As global economic volatility places pressure on importers in many African countries, more businesses are investigating the option of trade finance, currently regarded as a broader import finance solution rather than just a transactional one, says South African import transaction specialist Investec Import Solutions head Adam Orlin.
He explains that the lack of availability of US dollars is significantly restricting the ability of some African importers to pay for imports, affecting international trade with the continent.
“This has been particularly problematic for Nigeria, Mozambique, Angola and Ghana, although, as the rand remains a free-floating currency, trade in South Africa has not been impacted on in the same manner. However, other factors, such as South Africa’s recent junk status credit rating, rising commodity prices and a volatile currency market are putting severe pressure on the rand.”
Coupled with an increased risk aversion towards emerging markets from international investors and poor economic growth – which are causing industry confidence to dip and business sentiments to plummet – decision-makers in some African countries are under pressure to find ways to be more cost efficient while maintaining a semblance of growth in their operations.
“The prevailing weakness in many African economies is affecting the imports sector, as business and goods are bought in foreign currency, resulting in an unpredictable increase in the cost of merchandise.” Orlin stresses that this results in unfavourable business growth, as well as high debt levels and high unemployment rates, which, in turn, place immense pressure on a country’s economy as a whole.
“The importance of continually innovating in business is now more important than ever. Companies cannot afford to fall into a routine when it comes to the latest market developments.”
As markets become more connected, challenges in countries globally have an impact on domestic markets. As the dollar strengthens and the rand weakens, for example, there are some benefits for exporters; however, volume figures are skewed and local importers and exporters who have a large imported component in their products are negatively affected.
Trade finance is, thus, gaining popularity among importers, although Orlin stresses that funding options need to be carefully considered – while it is often noted that companies require debt to grow, they also need to be cautious about accessing too much debt.
“If you are in the import business, it is important to look for options that allow you to alleviate pressure on the business, such as using the import processes to free up working capital. Finding the right business partner who understands your business requirements and is committed to being your partner in growth is also essential.”
In addition, transparency in the supply chain and unlocking the value chain through information, up-to-date dashboards and industry insights have become paramount for businesses trying to navigate a difficult trade environment. Understanding the production and import cycle and using technology that is geared to assist in decision-making are also important for facilitating better planning around lead times and shipment quantities and mitigating risks and delays.
As a pioneer in providing fully integrated import solutions using bespoke systems and patented processes, Investec Import Solutions can assist businesses in managing the challenging economic conditions they are facing. The company facilitates every aspect of an import transaction – from order placement, confirmation and tracking to the hedging of foreign exchange risk and the management of import logistics up to delivery to the client’s warehouse.
By financing the cost of goods as well as the forwarding, clearing duty and other local costs involved in the import transaction, Investec Import Solutions also releases a client’s working capital that is tied up in imports and provides the client with payment terms that closely match its cash flow cycle. The company handles shipments across a multitude of industries.