Africa's Trade Finances And Efforts For Revival
In 2011, Africa used to be one of the most integrated places globally in terms of trade finances. However, Africa's trade finances have been hit with growing problems, including the COVID-19 pandemic. What are the reasons for such a situation? And how are they being rectified? Let's take a look.
According to various studies, Africa's trade finance participation rates have fallen drastically between 2013 to 2019 - by almost 16%. There are several reasons behind the fall of Africa's trade growth. It includes less access to finance, regulatory challenges, inadequate foreign exchange liquidity, competition, falling commodity prices, and more. The pandemic too wreaked havoc as it led to a twin demand-supply shock in the continent. Demand for products from the continent, supply chain blockages, and mass production shutdowns halted supply.
But trade finance has always remained a key driver in Africa's economic and social development. So, banks like Afrexim and AfDB have been trying to revive the market by providing new and innovative solutions.
AfCFTA started the free trade system that provided enormous opportunities for the entire continent and its trading partners. There were improvements in liquidity, funding, cross-border dealing, and more.
The AfDB made significant contributions by adopting a new High 5 strategy that gave importance to -
Improving the quality of life
Industrialize the continent
Feed the people
Light and power up the continent
AfDB also launched a new transaction guarantee instrument in July 2021 to help increase the trade finance market. It helped local financial institutions to have relations with international banks, thus increasing their networking web. It provided new opportunities for Africa's small and medium companies.
Afrexim and AfCFTA provided a further boost to the trade finance market when they signed an agreement regarding the AfCFTA Adjustment Fund's Base Fund. The new fund will help the African private sector and the companies to participate in more trading finance activities