Factoring in Africa: Opportunities and
challenges
By
Dr. B.O. Oramah
Vice President (Business
Development and Corporate
Banking)
African Export-Import Bank
Presented at the 2014 Afreximbank Seminar on Factoring
Lagos , Nigeria - June 13, 2014
The Trade Finance Bank for Africa
1. Afreximbank is pleased to organise this
seminar for regulators, law makers and factors
to share their views on the importance of a
facilitative legal environment for factoring in
Africa.
2. We value the opportunity to exchange ideas on
creating a facilitative legal environment in
Africa and hope that working together we can
develop factoring to its full potential in Africa.
The Trade Finance Bank for Africa
(2)
Who are we?
 African Export-Import Bank is an African
multilateral financial institution with a
mandate to finance and promote intra- and
extra- African trade.
 The Bank was established in 1993 and has its
headquarters in Cairo, Egypt.
 There are 2 branches, one each in Abuja,
Nigeria and Harare, Zimbabwe.
The Trade Finance Bank for Africa
(3)
Who are we? (cont’d)
 The Bank has an authorized capital of USD 5
billion and has four classes of shareholders,
namely Class A consisting of African states
and African regional and sub-regional
financial
institutions
and
economic
organizations, Class B, consisting of African
financial institutions and private investors
Class C consisting of non African investors and
Class D a new category created in December
2012, under which any person or entity can be
allotted shares.
 There are currently 125 shareholders
The Trade Finance Bank for Africa
(4)
The State of Factoring in Africa
Africa is not a significant player in the
global factoring market
Of the 2 trillion Euros World factoring
transactions recorded in 2012, Africa
accounted for only 1.2%
Only four African countries accounted for
this share: South Africa, Tunisia, Morocco
and Egypt
The Trade Finance Bank for Africa
(5)
The State of Factoring in Africa Cont’d
Factoring is largely offered by banks and
bank subsidiaries
Independent factoring companies are few
and far between
The market is narrow; about 80% of
factoring in the continent is domestic
factoring
The Trade Finance Bank for Africa
(6)
The State of Factoring in Africa (con’t)
Due to limited credit insurance capacity, services
offered by factors in Africa are limited
Services limited to purchase of debtors and sales
ledger management
Credit cover is offered selectively, subject to
availability of insurance
Most factors are relatively small in capitalisation
and turnover
Average turnovers in Morocco and Tunisia were
880million and 248million Euros respectively,
which is a limitation to the size of business they
can write
The Trade Finance Bank for Africa
(7)
The State of Factoring in Africa (Cont’d)
High concentration of and very few industry
participants
This may lead to oligopoly and
inefficiency
Innovation is not encouraged
Market entry becomes more onerous
The Trade Finance Bank for Africa
(8)
Challenges to expanding factoring in Africa:
why has factoring not expanded in Africa
Very limited knowledge of the product in Africa
Little or no effort to promote factoring by
governments and global factoring groups
View was that aside South Africa and North of
Africa, the rest of Africa presented
unacceptable country risks
Members of global factoring groups did not
regard the continent as an economy of any
global significance
asThe Trade Finance Bank for Africa
(9)
Challenges to expanding factoring in Africa:
why has factoring not expanded in Africa (cont’d)
Governments and regulators thought there was
little scope for using factoring as exporters
offered little or no credit to buyers
Most businesses in Africa were not interested in
factoring
Payments of their exports were mostly Cash
Against Documents (CAD)
Their buyers were mostly credit worthy
company like Cargill, Glencore etc
The Trade Finance Bank for Africa
(10)
Challenges to expanding factoring in Africa: why has
factoring not expanded in Africa (cont’d)
As a result of lack of interest from business and
support from regulators, banks had no interest in
pursuing factoring as a line of business
There was lack of facilitating infrastructure by way
of:
Regulatory framework and laws leading to high
cost in perfecting legal documents (upto 5% in
some countries)
Credit information services and credit insurance
thereby raising the risk of offering factoring to
unacceptable levels
The Trade Finance Bank for Africa
(11)
Opportunities
 The opportunities for Factoring in Africa are
broad, namely:
It is estimated that factoring volumes in Africa will
grow from 24 billion Euros in 2012 to 90billion Euro
in 2017 and to 200 billion Euros by 2020:
Countries that will drive this growth will include:
Kenya, Nigeria, Ghana, Cote d’Ivoire, Zimbabwe,
Zambia, Mozambique and Senegal;
Sectors that will drive the growth will include oil
and mining services (Nigeria, Ghana and
Zambia); telecommunications services and the
retail sector
The Trade Finance Bank for Africa
(12)
Opportunities (cont’d)
 The forces that will drive the growth in
factoring discussed in the previous slide
would be:
The emergence of the middle class (expected to
reach 100 million in 2015 and in the process the
market for ‘factorable products’.
The rise in Africa’s merchandise trade with
other developing economies (like Brazil, India
and China) thereby creating an opportunity for
the use of factoring which is considered one of
the most efficient risk mitigation tools in
entering new markets .
The Trade Finance Bank for Africa
(13)
Opportunities cont’d
The rising volume of intra-African trade which has
more than quadrupled since 2010
Most of trade is now being conducted in the use
of open account terms and credit is granted to
buyers with the trade item now being factorable
Economic growth and robust expansion will
increase the use of factoring. IMF forecasts that 7
of the top 10 fastest growing economies in the
world during 2012-2015 will be from Africa
Peace, stability and efficient legal and regulatory
landscapes are emerging in the continent.
The Trade Finance Bank for Africa
(14)
What must be done to take advantage of
these opportunities
Improve Regulatory Reforms
Create Awareness
Expand Credit Insurance
Attract Other Factors to the Continent
Conduct Training
Government Support
The Trade Finance Bank for Africa
(15)
Thank you
The Trade Finance Bank for Africa
(16)