Infrastructure development serves as an essential foundation for economic growth across the continent, but projects in African markets encounter distinct challenges and, therefore, the effective execution of these is crucial for driving economic growth, fostering socioeconomic advancement, promoting regional integration and enhancing climate resilience.

This is according to Standard Bank Corporate and Investment Banking (CIB) sustainable finance transaction banking executive lead Noloyiso Mpanza and Standard Bank CIB documentary trade and supply chain finance product executive head Nompilo Mtshali.

They explain that projects often involve cross-border trade agreements, which introduce significant risks for both exporters and importers.

Payment uncertainties, political instability, currency volatility, exchange controls, performance failures and supply chain disruptions are identified as a few of the risks that can derail project delivery.

Further to conventional hurdles, businesses are increasingly faced with overarching sustainability risks, including the need for climate adaptation and mitigation, the challenges of resource scarcity, and the importance of community involvement and integration, the two point out.

In response to some of these challenges, businesses are pursuing trade finance solutions, especially documentary trade instruments, in the vein of ensuring operational and financial stability during the entire project lifecycle, they point out.

The financial services provider has partnered with clients across the international trade spectrum to derisk the delivery of critical infrastructure for both governments and private sector corporates across the African markets.

Documentary trade instruments such as letters of credit and guarantees are posited to be ideal to mitigate risks of nonpayment for exporters, while simultaneously ensuring delivery of goods for importers.

Moreover, they are said to empower companies to fulfil essential infrastructure initiatives.

The introduction of letters of credit or guarantees structured in a sustainable finance format is a relatively recent development in the African market, the two point out.

They highlight that the solutions can enhance and promote initiatives and endeavours that demonstrate a distinct positive environmental or social impact.

Companies involved in the supply or acquisition of wind turbines, solar PV components, engineering services or the construction of affordable basic infrastructure projects that meet relevant criteria, can benefit from green or social letters of credit, they cite as an example.

These instruments provide assurance that payment will be made upon delivery of compliant documents, and mitigate the risk of supply chain disruptions that are a result of regulatory noncompliance, while embedding environmental and/or social impact of the underlying project into the solution, the two highlight.

They add that green or social guarantees and stand-by letters of credit play a crucial role in advancing decarbonisation efforts, while simultaneously fostering a positive social impact.

The alignment of these solutions with the Loan Market Association’s green loan principles or the social loan principles allows the company to partner with clients across green project categories that include renewable energy, climate change resilience and adaptation, and sustainable water, as well as social project categories including affordable basic infrastructure and access to essential services. 

Standard Bank CIB has issued its first-to-market green guarantee on behalf of construction client Raubex to support renewable energy construction projects in South Africa.