AfDB approves $175 million facility for financing in Africa

BAD aprova mecanismo de 175 milhões de dólares para financiamento em África

The African Development Bank (AfDB) has approved a $175 million regional trade finance facility for the Eastern and Southern Africa Trade and Development Bank, the Bank announced Thursday in a statement.

In a communiqué quoted by Lusa, the institution says that, together, "the two institutions will make available 350 million dollars to support commercial transactions" on the continent.

"The agreement is expected to boost intra-African trade, promote regional integration, and contribute to closing the trade finance gap in Africa," the ADB said in the same statement.

Through the agreement reached by the two banks, the ADB "will provide liquidity of up to 50%" - and the remaining 50% will be supplemented by the Trade and Development Bank - to issuing banks, "on a risk-sharing basis to support the business activities of local companies and SMEs in the member countries of the Common Market for Eastern and Southern Africa (COMESA)."

"This is a strategic effort by the African Development Bank to support the Continental Free Trade Area in Africa agenda of reshaping markets and economies across the region, helping to boost production in the services, trade, manufacturing and natural resources sectors," that institution stresses in the note.

Established in 1985, the Trade and Development Bank of Eastern and Southern Africa (TDB) is a treaty-based multilateral development finance institution with 41 shareholders and sovereign and institutional assets worth $7.2 billion.

The bank serves 22 economies in its region, with the goal of financing and fostering trade, regional economic integration, and sustainable development.

The bank is part of the TDB Group, which also includes the Trade and Development Fund (TDF), the Eastern and Southern Africa Trade Fund (ESATF), TDB Captive Insurance (TCI), and the TDB Academy.

Speaking shortly after ADB's board of directors approved the agreement, Stefan Nalletamby, the bank's director for financial sector development, said, "We are excited about the finalization of this facility with TDB, which will help it increase its trade finance offerings across the COMESA region and help bridge the widening trade finance gap."

"Specifically, it will enable the TDB to play a significant role in providing the financing needed for the economic recovery of its member countries post covid-19. This partnership is expected to catalyze over $2.1 billion in trade finance transaction value across multiple sectors, such as agriculture, manufacturing and energy, over the next three years," he added.

The AfDB estimates that the annual trade finance gap for Africa is about $81 billion.

Compared to multinational and large local companies, SMEs and other domestic companies thus have greater difficulty in accessing trade finance.

In yesterday's note from the AfDB, the managing director of the bank's East Africa region, Nwabufo Nnenna, also says that the covid-19 pandemic has contributed to the fact that many banks have reduced or simply gone out of business on the African continent, so there is "an urgent need for financing."

"The advent of covid-19, coupled with stringent regulatory and capital requirements and KYC [Know Your Client] compliance, made many global banks reduce their correspondent banking relationships in Africa, while some are simply exiting the market."

In his view, therefore, "there is an urgent need for targeted funding to revitalize Africa's trade, particularly in low-income countries and states in transition, which require greater involvement of institutions such as the African Development Bank.

The African Development Bank Group is the leading development finance institution in Africa. It comprises three separate entities: the African Development Bank (AfDB), the African Development Fund (ADF), and the Nigeria Trust Fund (NTF). Present on the ground in 41 African countries, with an external representation in Japan, the bank contributes to the economic development and social progress of its 54 member states.

Share this article

Leave a Reply

Your email address will not be published.