While the prospects and potential benefits of the African Continental Free Trade Area (AfCFTA) to the development of Africa and its people are exciting, we all need to be alive to the fact that there are risks in trade.
Most risks have been there and will continue to be there regardless of whether the trade is Intra-Africa or between Africa and the world. The important thing is finding ways to deal with these risks, to ensure that as you exchange goods and services for an income, losses are minimised, but first the risks.
The prospects and potential benefits of AfCFTA to the development of Africa and its people are exciting, but we need to be alive to the fact that there are risks in trade. Intra-Africa or trade between Africa and the world will continue to have problems that have always been there. The important thing is finding ways to deal with these risks to ensure losses are minimised in exchanging goods and services for an income.
The pretty obvious risks to exchanging goods and services between two parties in different countries emanate from a lack of trust by these parties who want to trade but do not know each other. They do not know each other well enough for the seller to be comfortable shipping their goods without payment first, or for the buyer to send a payment for goods they have not seen. At this point, I can imagine you may be reminded of the few instances where you were online and thought of paying for some tempting offer of a product that is unavailable locally or available at a price not suitable for your budget. Some have paid and the website or seller suddenly vanished thereafter, or the contact person’s numbers went off. There are many unpleasant fraud stories and some hilarious ones, especially on the clothing e-commerce, where what is advertised sometimes is delivered but resembles a total mockery of the picture you saw when deciding to buy.
The meeting point of parties from different countries or continents looking to exchange goods and services is usually the internet. This has become more prevalent in the advent of COVID-19 because this virus has been dictating that we avoid travel and adopt technology to connect and trade with people from all over the world. However, brilliant and a convenient innovation of our times, the internet is a big dark web resembling the world. It enables everyone, including those with ill intentions, to defraud and take advantage of unsuspecting entrepreneurs, consumers, facilitators, suppliers and everyone. These humans with ill intentions invest in the high tech and horning their skills to manoeuvre the web and use the old trick in the book of corn artists - the psychology of the human being, especially when in need of something. So, they are cunning and ruthless, and they will scam and swindle you out of every cent, kobo or thebe.
For example, imagine some two parties to a potential exchange of goods and services, such as a chocolate-making factory in Botswana or South Africa looking to buy cocoa beans from Ivory Coast or Ghana. They may find themselves meeting initially on the internet, and there will be a trust
Other risks in cross border trade include a definition of roles and responsibilities. This is to define the responsibilities of the seller and the buyer on the delivery of goods and the associated logistics, including insurance of the goods to protect against damage while in transit, border clearance and customs duties that we hope the AfCFTA will blow away.
These are well-known risks in trade, and there exist many conventional ways to deal with them. National, regional and international institutions play an invaluable role in enabling, enforcing contracts and regulating trade. For example, if you are looking to trade your money for interest payment over time, you will likely choose a bank than your friend to lend the money. This is possibly because the bank as an institution is regulated, so if they don’t honour their trade contract, you can report them to a central bank. You may also choose the bank because you know that their reputation is their equity, and they guard it with their lives, so you are rest assured that it is in their best interest to honour contracts and not let their reputation to be tarnished.
These institutions in trade are many; while you know some of them, you may need to search and familiarise yourself with others and how they mitigate some of the risks. Thus, it is essential not only for professionals in the procurement and finance divisions of companies but also for the many budding SME entrepreneurs exploring trading options with Africa through the AfCFTA.
Reach out to your trade finance bankers or advisors at the local bank to get guidance and advice on minimising risks and settlement/payment mechanisms. They may inform you of institutions other than the shipping, insurance, clearing companies you already know, and possibly what other documents you can request or provide to a trade shipment to improve trust in honest trade.
There will be many clear opportunities from the AfCFTA, and just like any rational being, you will want to profit from these, but there is also going to be the need to ensure your exchange of goods and services is seamless and has fewer risks than the reward. For this, you may need to consider getting assistance from reasonably less costly professionals like banks for advice and facilitation services. Who knows, they may even fund these facilitation services. Consider finding out more about risk in cross border trading to equip yourself. You will find more terms and products that we don’t condone here. Jargon is for pretenders, and bartenders may be laypeople but never pretenders.
*Onkemetse Monnaatsie is a corporate and trade finance specialist. He is in the banking industry where he continues to serve with over 10 years’ experience. Monnaatsie has a keen interest in trade finance solutions to facilitate trade and development in Africa