Covid-19: Africa’s trade finance declines
Constrained global financial conditions caused by COVID-19 have led to massive portfolio outflows from Africa, exceeding $5 billion in the first quarter of last year, a new continent-wide survey on trade finance has shown.
About $3.1 billion left the South African market alone, the report found.
The African Trade Finance Survey Report examined how trade finance has evolved during the pandemic and highlights the role it can play in overcoming the social and economic fallout of the disease.
The survey was conducted by African Export-Import Bank (Afreximbank), with the United Nations Economic Commission for Africa and the African Development Bank-hosted “Making Finance Work for Africa Partnership.”
President of Afreximbank, Prof Benedict Oramah, said many international banks were 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.
The report made numerous recommendations, including greater engagement between central banks and the industry, a push for increased digitalization and uptake of new technologies, and better data.
Despite the many challenges that came along with Covid-19, some opportunities also arose, the report noted. In fact, a few African countries’ economies showed strong resilience and expansion during the pandemic primarily due to their ability to be agile and to digitalize swiftly over the period.
Nation/Hauwa Abu
