**London**: Executives Michelle Knowles and Mosa Tshabalala argue that limited liquidity is a critical barrier to trade in Africa, exacerbated by debt and reliance on hard currencies. They propose supply chain finance as a solution to enhance accessibility for SMEs and improve trade effectiveness across the continent.
Discussions surrounding Africa’s trade challenges often focus on tangible issues such as congested ports and unreliable road networks. However, recent insights from Michelle Knowles and Mosa Tshabalala, executives at Absa CIB, highlight an often overlooked constraint: liquidity. Writing in “Business Magazine,” they argue that access to capital plays a critical role in determining trade dynamics across the continent.
Knowles and Tshabalala point out that liquidity—or the availability of liquid assets—is essential for businesses to engage effectively in trade, yet it remains scarce and prohibitively expensive for many. This liquidity shortfall is exacerbated by sovereign debt burdens and a heavy reliance on hard currencies, constraining intra-continental commerce. Despite the establishment of the African Continental Free Trade Area (AfCFTA), which aims to create a unified market for over 1.3 billion people, trade flows continue to be dominated by external, US dollar-denominated transactions.
The authors stress that this situation positions many African firms as price takers rather than driving potential market makers. They assert that traditional financing methods alone cannot resolve these challenges. Instead, they propose that supply chain finance should be reconsidered as an integral part of trade strategy, highlighting its role in enhancing liquidity and optimising capital efficiency.
They elaborate on how effectively integrated supply chains that account for financial, informational, and logistical components can lead to a more resilient trade environment. In particular, they discuss the potential of Supplier Finance—an approach that aligns liquidity with trade activity to mitigate the inefficiencies imposed on smaller suppliers. By ensuring that capital flows in synchrony with commerce rather than being stalled in payment cycles, Supplier Finance can create a more equitable and responsive trade landscape.
Knowles and Tshabalala explain that this financial strategy shifts the pricing of liquidity from being based on a supplier’s financial strength to a corporate anchor’s credit profile. This change reduces capital costs and extends financing access, enhancing corporate risk management and operational reliability. As businesses adopt these integrated financial solutions, they report improved liquidity and more stable supply networks, which are critical in today’s unpredictable trade climate.
Despite its promise, Supplier Finance has not yet reached its full potential across Africa. The authors argue that limited awareness and fragmented financial infrastructure have hindered broader adoption. Consequently, the benefits remain largely restricted to larger, more affluent businesses, leaving many smaller suppliers unable to leverage such financing mechanisms. Notably, the authors stress that small and medium-sized enterprises (SMEs) play a crucial role in Africa’s economies, contributing to about 80% of economic activity. This reliance on SMEs underscores the need for improved financial access throughout the supply chain.
To rectify this imbalance, Knowles and Tshabalala highlight the necessity for greater collaboration among corporates, banks, and development finance institutions. They refer to multi-tier supplier finance as a potential pathway to structuring accessible liquidity across broader supply chains, ensuring financial obligations can be effectively transmitted beyond direct suppliers.
Ultimately, they assert that Africa’s approach to trade must shift from a reactive stance, dependent upon external financial conditions, to a proactive engagement that fundamentally integrates liquidity into trade practices. The discourse, as outlined in “Business Magazine,” suggests that how swiftly and effectively these solutions can be embedded within the continent’s trading systems will significantly influence Africa’s economic growth trajectory in the future.
Source: Noah Wire Services
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