Trade Finance Gap In Africa Is $81 Billion

Trade Finance Gap In Africa Is $81 Billion

The Chief Executive Officer (CEO) of NEPC, Olusegun Awolowo, said that the trade finance gap in Africa runs to the tune of $81 billion.

Awolowo stated that factors affecting the financing of trade in Africa include the creditworthiness and lack of collateral of clients.

He said, “We are looking at priority commodities for market access as well as new products that can be added to the list. The trade finance gap in Africa is estimated to be $81 billion. Banks are not financing trade due to client creditworthiness and insufficient collateral.

“The Export Development Fund (EDF) would soon be launched while the N5 billion under the Economic Sustainability Fund would be explored to prepare and facilitate the global market for global trade, market access, and competitiveness.”

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Trade Finance Problems and Solutions

According to a joint report titled ‘Trade Finance in Africa: Trends Over the Past Decade and Opportunities Ahead’ by the African Development Bank (AfDB) and the African Export-Import Bank (AFREXIMBANK), trade financing by banks in Africa stands at 40 percent, half than what is reported globally.

The report also noted that infrastructural challenges impede the ability of banks to step in as intermediaries in Africa’s trade business with the rest of the globe.

Highlighting further constraints, the report noted that unforeseen regulations by regulatory bodies on the continent serve as a crucial impediment to low performance.

“The good news is that development finance institutions (DFIs), including the African Development Bank, are playing a more active role in supporting the trade finance industry in Africa,” the report said.

It added that between 2015 and 2019, banks participated in trade finance activities on the continent and saw support from DFIs to enable an expansion in transactions.

However, DFIs, according to the report, favour certain sub-regions and financial institutions that are mainly foreign-owned private banks.

Proffering a solution, the report reminded of the “impact that stringent regulatory requirements have on African financial intermediaries, with various actors collaborating on approaches that would make compliance more cost-effective.”

A more “robust and sustained engagement with SMEs, inviting DFIs to expand their trade finance network of banks that support these enterprises,” suggests the report.

About Author

Kindness Udoh is a writer and media enthusiast with vast experience in journalism, copywriting, and features across beats. He also has professional certifications in creative writing. You can reach him via [email protected]

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