Africa needs urgent financing to re-energise its trade in the continent in the wake of the COVID-19 pandemic, a joint report has stated.
This is according to the latest trade finance report, jointly released by the African Development Bank (AfDB), and the African Export-Import Bank (Afreximbank), on Sunday.
The report, titled: “Trade Finance in Africa: Trends Over the Past Decade and Opportunities Ahead”, built on two previous studies released in 2014 and 2017.
It was also based on a survey of over 600 unique commercial banks in 49 countries across Africa for 2011 to 2019.
The report established a benchmark for trade finances in Africa before the COVID-19 crisis and recommended policy responses to the industry in the wake of the pandemic.
According to the report, only 40 per cent of Africa’s trade is bankintermediated (goes through the formal banking system), which is a far lower share than the global average of 80 per cent.
The trade finance gap was also stated to have remained unacceptably high at 81 billion dollars in 2019.
The report found that these were some of the structural challenges that hindered banks’ abilities to effectively intermediate Africa’s trade with the world.
It also highlighted the critical role of development finance institutions in supporting the industry.
The study also found that unintended regulatory bottlenecks were one of the key constraints driving these patterns.
“With the ongoing COVID-19 pandemic, the need for financing to re-energise the region’s trade is urgent.
“The good news is that Development Finance Institutions (DFIs) including the African Development Bank, are playing a more active role in supporting the trade finance industry in Africa,” the report said.
According to the report, more than half of banks engaged in trade finance activities between 2015 and 2019 received support from DFIs to expand their transactions. Yet, DFI support was skewed toward particular sub-regions and financial intermediaries, mainly foreign-owned private banks.
The report made recommendations to boost trade finance supply in Africa.
The recommendations included, raising awareness about the impact of strict regulatory requirements on sector intermediaries and addressing geographical and institutional differences in DFI support to the sector.
Stefan Nalletamby, AfDB’s Director of the Financial Sector Development Department, noted that the report series had become the main reference document for the industry on the continent.
“It reflects the Bank’s increasing thought leadership role on this important subject.
“We hope that the findings of this report will motivate policymakers and industry experts to devise and implement strategies in fragile states and low income countries to make trade finance more accessible to African traders, especially SMEs in fragile states and low income countries,” he said.