Deutsche Bank Partners with British International Investment for Trade Finance in Africa
Deutsche Bank has announced an exciting collaboration with British International Investment (BII) that aims to bolster trade finance in Africa, particularly in its most challenging markets. This marks Deutsche Bank’s first formal partnership with BII, culminating in a significant US$150 million risk-sharing programme designed to enhance financial access for businesses in the region.
The Partnership Framework
The framework of this partnership is outlined through an unfunded master risk participation agreement. Under this arrangement, BII will provide a backstop to ongoing short-term financing supplied by Deutsche Bank. This collaboration utilizes an extensive network of local financial institutions across Africa, thereby optimizing resource distribution and financial backing for trade initiatives in the region.
Targeting Africa’s Least Developed Countries
The partnership was unveiled during the recent GTR Africa event in Cape Town. It focuses on the continent’s least developed countries as defined by the United Nations, including Zambia, Ethiopia, and Rwanda. These nations often struggle to attract investment and face significant barriers in securing trade financing. The initiative aims to close the existing financial gap and stimulate economic activity by channeling essential resources into these underserved markets.
Bridging the Trade Finance Gap
According to the African Development Bank, Africa faces an estimated annual trade finance gap of at least US$100 billion. Most existing liquidity gravitates toward larger, more stable economies, leaving smaller and riskier markets overlooked. BII points out that this trend limits trade financing options for businesses operating in these vulnerable markets. The new programme is set to redirect capital flow, enabling greater trade volume and financial support in some of Africa’s hardest-to-reach areas.
Challenges Faced by African Companies
Ndaba Mpofu, BII’s managing director and head of financial services debt and trade finance, outlined the ongoing struggles in the trade finance landscape. Many African businesses often find themselves compelled to operate on a cash-covered basis, which ties up working capital for extended periods. This situation inhibits their ability to import products efficiently and manage their operations effectively. By extending financing options and improving working capital cycles, the partnership aims to empower local businesses to thrive amid these challenges.
Proven Success of BII’s Programmes
BII has a proven track record, having supported trade activities worth over US$30 billion since 2015. This partnership with Deutsche Bank is particularly noteworthy, signifying the first of its kind between the two entities. Mpofu emphasized that the alignment of interests between the banks offers an opportunity to reach markets with tailored trade finance products more effectively.
Diverse Trade Finance Offerings
Anand Jha, Deutsche Bank’s global head of trade finance financial institutions, highlighted that the program will offer a range of trade finance products aimed at increasing accessibility. He observed that many banks in frontier markets often take a narrow approach, concentrating mainly on traditional products like letters of credit and guarantees. Deutsche Bank, however, views these offerings as just the starting point. The goal is to explore more innovative financing solutions, such as supply chain finance and export credit agency (ECA)-backed financing.
Long-term Growth Perspective
Deutsche Bank believes that many corporate clients view Africa as a significant long-term growth frontier. Jha remarked that while businesses may not see immediate gains in the region, they consider it a strategic market for the next two or three decades. This perspective underscores the importance of the partnership in addressing regional nuances and specific requirements to better support clients exploring opportunities in Africa.
Through this partnership, Deutsche Bank and British International Investment aim not just to provide financial support, but also to rethink and reshape the trade finance landscape in Africa. By working together, they hope to create more robust pathways for economic development in the continent’s most underserved markets.
