Transforming Africa’s Trade Finance Industry: What Next?
On the margins of the African Development Bank Group (AfDB) 48th Annual Meetings, in a side event gathered on May 29th 2013, Trade Finance (TF) leaders and practitioners met to exchange views on their perspectives of the trade finance industry in Africa. TF contributes positively to private sector development, at the core of Africa’s Structural Transformation, and inclusive growth. Indeed, by meeting investment and working capital needs of real sector enterprises and by preventing supply shortages, Trade Finance ensures a continuity of operations, fosters growth in turnover and employment creation.
The AfDB’s Board of Directors approved on February 20th, 2013 the AfDB Trade Finance Program (TFP).
This marked the establishment of a full-fledged in-house trade finance program, consolidating the Bank’s role as a provider of trade finance. The program seeks to complement contributions from the commercial players and Multilateral Development Banks involved in Trade Finance in Africa while addressing the critical market demand for TF in the region by supporting trade in vital economic sectors. The program will require the collaborative effort of various stakeholders, including regional Development Finance Institutions, and local and international financial institutions. As such, the AfDB needs to widely communicate the importance of the Bank’s intention to all TF stakeholders in Africa, including the Governors of Central Banks, Development Finance Institutions, local and international financial institutions, and TF beneficiaries. Following the approval of the program by the AfDB Board, five transactions totaling US$520 million have been processed, of which two are risk participation agreements signed this week with Standard Chartered Bank and Commerzbank for which the AfDB is contributing, respectively, US$ 200 million and US$100 million to be matched by these two partners.
The trade finance side event brought together industry leaders and market participants to discuss the current market context and future of TF in Africa. The participants explored the way forward on bolstering intra-African trade, its challenges and possible solutions, shared lessons learnt from other markets and how local banks and Small and Medium Enterprises can create a winning formula for access trade finance. They also discussed the role of regional development banks and commercial players in supporting trade finance. The side event provided a unique platform for the launch of the newly established TFP and highlighted its broad objectives.
Marc Auboin, Economic Counsellor in charge of trade and finance, and international economic policy coherence at the World Trade Organization (WTO), one of the panelists of the side event, said historically, trade assets have low default rates, thus placing them firmly in the category of low risk assets. African trade instruments are no exception.