The Eastern and Southern Africa Trade Fund is Launched
Ebene, Mauritius, 16 September, 2019 – The Eastern and Southern African Trade Fund (ESATF) was launched today at the Caudan Arts Centre by Eastern and Southern African Trade Advisors Limited (ESATAL), a regulated fund manager established in Mauritius, and jointly owned by the Trade and Development Bank (TDB) and its joint venture partner GML Capital. ESATAL and the Fund are authorised and regulated by Mauritius’ Financial Services Commission.
With a starting asset base of USD 50 million, ESATF is an open-ended investment fund scalable to USD 1bn, seeking to advance trade-led economic and social development by supporting exporters, importers and other regional borrowers in Eastern and Southern Africa.
The fund will finance short to medium-term transactions across various industry and commodity sectors in the region, including those of SMEs, and facilitate the transfer of financial expertise to borrowers and of investment management expertise to African investment professionals.
Trade-related economic activity is reckoned to account for half of Africa’s GDP. Despite its importance, the demand for trade finance still outpaces supply across a variety of sectors and structures, with, as per AfDB estimates, one third of the continent’s demand for it still unmet – the most in need being credit-constrained SMEs who typically face scale, collateral, high interest rate, and other types of challenges.
For TDB’s 22 Member States – most of which are part of the Common Market for Eastern and Southern Africa’s own FTA which grants duty-free access to businesses operating within its borders – in the past 10 years only, exports have grown by 51% and imports, by over 71%. With the African Continental Free Trade Area (ACFTA) which came into force this past May 2019, and intra-African trade projected to grow at CAGR of 5.3% by 2026, the gap could widen even further.
Trade finance is an attractive asset class. It tends to be of short duration with modest volatility. Likewise, it provides high liquidity, good returns, a predictable and lower risk profile, limited correlation to mainstream asset classes and broader markets, and comparatively low default metrics.
“TDB adopted a funds management strategic business area in 2013, as part of a wider transformation strategy that has seen the Bank grow more than five-fold, attain several international credit rating upgrades and attract 50 new institutional investors in the Bank’s equity and debt opportunities from across the world.” says Admassu Tadesse, TDB President & Chief Executive, and Chairman of the Fund. “With a trade finance book of almost USD 3bn, TDB is now one of the largest providers in trade finance in the region it serves. Via ESATF, we look forward to continuing catering to the growing demand for trade finance in the region and to working with investors seeking steady and lower risk USD returns at the same time as development impact. The timing is indeed right.”
Stefan Pinter, Chief Executive Officer of GML Capital remarked: “The multiple challenges presently facing the global banking industry with respect to capital adequacy and managing an increasingly complex regulatory framework are leading to de-risking, and GML Capital and TDB believe that shortages of capital to fund trade in Eastern and Southern Africa will continue for the foreseeable future. As a consequence, investment opportunities for investors in the trade finance asset class in TDB’s member countries are and will remain highly attractive on a risk-adjusted basis.”
Suresh Advani, Chairman of the Investment Committee of ESATAL commented that: “while African banks currently take care of about 30% of the continent’s trade finance needs, non-bank trade finance, including through funds such as ESATF, is still a niche activity in Africa and globally. Currently only about 25 to 30 trade finance funds exist in the world, with several of these being run by commodity traders. In total they are worth an estimated AUM of USD 20bn, and include about 10 funds with an exclusive focus on Africa. In terms of returns, African trade finance funds specifically have been performing better than their global counterparts, depending on the risk they assume. With the increasing appetite of the fast-growing impact-focused investment community for Eastern and Southern African opportunities, ESATF is an attractive opportunity.”
ESATAL will bring world class, institutionally robust fund management standards to the Fund by combining GML Capital’s many years of experience of specialised investment in the trade finance asset class with TDB’s significant market knowledge, expertise, relationships and infrastructure as the preeminent multilateral development bank in the region. ESATAL will ensure that the Fund’s investments are not only opportunistic, but also carefully structured and secured, to ensure attractive as well as steady and predictable investor returns and impact.
