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Access to Trade Finance in Africa Experiences of African
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| Access to Trade Finance in Africa Experiences of African, Chinese, and Indian Firms Among firms covered by the WBAATI business case studies, experience in the use of trade finance is rather diverse. African Firms. Many firms in Africa do not have access to finance or do not have the ability to choose from a variety of trade instruments. The availability of trade finance to African firms has implications for their supply sourcing. Firms decide whereto acquire inputs depending on the financing terms to which they have access. In some instances, foreign suppliers offer better terms than local banks. Despite the fact that there area series of short- term trade instruments and banking institutions that offer trade finance in South Africa, firms in the country on average still face higher costs due to the perceived greater risk. For example, a South African textile firm commented that it preferred to choose suppliers that offer them open accounts for 90 days. Mexico and Thailand request them to open a Letter of Credit, which is very costly. Chinese Firms. Chinese construction firms operating in Africa received export credit for feasibility studies, government guarantees for bank loans, export credits for financing the operational cost of projects, and lines of credit for capital goods and machinery. In Tanzania, a Chinese construction firm reported that all its machinery needed fora construction project was acquired new. The firm’s headquarters purchased the equipment. It also reported that it obtained 100 percent credit for its working capital needs from its parent company. Indian Firms. An Indian firm reports on the use of supplier credit from India for 60 days. Source: World Bank Group MIGA staff. 05-Chap5:05-Chap5 10/10/06 11:14 AM Page 270 “ BETWEEN - THE - BORDER ” FACTORS IN AFRICAN - ASIAN TRADE AND INVESTMENT 271 They do not use the local banking system for investment financing. Where Chinese and Indian firms operate in the retail sector or in the informal sector in Africa, they engage in mainly cash transactions and rely on informal channels for finance. The share of working capital financed by trade credit is significantly smaller than formal banking sector loans and overdrafts. Among firms surveyed, only 3 percent of working capital is being financed through trade finance in the form of supplier or customer credit. When broken down by firm nationality, survey results show that Chinese and Indian firms finance less of their working capital through trade credit in comparison to African or European ones. The same pattern is evident for the financing of new investments (see table 5.8). Chinese and Indian Government-Provided Trade Finance and Economic Assistance The Chinese government, through the China Export-Import Bank, supports Chinese firms investments and business operations in Africa. The scope of its activities includes provision of export credit (including export seller’s credit and export buyer’s credit loans to overseas investment and TABLE 5.7 Download 5.17 Mb. Share with your friends:
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