Trade moves on capital as much as it does on cargo, and yet liquidity – the unseen force that deter- mines who can trade, at what scale, and under what condi- tions – remains scarce, expensive, and structurally out of reach for many businesses on the continent. For decades, the primary constraint on African trade has been access to financing. Liquidity shortages – compounded by sovereign debt burdens and a persistent reliance on hard currency – continue to throttle intra-continental commerce.

Even as the African Continental Free Trade Area (AfCFTA) aspires to integrate a market of over 1.3bn people, the reality is that trade flows remain disproportionately exter-nal, denominated in US dollars, and at the mercy of foreign exchange constraints. The result is a trade land- scape where too many African firms are positioned as price-takers rather than market-makers.

The answer to this impasse will not be found in conventional trade finance structures alone. Supply chain finance, long viewed as a working capital tool, must now be understood as an essential component of trade strategy.

The prevailing trade model keeps capi- tal concentrated at the corporate level, forcing suppliers to navigate funding gaps between delivery and payment. The burden of these delays falls dispropor- tionately on smaller suppliers, who either absorb the working capital strain or turn to expensive short-term credit.

Supplier finance, a form of supply chain finance, eliminates this ineffi- ciency by aligning liquidity with trade activity, ensuring capital moves in step with commerce rather than being trapped in payment cycles. More signifi- cantly, it changes the terms under which liquidity is accessed.

Instead of being priced against the supplier’s financial strength – often a limiting factor – it is structured around the corporate anchor’s credit profile, low- ering the cost of capital and expanding access to financing.

By embedding financing into trade, supply chain finance ensures suppliers remain operational, reducing the risk of production delays or raw material short- ages. This allows businesses to stabilise supply networks without taking on ad- ditional credit exposure, reinforcing re- silience in an increasingly unpredictable trade environment.

Greater awareness required

Yet its full potential remains unrealised. Unlike in more developed markets, where these mechanisms are widely adopted, many businesses across the continent remain unfamiliar with how supplier fi- nance can provide working capital without the complexity of traditional credit.

Limited awareness, fragmented financial infrastructure, and a lack of transparency around eligibility have restricted participation, leaving many businesses unable to integrate supplier finance into their financial strategies

Consequently, supplier finance has largely remained concentrated among Tier 1 and Tier 2 suppliers – businesses with direct corporate relationships – while smaller sup- pliers further down the chain re- main financially constrained. Given that SMEs drive nearly 80% of Af- rica’s economies, this imbalance is a structural limitation on trade.

Expanding access requires deeper collaboration between corporates, banks, and development finance institutions to develop financing structures that allow liquidity to cascade through supply chains.

Africa’s ability to insulate itself from financial instability, sustain intra- continental commerce, and reduce its vulnerability to external shocks will hinge on how well liquidity circulates within its supply chains. Here, the continent can- not afford to remain reactive, reliant on external financial conditions to dictate the trajectory of its trade systems.

Supply chain finance, deployed stra- tegically, offers a pathway to greater fi- nancial sovereignty, deeper trade inte- gration, and a more resilient economic future. What comes next is not a question of whether these solutions can work, but how quickly they can be integrated into the fabric of the continent’s trade systems to ensure that liquidity is no longer an obstacle to growth, but a force that ac- celerates it. 

Michelle Knowles is Managing Executive, Trade and Working Capital (Pan-Africa); and Mosa Tshabalala, Head, Institutional Trade and DSI Sales, at Absa CIB

Supply chain finance keeps suppliers operational, reduces the risk of production delays, and builds resilience in an increasingly unpredictable trade environment.

© Copyright IC Publications 2022 Provided by SyndiGate Media Inc. (Syndigate.info).