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Patrick Gutmann, managing director for corporate and institutional banking at BACB, the UK‐based bank with four decades of experience in Africa’s trade finance, has discussed with African Review (ATR) about the recent trends and opportunities in doing business in Africa
ATR: Please provide us with a brief background of BACB’s role in Africa?
Patrick Gutmann: We are a UK-based financial institution that has been operating in the Middle East and Africa for 45 years. We are predominantly focused on trade finance, and in a broad term, we cover trade in various forms. Our client base is African financial institutions on the one hand, and on the other hand, it is European corporate of all sizes and scale across various sectors.
BACB focuses on supporting the African banks in their export and importation needs of their clients and working with corporate clients that require a bank that has the knowledge and risk appetite of Africa in general and certain African markets more specifically. We essentially facilitate either importation or exportation of goods and services into and out of Africa.
ATR: Which African countries you are focused more? Do you have any plan for further expansion?
Patrick Gutmann: We cover about 25 African countries. We cover all of North Africa, Francophone West and Central Africa, Anglophone West Africa and East Africa.
In terms of broadening our scope, we’ll continue to add more countries as we feel comfortable with understanding the risks with those markets. So, there will be the additional countries that we will add to the footprints. In certain markets where we have done business for certain years, we will continue to broaden the client base within those markets. So, there is a continued expansion that is happening. Obviously, it will be lying with the bank’s comfort and risk appetite.
ATR: How BACB is helping in Africa’s Small and medium enterprise (SMEs) growth?
Patrick Gutmann: There are two aspects. We as a bank don’t necessarily deal directly with African SMEs. However, we partner with local and regional African banks who themselves have large SME ports. We provide the local and regional African banks with access to the international financial markets, to London more specifically. By providing that access and that engagement with the local and regional banks, we allow their customers, of which many are SMEs, the ability to either export their goods and services or import whatever raw material of finished goods that may need to run their business. So, we see it as our major role to support the banking sector of Africa and via supporting the banking sector, they, in turn, support the growth of their clients.
On the other hand, in the context of European corporate, we deal with all sizes of the companies, from very large national companies to sometimes smaller and mid-sized manufacturing companies. Certainly, in the European context, we deal with the corporates that are with SMEs segments sizes and scale and again, our focus is on supporting their trade finance needs into and out of Africa.
ATR: What kind of projects have BACB been involved within Africa?
Patrick Gutmann: BACB’s involvement spans across many different sectors and many different transactions. We certainly deal a lot in terms of soft commodities. We support agricultural importation and exportation from a financial perspective. We have done a fair amount in infrastructure, supporting the issues on local guarantees, credit support, specific machinery being imported into the African market for specific projects etc.
We also deal a lot with regular trade flows of basic strategic commodities, be that manufactured finished goods and so forth. In our case, we don’t do large infrastructure project finance. We support the underlying trade flows that come with some of those of projects, in terms of some other machinery, equipment etc that are required for some of those projects.
ATR: In terms of inclusive growth, do you think the whole continent is progressing or only a few countries?
Patrick Gutmann: We believe that the growth rate of African countries is very strong. We believe there are certain demographic and social changes they can place which are strengthening the case for investment opportunities in many of these African markets. Because we focus on the trade finance flows, we obviously see a lot of the activities that are happening. Like, the governments of these countries are trying to stimulate growth locally. They are looking to engage with international communities more aggressively and more efficiently than in the past. Therefore, we certainly believe that there are many countries across the continent that provide a great opportunity, both in terms of an opportunity for people looking to invest in the country and also for companies that are looking to sell their goods and services into the new markets that they may not have explored in the past. And BACB takes initiatives to facilitate that.
ATR: What is needed for a better investment framework for Africa?
Patrick Gutmann: One of the areas that need lots of emphasis is intra-Africa trade. Traditionally and even today, from many places it is easier to trade with Europe, the US or China that it is to deal with neighbouring African countries. That obviously means that a lot of services and goods that otherwise could be utilised within the region, is being to shipped abroad. And in some cases being brought back into the country, but through the means of Europe or the US and so forth. So, there is a real need to focus on intra-Africa trade to make it more efficient for the African countries to deal with and work with the neighbours.
There is also a real push by many African governments to broaden the economic base of their countries which obviously includes the development of the SME sector and also to build out a manufacturing base which many countries are focused on. Obviously, these initiatives will take time and require persistence and resilience but we fundamentally believe that over the time one will start to see more and more countries diversifying their economies. That will obviously allow for a broader and more inclusive growth within those markets.
ATR: What kinds of risks are associated with doing business in Africa? How is BACB taking an initiative to mitigate them and facilitate trade flows?
Patrick Gutmann: Clearly there are always risks while dealing with a market other than your home market, whichever market that may be. Those risks can be categorised on a few different levels. There is a risk for financing, payment risks and so forth. Beyond that, there is always the risks of understanding the market and customers’ behaviour, rules and regulations in a particular market etc. All of these risks exist everywhere whenever you are doing the cross-border international trade. Such risks are dependant on the ability to know and understand the market within which you are dealing with.
BACB, as a bank, has many years of experience dealing with partner banks in these markets. Given that we are in London, we have access to many of our employees here who have worked in or from the market which we operate. They have an in-depth understanding and knowledge of the market which is something that we can relate to our clients, our European clients; in as far as they are trying to understand what the risks are in dealing with a particular country. Part of it is that we have a good understanding and a level of comfort in these markets as for many years we’ve worked with them. Another part is that using financial instruments such as the letter of credits, letter of guarantees etc to mitigate some of these risks that otherwise could be there.
We find that within trade finance the risk is very low. That has been proven year and year again that when it comes to the importation and exportation of goods and when it is done under the norms of trade finance, the default risk is actually very low. But it is important that both the banks and the corporate deal with the partners that have an appreciation for that risk, they understand the risk and are willing to take and mitigate that risk.
ATR: How African markets are different from other emerging economies in terms of doing business?
Patrick Gutmann: When it comes to entering into any new market, whether that is an African market, a South American market or a South East Asian market, I think there is certain steps that one must take such as trying to understand the market, the business customs, business etiquettes, the regulatory framework within which one must operate in that market etc. All are important parts that one must consider while entering into a new market. From that perspective, it’s not very dissimilar to any other markets. Where it different is that you don’t necessarily deal with the same partners across every continent of the globe.
If you are a European corporate looking to grow the sale into a particular continent as South East Asia or Africa or the Middle East, it’s important that you find a partner bank or partners in general that already has an in-depth understanding of that particular region. That I think is more than anything else is important.
ATR: What are BACB’s biggest clientele in Africa?
Patrick Gutmann: In Africa, our biggest clientele is financial institutions. We deal through these financial institutions and we offer, through these financial institutions, facilitation of trade finance flows. So we are an entry into the international financial markets into London and many large corporate clients in Europe that individual banks of Africa may not have access otherwise.
ATR: Whereas some African nations face a high level of external debt, how BACB is considering/addressing it in terms of financing projects there?
Patrick Gutmann: Fundamentally, it is obviously an issue that many of the African governments need to deal with and I think it is well documented over the last few years about the rising debt levels in a number of African countries. It’s clearly is something needs to be taken seriously and the governments must look at this area certainly. There are certainly some steps that the governments must take to ensure that they control their spending locally and they don’t necessarily take on more external debt.
Obviously, as a bank, we support trade finance of strategic goods into and out of that country. So from that perspective, we don’t think the external trade situation will impact on necessity and the need for trade finance. But certainly if one wants to look to take an investment decision that is over many years, such as five, seven or 10-year horizon, then this will certainly be an area that one would have to very carefully examine before taking such a decision.
ATR: Apart from Africa, which international markets BACB has been involved with?
Patrick Gutmann: It’s predominantly Africa and the Middle East. In terms of region, those are the core markets for Africa and ME. Then we have clients all across Europe as well, to the corporate side. We have a team in London that cover all European markets. We also have an office in Munich, covering the German manufacturing base. Then we have an office in Dubai and other select markets in Africa that give us a local presence where we appear as important and relevant.
ATR: Which sectors in Africa and the Middle East do you think needs to be more emphasised for a medium to long-term growth?
Patrick Gutmann: Certainly there are a number of sectors that are very critical in many African markets. Education and healthcare are some of them and to broadly speaking, the SMEs sector also requires continuous investment and emphasise. Manufacturing is an area that continues to get attention and should continue to get attention so that diversification of the economy should take place. Of course, there are more traditional sectors that have been very important to many African markets and will continue to remain so, including tourism, mining and minerals, oil and gas etc. These are core sectors that have been getting a lot of attention. They are very important to many of the countries and hence cannot be neglected.
ATR: With which international markets, Africa will have more potential trade ties in five-10 years horizon?
Patrick Gutmann: African countries need to have a broad-based approach to their international relations. We are seeing more and more governments in many African countries to diversify their engagement beyond the traditional engagement to Europe, the US and now Brazil, India, Turkey, China and so forth. It is important that the international engagement is broad and wide. Clearly, there are aspects that some of the less traditional markets can support the African markets with the requirements that some African governments are looking for. And that is why China, India and others come to the forefront to provide the support with and I think that will only continue to expand.