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New report highlights impact of COVID-19 on African trade finance

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New report highlights impact of COVID-19 on African trade finance

CAIRO, Egypt, April 20, 2021 – / African Media Agency (AMA) / – African Export-Import Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank (AfDB)and Making Finance Work for Africa Partnership (MFW4A)released the African Trade Finance Survey Report on April 15, 2021, which provides a better understanding of the trade finance landscape in Africa and how it has evolved over the years. the COVID-19 pandemic. The report is the first of its kind, surveying 185 banks across Africa, representing more than 58% of the total assets of African banks.

In his opening remarks, Professor Benedict Oramah, Chairman of Afreximbank, highlighted how the tightening of global financial conditions led to massive capital outflows from Africa, exceeding $ 5 billion in the first quarter of 2020. “These massive capital outflows affected African banks, many of which recorded sharp falls in their net external assets. This further exacerbated liquidity constraints and undermined the ability of banks to finance African trade. “As a result of the pandemic and the inherent tightening of financing conditions, increased balance of payments pressures and liquidity constraints, the supply of trade finance was affected between January and April 2020, the period covered. by the survey. According to the report, the number of correspondent banking relationships decreased across the region and the rejection of credit applications increased, with approximately 38% of local / private banks and 30% of foreign banks reporting an increase in rates. of rejection. respectively.

Dr. Vera Songwe, ECA Executive Secretary, praised Afreximbank for the countercyclical measures it took to help countries deal with the economic and health impacts of the COVID-19 pandemic. “The Bank has also played an important role in creating a $ 2 billion facility to help African member states purchase up to 400 million doses of COVID-19 vaccines.”Dr. Songwe also urged African leaders, especially central bank governors and finance ministers and other development partners to further support institutions such as Afreximbank through capital increases, as such banks can take advantage of this capital five or six times and deploy more resources in Africa. Recovery.

The report highlighted the role that trade finance can play in overcoming the social and economic consequences of the COVID-19 pandemic to accelerate the economic recovery process through growth in trade and investment. It was deep, and government interventions had to be bold and swift to help banks support businesses and limit insolvencies. “Most sectors of the economies were severely affected, and we took various measures to support the economy in general and trade finance in particular, including easing monetary policy, easing regulatory requirements, and instituting moratoriums on repayment of loans in the amount of $ 619 million “said Mr. Uanguta.

According to Ms. Mervat Soltan, President and CEO of the Export Development Bank of Egypt, the bank had experienced a great acceptance of its digital services during the pandemic recession. Egypt is one of the few countries where production expanded in the face of a synchronized global recession. “Digitization, 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. after COVID-19 “she added.

The report noted that African trade amounts to $ 1.077 billion but that banks intermediate $ 417 billion of this, roughly 40%, while the world average is 80%. Bola Adesola, Senior Vice President for Africa at Standard Chartered, highlighted the need to increase business on the continent, to help boost trade, both extra-African and intra-African, and banking intermediation. The African Continental Free Trade Agreement (AfCFTA)he added, can provide a platform to help drive more business.

Mr. Amr Kamel, Executive Vice President of Business Development and Corporate Banking at Afreximbank, highlighted the role of development finance institutions during recessions, noting that “Afreximbank’s Pandemic Trade Impact Mitigation Mechanism (PATIMFA) has provided timely support to banks, helping to settle overdue payments and avoid payment defaults.” He also shared some of the key initiatives the Bank is taking to address the challenges of liquidity constraints and boost African trade, such as the Pan African Payment and Settlement System (PAPSS) and the Afreximbank Trade Finance and Trade Facilitation (AFTRAF) program. to increase the provision of correspondent banking services to African banks.

One of the Bank’s long-time partners, Eng. Hani Salem Sonbol, Executive Director of the International Islamic Trade Finance Corporation (ITFC) reiterated the importance of international collaboration, even if the initial instinct in a crisis is to look towards indoors. Its response to the crisis in Africa has been based on three R’s: assist to help Respond to the pandemic; helps with recovery; and contribute to restart the economy.

The report made numerous recommendations. These include: increased engagement between central banks and industry; drive greater digitization and adoption of technologies; and better data, which will help to better understand and assess risk.

In his closing remarks, Dr. Hippolyte Fofack, Afreximbank’s chief economist, reiterated the need to sustainably grow the supply of trade finance across the region. “Trade finance is the lifeblood of trade and will play a key role in the recovery and structural transformation of African economies to better prepare the region for future global crises.”he added.

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