Summary of Discussions Roundtable on Trade Finance

20/04/2009
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While the implementation of AfDB’s initial crisis response action plan is now in full swing, the different IFIs/DFIs recognize the limitations of individual institutions in addressing a problem, which is far beyond the means of one. It is in this context that, together the International Finance Corporation (IFC) and the African Development Bank (AfDB), supported by Afreximbank and the African Trade Insurance organization (ATI) have organized the Trade Finance Roundtable on 14 April. More than 20 leading commercial banks from across the Continent were present.

The objective of the roundtable was to present an in-depth analysis of the major constraints to trade finance in Africa to better assess the current situation in Africa’s trade finance market, understand the needs of African FIs involved in trade finance, and to formulate interventions by the AfDB in the sector to get trade finance flowing again.

In his opening remarks, AfDB President, Donald Kaberuka noted that the financial crisis has brought multilateralism back. IMF had been invigorated and was expected to play a critical role in alleviating the impact of the financial crisis. At the AfDB, the annual volume of lending was traditionally at about USD 5 billion, but in responding to the crisis this may now go up to USD 7 billion. This made the prospect for a GCI promising. But he noted that responding to the crisis was not only about resources, it is a question of capacity and collaboration. This is why we are here today, to ensure collaboration among IFIs in responding to the crisis.

Furthermore, Vice President Mandla Gantsho said that while we are all developing our responses individually, only by bringing them together and coordinating their delivery, can we make a difference and achieve a meaningful impact.

Mr. Jyrki Koskelo, Vice president of IFC, noted the critical importance of timing for addressing the crisis as markets were changing “overnight”. Only six months ago several market actors had denied suffering adverse consequences of the crisis. He also noted that fixing trade finance alone was not going to resolve the problem.

Mr. Tim Turner, Director of AfDB’s Private Sector Department then introduced the recently approved USD 1.0 billion AfDB Trade Finance Initiative (TFI) to the audience, noting that it was structured to be implemented in two phases. In a first phase, it envisaged providing trade finance LOCs to local banks and DFIs. The utilization of the second tranche was still under consideration but would aim at medium term interventions through IFI partnership programs under development.

During the ensuing roundtable discussion the possibility of using AfDB proceeds for funding trade syndications (Standard Chartered Bank), the need for MDBs to work with the ECAs was highlighted and that it appeared that structured finance was returning. The challenge to actually get the liquidity money to the clients, as opposed to being deposited by beneficiary banks, was also highlighted. The possibility of mobilizing additional resources to complement those of IFIs was raised and pension funds were mentioned as an opportunity.

In summing up, it was noted that the comprehensive crisis response initiatives by AfDB and IFC would together serve as a good foundation on which to build fruitful collaboration. While IFC and AfDB would collaborate, other IFIs were encouraged to join towards leveraging the initial contributions by IFC and AfDB.

Let there be no doubt, unless the IFI community can develop a framework of productive collaboration, much of our dedicated effort for alleviating the impact of the financial crisis may result in a lost opportunity to make a meaningful impact.

These initiatives of IFC and AfDB will together serve as a good foundation on which to build fruitful collaboration, together with other institutions, in order to preempt the crisis from worsening and prevent further negative impact and use the impetus given by the G20 Leaders.