Building Capacity for the Development of Factoring in Africa to Accelerate Trade Development and to Support the AfCFTA

This Policy Brief developed by the African Capacity Building Foundation (ACBF) and the African Export–Import Bank (Afreximbank) explores the opportunities offered by factoring which provides a solution to address the financing gap for Small and Medium enterprises (SMEs) to support Africa’s structural transformation particularly in trade development as part of the African Continental Free trade Agreement (AfCFTA). The aim of the Policy Brief is to examine the capacity imperatives for the development and use of factoring as an innovative trade financing tool to advance the AfCFTA. The Policy Brief notes that Africa performance in the factoring market needs to improve significantly based on a number of key indicators – such as share in global factoring, including international factoring, innovation such as reverse factoring, number of factoring companies, turn-over per factoring companies and factoring GDP penetration. The Policy Brief also highlights that Africa’s factoring volume of about US$27 billion representing a share representing a share of 0.84% in the global factoring market of approximately US$3,300 billion a year in 2019 is extremely low. It therefore argues that Africa needs a coordinated approach to capacity development to successfully develop and use factoring. Such approaches include strengthening institutional capacity for developing legal and regulatory framework to adopt the model factoring law, strengthening human capacity focusing on critical technical skills and setting a research agenda to facilitate data collection for evidence-based processes.