Chris Oshiafi
PAC Research, one of Nigeria’s leading research outfits, has identified financial architecture, digital innovation, regulatory reforms and political commitment as critical to addressing Africa’s more than $100 billion unmet trade finance gap. The research outfit said digital payment systems, blockchain-enabled trade infrastructure, factoring and supply chain finance could significantly widen access to trade finance across the continent, but stressed that their effectiveness would depend on regulatory reforms, legal harmonisation, institutional capacity and sustained political commitment.
The recommendations are contained in its latest policy brief, titled “Financial Architecture, Digital Innovation, and Inclusive Growth: Contemporary Trade Finance Solutions for Africa,” produced by a team led by Chris Oshiafi.
“Initiatives such as PAPSS, ADAPT, and the scaling of factoring markets demonstrate a credible pathway toward more inclusive trade finance. Their full impact, however, will depend on implementation capacity, market trust, and the ability of African states to align financial innovation with broader integration requirements,” PAC Research stated.
Trade finance encompasses financial instruments that facilitate international commerce, including letters of credit, factoring and supply chain finance. These instruments are particularly important in Africa, where businesses often contend with extended payment cycles, foreign exchange risks, limited access to working capital and trust deficits between buyers and sellers operating across borders.
According to PAC Research, drawing on the African Development Bank’s 2025 Trade Finance Report and research by the African Export-Import Bank (Afreximbank), Africa’s unmet demand for trade finance is estimated at between $74 billion and $100 billion. The financing shortfall, it said, threatens not only individual businesses but also Africa’s broader capacity to expand exports, participate more effectively in global value chains and achieve inclusive economic growth.
AfCFTA and the trade finance challenge
The trade finance challenge has become increasingly important following the launch of the African Continental Free Trade Area (AfCFTA), which seeks to deepen economic integration and increase intra-African trade. Africa’s total merchandise trade expanded by 6.1 per cent to approximately $1.5 trillion in 2025, while real GDP growth accelerated from 3.4 per cent in 2024 to 4.5 per cent in 2025, outperforming the global average of 2.9 per cent. Intra-African trade also increased by 5.47 per cent to $213.8 billion in 2025 from $202.7 billion in 2024, driven largely by stronger trade performance in countries including Ethiopia, Uganda, the Democratic Republic of Congo and Zambia.
South Africa remained the largest contributor to intra-African trade, accounting for 19.2 per cent of the total in 2025, with exports to other African markets valued at $31.1 billion. Côte d’Ivoire accounted for 4.83 per cent, with its position supported by its membership of the West African Economic and Monetary Union (WAEMU) and the Economic Community of West African States (ECOWAS).
Afreximbank has projected that intra-African trade could double within a decade if the AfCFTA is fully implemented. However, PAC Research noted that the positive trade trend masks significant structural weaknesses in Africa’s financial system. Commercial banks now intermediate only about 23 per cent of Africa’s total trade on average, compared with 40 per cent between 2011 and 2019. This compares with developed markets, where bank-intermediated finance typically supports between 60 and 80 per cent of goods trade. The decline in bank intermediation, the research outfit warned, could undermine the continent’s progress towards deeper regional integration.
SMEs bear the brunt
Small and medium-sized enterprises (SMEs), which constitute the overwhelming majority of African businesses and play a critical role in employment and economic output, are particularly exposed to the trade finance deficit. Banks and other financial institutions often cite inadequate collateral and high perceived risk when rejecting trade finance applications. PAC Research noted that more than 20 per cent of trade finance applications are rejected for these reasons, despite trade finance historically recording lower default rates than many other lending categories. The financing challenge is compounded by what the African Development Bank describes as “self-rationing”, with 16.5 per cent of firms with legitimate financing needs choosing not to apply because they fear rejection.
Foreign exchange as major constraint
“About 36% of banks cited limited foreign exchange liquidity as the primary constraint to their trade finance growth between 2020 and 2024, compared with 18% in the 2015–2019 period—a doubling that reflects the heightened vulnerability of African economies to global currency fluctuations,” the report stated. PAC Research cited Malawi as an example of how innovative financial instruments can unlock critical trade. A shortage of foreign exchange had prevented Malawian businesses from securing the international bank credit required to import fertilisers, pharmaceuticals and other essential goods. Through an IDA-backed guarantee instrument, the World Bank enabled the country to unlock trade finance, with the first transaction supporting the importation of 1,500 metric tonnes of fertiliser ahead of the rainy season.
Digital innovation as a catalyst
The policy brief identifies digital payment systems, the Pan-African Payment and Settlement System (PAPSS), measures to address currency fragmentation, supply chain finance, blockchain-based trade infrastructure through the ADAPT initiative, technology architecture and efforts to address structural inefficiencies as critical components of the solution. Digitalisation, according to PAC Research, can significantly reduce transaction costs and improve the speed, transparency and reliability of cross-border trade. In Kenya, fully digitised trade documents have reportedly reduced manual validation requirements by 60–70 per cent, while document retrieval time has fallen from six or seven hours to about 30 minutes. Exporters have also reportedly saved approximately $400 per month on each consignment. The initiative is expected to expand from Kenya, Ghana and other early-adopter countries to additional AfCFTA and African Union member states.
Factoring can unlock SME growth
The policy brief also highlights factoring as an important financing mechanism for businesses struggling with long payment cycles. PAC Research cited the example of a mid-sized textile manufacturer in Durban, South Africa, whose retail customers demanded 90-day payment terms while its suppliers’ required payment on delivery. The mismatch created persistent cash-flow pressure and forced the manufacturer to reject large orders during peak periods. After partnering with a factoring company, the manufacturer began receiving 85 per cent of each invoice value within 48 hours of shipment. Within one-year, annual revenue increased by 35 per cent and the company created 50 new jobs. The example, PAC Research said, illustrates how factoring can convert receivables into immediate working capital and enable businesses to accept orders that would otherwise be constrained by payment cycles. Greater use of factoring across Africa could therefore improve access to finance for underserved businesses, strengthen market confidence, stimulate business expansion and contribute to higher intra-African trade.
Free movement is part of the equation
PAC Research also draws attention to an often-overlooked dimension of trade integration: the movement of people. A Kenyan business owner establishing a supply chain in Tanzania, for example, may need to travel to meet suppliers, customers and business partners, build relationships and assess commercial opportunities. Similarly, a factoring company financing a cross-border transaction may need to verify the legitimacy and operations of a buyer in another country. Restrictions on movement can therefore increase the cost and complexity of cross-border commerce. The policy brief argues that free movement should be viewed not merely as a social or political objective but as an economic necessity for deeper regional integration.
“The AfCFTA cannot deliver on its promises if Africa continues to facilitate the movement of goods without allowing the movement of people,” PAC Research argued. “A free trade area where people cannot move freely is not truly a free trade area; it is merely a collection of bilateral arrangements disguised as a continental ambition.”
This, it said, highlights the interdependence between trade, finance and human mobility and the need to incorporate all three into Africa’s economic integration strategy.
Cost of inaction
The cost of failing to close the trade finance gap could be significant.
The African Development Bank has warned that renewed geopolitical tensions could widen Africa’s trade finance gap to between $86.6 billion and $102.6 billion by 2027 under moderate-to-severe scenarios. Such an outcome would represent at least a 17.7 per cent increase from 2024 levels and could erode some of the gains made over the past decade.
The consequences extend beyond trade statistics. Between 12 million and 15 million young Africans enter the labour market each year, creating an urgent need for investment, entrepreneurship, productive employment and expanding regional markets.
As Kanayo Awani, Executive Vice President at Afreximbank, was quoted by PAC Research as saying: “Without urgent solutions, the 12 to 15 million young Africans entering our labor markets each year will encounter limited opportunities.”
The trade finance deficit therefore represents more than a financial-sector challenge. It is also a constraint on job creation, industrialisation, regional value chains and inclusive economic growth.
Financing gap to growth opportunity
PAC Research argues that the continent already has several building blocks for addressing the problem. PAPSS, ADAPT and factoring are operational initiatives that offer practical pathways for reducing financing constraints and improving cross-border commerce. Nigeria’s passage of its Factoring Law, it noted, also demonstrates that political will, technical assistance and stakeholder advocacy can produce meaningful institutional reform.
The challenge now is to replicate and scale such reforms across the continent.
Africa’s trade future will depend not only on the movement of goods and money but also on the movement of people, ideas and capital. By combining financial innovation with regulatory reform, institutional strengthening and political commitment to free movement, African countries can begin to transform the continent’s estimated $100 billion trade finance shortfall from a binding constraint into a catalyst for inclusive growth.
For the millions of young Africans entering the labour market every year, closing that gap could become an important part of turning the promise of AfCFTA into tangible economic opportunity.
.Chris Oshiafi is the Founder/Group Managing Director of Pan African Capital Holdings, an African propietary investment company.
