22 March 2019

Nigeria Misses Top Five African Factoring Markets Worth N9 Trillion

Nigeria is not among the top five countries in Africa's factoring market, worth N9.03 trillion (€22.3 billion), Africa Export-Import Bank (Afreximbank) has said.

This is despite the fact that Africa's current record of factoring deals is only one per cent of the global transactions estimated at €2.3 trillion.

Already, South Africa, Tunisia, Morocco, Egypt, Mauritius, and Kenya, have dominated volumes and value of the €22.3 billion deals.

In factoring, an exporter or supplier sells his accounts receivable or invoices at a discount to a third party, called a factor, in exchange for immediate to finance other businesses.

Afreximbank introduced a model law on factoring to provide a benchmark for African legislatures, including Nigeria, to enact rules aimed at fostering the growth of factoring activities across the continent.

It is not clear at what stage the Bill is at the National Assembly presently.

The move became necessary as a way to boost the continent's share of the global transactions and broaden country participations in the market that is nearly left for few in the region.

Wednesday, Afreximbank sustained its case for factoring, as a viable and sustainable solution to address the challenge of access to financing, which is hindering the growth of Africa's small and medium-scale enterprises (SMEs).

The Managing Director of the Intra-African Trade Initiative at Afreximbank, Kanayo Awani, during a factoring promotion conference held in Gaborone, said factoring, a form of trade finance, provides a solution to address the SME financing gap and help innovative SMEs to grow, and support Africa's structural transformation and trade development.

Awani, who noted that access to appropriate and affordable finance had been frequently cited as a major obstacle for SMEs, explained that factoring is an important alternative to other trade financing sources, such as bank loans.

Despite its huge opportunities, however, factoring had not yet taken off fully in Africa, with the region accounting for about one per cent of global factoring volumes in 2017, she stated.

She said Africa's factoring volumes were projected to reach about €200 billion by 2021, resulting mostly from new market entrants supported by the sustained economic growth.

According to her, the rapid rise of Africa's middle class; emergence of innovative industries supported by technological advancements; rapidly expanding trade and economic relations between Africa and major economies in the South; and increasing focus on regional integration and intra-regional trade under the African Continental Free Trade Agreement, would drive the trend.

The bank has been playing a leading role in facilitating the growth of factoring in Africa through various interventions, including supporting the creation of a facilitative legal and regulatory environment for factoring; provision of finance and guarantees to factoring companies; provision of technical assistance; and formation of strategic partnerships to promote the development of factoring.

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