much to be desired. Major stakeholders such as multilateral development banks need to take action to ensure that the trade finance gap is closed and the African economic growth dream becomes a reality.