ESD INSIGHT SERIES | 18 SEPTEMBER 2023

Ecosystem banking
is key to develop ESD

Absa-CIB-Author

Philip Niwamany/David Mparutsa

Sector Head Oil and Gas &
Value Chain Banking, Absa
Bank Uganda

Head of Enterprise & Supply
Chain Development

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While access to finance is a key part in the support of Enterprise and Supplier Development (ESD) initiatives, a focus on broader “Ecosystem Banking” is critical to ensure the ongoing sustainability of initiatives.

While a market such as South Africa has a relatively well-developed ESD environment and some well-developed fintech players, the rest of the continent offers prime examples for us to share some of our previous learnings.

Markets like Uganda, where SMEs are the lifeblood of the economy with over 80% GDP contribution, offer a good opportunity to replicate Absa’s ESD experience from other markets.

Uganda represents an exciting ESD market for Absa, particularly with its rapidly evolving manufacturing sector, which makes up over 50% of the industry sector that accounts for 26% of its $49bn per year economy.

This market is dominated by a number of multinationals who operate in the alcohol, soft drink and ‘consumables for the home’ market sectors. Manufacturing is at the heart of a multi-faceted localisation drive which not only aims to drive small business and job creation, but also aims to support the Government’s import substitution and export promotion strategies.

When we unpack the value-chains in this sector, we can see huge opportunities to support small businesses. Many of the input factors that go into these value chains start in the agriculture sector at small-scale farmers and expand to growers and aggregators. The outputs from this sector are supplied to the market through a network of distributors, stockists, and retailers. There could be up to 15 000 players in an ecosystem supporting a major beverage group.

This is a sector which is ripe to be integrated into ESD programmes as we can bring together a combination of financial and non-financial support.

One of the reasons that representatives of multinational brands in the sector trust Absa is that we have a keen understanding of how to develop ESD initiatives for maximum impact across the African continent.

More importantly, we understand the value of partnerships. While Absa has a proven track record of rolling out ESD programmes, we understand that we cannot rely on our knowledge alone. We acknowledge that our clients understand the broader ecosystem of their own businesses and their insights are key to mutual success.

Firstly, when it comes to access to finance, we need to dig deeper than our traditional lending models based purely on financials. Our clients and partners understand things like supply and demand, inventory lead times and seasonality. These kinds of insights are incredibly important to our credit decisions.

Secondly, they understand the local participants and will have their ears-to-the-ground in terms of quality of suppliers, distributors and other ESD beneficiaries. We attach a lot of value to letters of recommendation from our partners when we select ESD beneficiaries.

For us to get this right we need to invest in our digital capabilities to truly understand these markets from the primary production players all the way to the final offset channels. Without adequate digital capabilities we cannot gather the data needed to inform decision making that benefits the whole ecosystem.

In the past, digitisation was focused on the corporates and how we can streamline the bank’s relationships with them, but that strategy excluded the local procurement and distribution sides of the value chain that looked after SMEs. Absa’s investment in agri-tech start-up Khula! is proof of our commitment to support inclusive digital solutions. Khula! is just one example of a platform which connects Farmers, Buyers, and Funders across the agriculture value-chain on the continent. These are the types of solutions needed across industries that will be key to driving trade on the continent, particularly as the African Continental Free Trade Area (AfCFTA) becomes more active.

These solutions will give life to the data we need to inform decision making in the SME sector that feed into the corporate value chains.

We are grateful to be working with corporates that have a willingness to collaborate and empower us on our mission to empower Africa’s tomorrow, together… one story at a time and drive our ESG agenda through financial inclusion. We truly believe that unlocking the true potential of SMEs through ESD in the manufacturing sector will contribute to achieving this.

Absa-CIB-Author
Philip Niwamany and David Mparutsa

Sector Head Oil and Gas & Value Chain Banking, Absa Bank Uganda
Head of Enterprise & Supply Chain Development

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