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The African Import-Export Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB) and Making Finance Work for Africa Partnership (MFW4A) published the April 15, the Africa Trade Finance Survey Report which provides a better understanding of the trade finance landscape in Africa and its evolution during the COVID-19 pandemic. The report is the first of its kind, examining 185 banks from across Africa, representing over 58% of the total assets held by African banks.
In his opening speech Prof Benedict Oramah, Chairman of Afreximbank, highlighted how the tightening of global financial conditions triggered massive capital outflows from Africa, exceeding $ 5 billion in the first quarter of 2020. “These massive capital outflows have put a strain on African banks, many of which have experienced sharp declines in their net foreign assets. This further exacerbated liquidity constraints and undermined the ability of banks to finance African trade ”, said Professor Oramah.
Due to the pandemic and the inherent tightening of financing conditions, intensifying pressure on the balance of payments and liquidity constraints, the supply of trade finance was affected between January and April 2020, the period covered by investigation. According to the report, the number of correspondent banking relationships has declined in the region and the rejection of L / C requests has increased, with around 38% of local / private banks and 30% of foreign banks reporting increased rejection rates. , respectively.
Dr Vera Songwe, Executive Secretary of ECA, commended 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 also played a major role in setting up a $ 2 billion facility to help African member states purchase up to 400 million doses of COVID-19 vaccines.”, she added.
Dr Songwe also urged African leaders, especially central bank governors and ministers of finance and other development partners to further support institutions such as Afreximbank through capital increases, as these banks can take advantage of that capital five or six times and deploy more resources for Africa’s recovery.
The report highlighted the role that trade finance can play in overcoming the social and economic fallout from the COVID-19 pandemic to accelerate the process of economic recovery through growth in trade and investment.
For HE Mr. Ebson Uanguta, Deputy Governor of the Bank of Namibia, the crisis was deep and government interventions had to be bold and swift to help banks support businesses and limit bankruptcies. “Most sectors of the economy have been severely affected and we have taken several measures to support the economy at large and trade finance in particular, including easing monetary policy, easing regulatory requirements and the institution of moratoriums on the repayment of loans to the tune of $ 619 million “, Uanguta said.
According to Ms. Mervat Soltan, president and CEO of the Export Development Bank of Egypt, the bank had seen strong uptake of its digital services during the pandemic slowdown. Egypt is one of the few countries where production has increased in the face of a synchronized global recession. “Digitization, which has supported the growth of business and commerce during the pandemic, offers an excellent opportunity to help reduce costs and increase the use of trade finance facilities and should be an integral part of the strategy to boost African trade after COVID-19 ”, she added.
The report points out that Africa’s trade amounts to $ 1,077 billion, but that banks intermediaries $ 417 billion, about 40%, compared to the world average of 80%.
Ms Bola Adesola, Senior Vice President for Africa at Standard Chartered highlighted the need to expand businesses on the continent, to help boost both extra and intra-African trade and bank intermediation. The African Continental Free Trade Agreement (AfCFTA), she added, can provide a platform to help develop larger businesses.
Mr. Amr Kamel, Executive Vice President, Business Development and Corporate Banking at Afreximbank, highlighted the role of development finance institutions during downturns, stressing that “Afreximbank’s Pandemic Trade Impact Mitigation Mechanism (PATIMFA) provided timely support to banks, helping to clear overdue payments and prevent defaults.”
He also shared some of the key initiatives the Bank is implementing to address the challenges of liquidity constraints and boost African trade, such as the Pan African Payment and Settlement System (PAPSS) to reduce the foreign exchange content of African trade. and Afreximbank Trade Finance. and the Trade Facilitation Program (AFTRAF) to increase the provision of correspondent banking services to African banks.
One of the Bank’s long-standing partners, Eng. Hani Salem Sonbol, CEO of the International Islamic Trade Finance Corporation (ITFC) reiterated the importance of international collaboration even though the initial instinct of a crisis is to look inward. Their response in Africa to the crisis has been anchored on three Rs: helping to respond to the pandemic; aid in recovery; and help restart the economy.
The report contained many recommendations. These include: increased engagement between central banks and industry; lobby for increased digitization and adoption of technologies; and better data, which will help better understand and assess risk.
In his closing remarks, Dr Hippolyte Fofack, Chief Economist at Afreximbank, reiterated the need to sustainably increase the supply of trade finance in the region. “Trade finance is the cornerstone of trade and will play a key role in the recovery and structural transformation of African economies in order to better prepare the region for future global crises”, he added.