The Joe Biden administration is eager to start discussing how it can apply its ‘build back better’ mantra to commerce with Africa when it ... virtually hosts the continent’s trade ministers this week. For their part, America's African partners want to make sure that Washington doesn’t bulldoze their two-decade-old, duty-free access to the US market in the process.
The agreement, which will allow trade finance letters of credit to be issued via Blockchain, is set to become operative in the coming month, Madhavan says in Johannesburg. The potential exists to extend the accord beyond ASEAN, he adds.
Africa’s need for trade finance is poised for growth. The International Chamber of Commerce (ICC) 2020 global trade finance survey shows growth in African trade finance demand was predicted by 75% of the respondents, a higher rate than for any global region except the Asia Pacific. Dltledgers in March signed a three-year agreement with Eastern and Southern African Trade and Development Bank (TDB) to scale up African trade finance via Blockchain.
In the same month, Morocco’s state-owned OCP Group became the first African company to carry out an intra-African trade finance transaction using Blockchain, when it agreed to export $270m worth of phosphate fertiliser exports to Ethiopia in a deal facilitated by TDB.
Traditional trade-finance transactions usually take over three weeks to complete, according to the TDB, which adds that Covid-19 disruption has extended that timeframe to up to six weeks.
- Blockchain reduces the paper-based manual processes needed in trade finance, meanings agreements can be signed faster and at lower cost.
- According to the ICC, Covid-19 is significantly reducing and may even eliminate paper use in trade finance.
- Still, the ICC says, banks globally have not yet seen much support from authorities to help them shift to digital platforms, with requirements for original documentation in trade transactions persisting.
- Bills of lading, payments and physical deliveries can all be accelerated by digitalisation, Madhavan says. “Digitalisation reduces the friction of trade.”
African free trade
Standard Bank is also seeking to speed up trade agreements through machine learning which, Madhavan says, can cut the time needed to get a letter of credit to two hours from at least 24 hours.
In 2019, the bank partnered with fintech Traydstream to digitise the process of checking trade documents for discrepancies. The documents, Madhavan says, can be verified in as little as an hour, with the risk of errors being reduced.
Standard Bank, Africa’s largest bank by assets, is present in 20 African countries.
Covid-19, Madhavan argues, has a “silver lining” in that African governments, lacking the capability for large-scale fiscal programmes, are realising that fast adoption of the African Continental Free Trade Area (AfCFTA) is “one of the best options” as a substitute.
- The agreement has been ratified by 34 of the 53 signatories, which constitutes “surprisingly fast progress”, Madhavan says.
- But there is a “need for further urgency.” Increased manufacturing capacity in Africa, he argues, is one of the most pressing needs.
The bank is “nudging” regulators and governments, who want to protect their sensitive industries, to make progress on rules of origin, Madhavan says. He sees no fundamental obstacle to reaching agreement.
Tariff reduction accords and their implementation by customs authorities are also needed to make free trade a reality, he adds.
Covid-19 means there is no way back to the old world of slow, paper-based trade.
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