The African Export-Import Bank (Afreximbank), in cooperation with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB) and the Making Finance Work for Africa Partnership (MFW4A), published a survey on African countries on 15 April 2021. trade finance A report that provides a better understanding of the trade finance landscape across Africa and how it evolved during the COVID-19 pandemic. The report is the first of its kind, surveying 185 banks from across Africa, representing more than 58% of total African bank assets.
In his introductory remarks, Professor Benedict Oramah, President of Afreximbank, stressed that the tightening of global financial conditions was triggered by a massive outflow of capital from Africa, exceeding $ 5 billion in the first quarter of 2020. “These huge capital outflows have exacerbated African banks. many recorded a sharp decline in their net foreign assets. This has further exacerbated liquidity constraints and undermined banks’ ability to finance African trade, ”said Professor Oramah.
As a result of the pandemic and the inherent tightening of financing conditions, rising balance of payments pressures and liquidity constraints, the supply of trade finance was hit between January and April 2020, the period covered by the survey. According to the report, the number of correspondent banking relationships declined across the region, and the rejection of letters of credit requests increased, with about 38% of local / private banks and 30% of foreign banks reporting an increase in the rejection rate, respectively.
Dr Vera Songwe, ECA Executive Secretary, praised Afreximbank for the countercyclical measures it has taken to help countries cope with the economic and health impacts of the COVID-19 pandemic. “The bank has also played a major role in assembling a $ 2 billion plant to help African member states purchase up to 400 million doses of COVID-19 vaccine,” she added.
Dr Songwe also called on African leaders, especially Central Bank governors and finance ministers and other development partners, to further support institutions like Afreximbank by increasing capital because such banks can use that capital five or six times and allocate more resources to Africa’s recovery.
The report highlighted the role that trade finance can play in overcoming the social and economic consequences of the COVID-19 pandemic in accelerating the process of economic recovery through trade and investment growth.
For N.E. Mr. Ebson Wangutu, Deputy Governor of the Bank of Namibia, the crisis was deep and government interventions needed to be bold and swift to help banks support business and limit insolvency. “Most sectors of the economy have been severely affected, and we have taken several measures to support the wider economy and especially trade finance, including easing monetary policy, easing regulatory requirements and establishing a moratorium on loan repayments of $ 619 million,” he said. Uanguta.
According to Ms. Mervat Soltan, chairman and CEO of the Egyptian Development Bank, the bank made great strides in its digital services during the pandemic. Egypt is one of the few countries where production has increased due to a synchronized global decline. “The digitalisation that has sustained business and trade growth during the pandemic provides a great opportunity to help reduce costs and increase the use of trade finance incentives and should become an integral part of the strategy to strengthen African trade after COVID-19,” she added.
The report points out that African trade amounts to 1.077 billion US dollars, but that banks mediate 417 billion US dollars, approximately 40%, while the global average is 80%. Ms. Bola Adesola, Senior Vice President for Africa at Standard Chartered, stressed the need to increase business on the continent, to help launch trade both outside and within African trade and bank intermediation. The African Continental Free Trade Agreement (AfCFTA), she added, could provide a platform to help start bigger businesses.
Mr. Amr Kamel, Executive Vice President of Business Development and Corporate Banking at Afreximbank, emphasized the role of development financial institutions during the downturn, noting that “Afreximbank’s Pandemic Trade Facilitation Facility (PATIMFA) provided timely support to banks by helping to clear payments. mature and prevent default settings. He also shared some of the Bank’s key initiatives to address liquidity constraints and boost African trade, such as the Pan-African Payment and Settlement System (PAPSS) and the Afreximbank Trade Finance and Trade Facilitation (AFTRAF) program to increase the provision of correspondent banking services. African banks.
One of the long-term partners of the Bank, Eng. Hani Salem Sonbol, executive director of the International Islamic Trade Finance Corporation (ITFC), reiterated the importance of international co-operation even if the initial instinct in a crisis is inward-looking. Their response in Africa to the crisis is anchored in three Rs: aid to help respond to a pandemic; recovery assistance; and contribute to restarting the economy.
The report makes a number of recommendations. These include: greater engagement between central banks and industry; advocating for increased digitization and technology takeovers; and better data, which will help in better understanding and price risk.
In closing remarks, dr. Hippolyte Fofack, chief economist at Afreximbank, reiterated the need for sustainable growth in trade finance supply across the region. “Trade finance is the lifeblood of trade and will play a key role in the recovery and structural transformation of African economies to better prepare the region for future global crises,” he added.