A survey by the African Export-Import Bank, jointly with the UN Economic Commission for Africa and the African Development Bank-hosted Making Finance Work for Africa Partnership estimates that the continent lost US$5bn in massive portfolio outflows in the first four months of last year.
The outflows arising from the constrained global financial conditions caused by Covid-19, according to a report of the new continent-wide survey on trade finance, showed that $3.1bn of the total amount left the South African market alone.
The African Trade Finance Survey Report examined how trade finance has evolved during the Covid-19 pandemic and highlights the role it can play in overcoming the social and economic fallout of the disease.
Speaking at the launch, Professor Benedict Oramah, President of Afreximbank, lamented a situation where a growing number of international banks are becoming even more reluctant to take on payment risks in countries where economic conditions were deteriorating.
“These massive capital outflows strained African banks, many of which recorded sharp drops in their net foreign assets. This further exacerbated liquidity constraints and undermined the capacity of banks to finance African trade,” he said.
The survey covers the first four months of 2020, including April, when global trade recorded its largest contraction on record. It aims to inform the design of interventions to address market challenges and effectively engage African financial institutions, trade finance intermediaries, regulatory authorities, and national authorities to accelerate efforts to bridge the region’s trade finance gap.
Among the several recommendations by the report, is the need for greater engagement between central banks and the industry, while pushing for increased digitalization and uptake of new technologies, and better data.
Despite the many challenges arising from Covid-19, the report highlighted opportunities such as strong resilience and expansion seen in a few African economies during the pandemic. This, it said, was primarily due to the ability of such governments to be agile and to digitalize swiftly over the period.
To mitigate the significant outflows and mobilize for recovery, Vera Songwe, Executive Secretary at the UN Economic Commission for Africa, urged African leaders, especially Central Bank Governors and Finance Ministers and development partners, to further support institutions such as Afreximbank through capital increases and deploy more resources towards Africa’s recovery.
Mervat Soltan, Chairperson and Managing Director at the Export Development Bank of Egypt, said the bank had seen a significant increase in its digital services during the pandemic downturn.
“Digitalization, which sustained business and trade growth during the pandemic, offers a great opportunity to help reduce costs and increase the use of trade finance facilities, and should become an integral part of the strategy to boost African trade post-Covid-19,” she added.
One way to boost African trade, according to the statement by Kwasi Kpodo, Communication and External Relations Department, African Development Bank, is through the African Continental Free Trade Area (AfCFTA), which the UN’s Economic Commission for Africa estimates can improve intra-Africa trade by over 50%.
It also quoted Bola Adesola, Senior Vice Chairman for Africa at Standard Chartered, as saying the AfCFTA can provide an ideal platform to help drive new businesses on the continent, which will help accelerate trade.
