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Responding to the Global Financial Crisis, African Development Bank (AfDB) invests up to USD 500 million in the Global Trade Liquidity Program. The AfDB Private Sector Department Director and his colleagues explain. Video
Tunis, 1 July 2009 - The Board of Directors of the African Development Bank (AfDB) Group approved on Wednesday in Tunis, a US$ 500 million investment in the Global Trade Liquidity Program as the second phase of its Trade Finance Initiative. The first phase approved in March 2009 was a US$ 500 million in lines of credit to support trade finance by African banks, bringing the combined ceiling for both phase 1 and 2 to US$ 1 billion.
The initial US$ 500 million investment by the Bank makes the GTLP the single-largest contributor to African trade finance. The Bank’s presence helped increase the share of GTLP resources specifically targeted for Africa.
“The Bank’s Trade Finance Initiative is a temporary strategy to respond to the request by African ministers of finance to address current market constraints. Therefore the GTLP aligns well with both Regional Member Countries and Bank priorities,” says Bobby Pittman, AfDB Vice President for Infrastructure, Private Sector and Regional Integration. In this period of crisis, the AfDB intends to use its maximum capacity, innovate and work in complementarity with other agencies to play a countercyclical role while continuing to finance long-term development.” he added..
The Global Trade Liquidity Program (GTLP) is a temporary crisis-response initiative among development finance institutions (DFIs) and donors to support trade finance in the developing world. The GTLP will pool resources from DFIs and donors and will use two primary investment structures: (i) a risk-sharing structure, whereby funding will be channeled to local trade finance banks through international banks; and (ii) direct dedicated lines of credit to local banks with regional coverage.
By providing liquidity and sharing risk with African financial institutions, the GTLP will facilitate Africa’s exports and imports at a time when the global financial crisis is cutting off critical funding. The projected US$ 15 billion GTLP resources for African trade finance will thus support African economies and reduce job losses.
The GTLP is also expected to have a strong demonstration effect to catalyze African and international banks back into the trade finance sector.
The program is in line with the Bank Group’s response to the economic impact of the financial crisis, which comprises an Emergency Liquidity Facility; Trade Finance Initiative and Framework for Accelerated Resource Transfer to countries eligible for African Development Fund (ADF) support.