Why trade finance can be a matter of life and death
I’ve done business in East Africa for several years now.
During my time there, I was routinely exposed to the extent that growth is depressed due to the lack of trade finance.
Certainly, the lack of trust mechanisms in these markets have made it ridiculously difficult for lenders to lend money successfully, and so lenders end up pricing for default, or withdrawing from the market altogether.
I never thought of the lack of trade finance as a matter of life and death. But in 2017, I learned otherwise. Maize taught me this lesson.
Maize is a staple food in that region, providing much of the carbohydrate intake of the populace. As a starchy vegetable, it has about three times the carbohydrates of non-starchy vegetables. In addition to providing energy in the form of natural sugars and complex starches, it also supplies considerable proportions of dietary fibre (which contributes to cardiovascular health by facilitating removal of cholesterol, and is beneficial in regulating blood sugar levels), Vitamin A (good for immunity and eyesight), Vitamin C (a powerful antioxidant), Vitamin B (essential nutrients) and potassium (key mineral for survival) .
In 2017, the conflict in South Sudan and resultant population displacement disrupted the cultivation of maize, resulting in South Sudan plunging into a food crisis. Crop disease outbreaks in East Africa and export restrictions in Tanzania only exacerbated the shortage.
As an indicator of the shortage, the price of maize in Kenya inflated within a few months; reaching 90 US cents/kg, compared with an international bulk price of 14.8 US cents/kg.
At our logistics company in Rwanda, we saw this unfold, excruciatingly, in painful slow motion. When the price of maize first began rising, we did not think much of it. This is the luxury afforded to us by privilege. Privileged to not have to count our cents at the end of every month. This means that when the price of a staple doubles, you might notice it after a few trips to the market, but it would not bring your life to a standstill.
We started seeing more requests for supply of maize at the office, as first casually (“Boss, you know where I can get maize?”), and then more regularly (“Brother – where can I find maize?”) to urgent requests laced with panic (“Brother – I have orders for maize – can you help me bring some in so I can buy from you?”).
It hit home for us when we had a trader who made an appointment with my partner in Pan African Logistics (PAL), and then visited PAL’s offices to speak with my sister who ran our operations there. This trader had identified a supply of maize in Zambia – 40 containers (of 20 feet each) – that would be approximately 1 million kgs of maize. He was desperate for funding.
At that time we were only running a logistics business. It was not in the scope of that business, whose capital allocations were planned to service the movement of cargo, to provide funding of trade. We tried several ways to make the numbers work, but it simply could not – it would have meant failure to uplift other high value shipments from regular clients if there were any delay in repayment.
I remember asking her what the track record of the trader was – to which she replied, “People say he’s ok, but we can’t find out his actual track record to 100% - nowhere to check that from.”
We had to turn him down.
I can still recall the disappointment in my sister’s voice over the phone as she told me, “Fine. I’ll tell him we can’t help him.” She didn’t blame me. It was just how the way things were. The banks did not want to lend him; nor would they have made the decision in a meaningful period of time. (We knew both these to be true based on many interactions with traders and with the banks there).
I was in Singapore at the time.
I did some research that very night, and the extent of the famine dawned on me. It gave colour to the desperation of the trader. I spoke with my partner at PAL and realised just how difficult it was to even source for supply, let alone uplift it without paying in full – sellers were hoarding supply and commanding hefty premiums for maize.
I did some quick calculations. 1 million kgs of maize worked out to 8 million man-days of meals in East Africa. 8 million. That is food for a population the size of Berkeley’s (in California, USA) or Ann Arbor (in Michigan, USA), or Kingston, Ontario (Canada) for two months. And nobody would finance that for the trader.
That day, I spoke with Karen, my co-founder in Kommerce, regarding this predicament. It cut us up that Kommerce was not already in operation then. We then resolved that Kommerce’s success indicator would be when finance would not be a limiting factor in a trader’s ability to supply staple food to any markets like that.
When we work late nights and long hours at Kommerce, the memory of not being able to help that trader drives us to press on and work towards providing financial access to the underserved traders of Africa.
Harveen
CEO (Kommerce)
