Impact of COVID-19 on Free Trade Financing in Africa assessed

Impact of COVID-19 on Free Trade Financing in Africa assessed

Dr Vera Songwe, executive secretary at the UN Economic Commission for Africa (ECA) commended Afreximbank for the counter-cyclical measures it took to help countries deal with the economic and health impacts of the COVID-19 pandemic: “The bank has also played a major role in putting together a $2billion facility to help African member states purchase up to 400 million doses of the COVID-19 vaccine.” The report states the number of correspondent banking relationships feel across the region and the rejection of letters of credit requests increased. About 38%of indigenous privately-owned banks and 30% of foreign-owned banks reported an increase in reject rates for this time period. Free trade in Africa could help accelerate economic recovery post-COVID-19

Have you read?Report into African infrastructure lending says market is down, but not out Professor Benedict Orama, Afreximbank president, explained that tightening global financing conditions triggered massive capital outflows from Africa, exceeding $5billion the first quarter of 2020. “These massive capital outflows strained Africa banks, many of which recorded sharp drops in net foreign assets. This further exacerbated liquidity constraints and undermined the capacity of banks to finance African trade.”

The pandemic induced a tightening of financing conditions, which heightened balance of payment pressures and liquidity constrains, affecting supply of trade finance between January and April 2020, the period covered by the survey. The first of a kind report surveys 185 banks across Africa, representing almost 60% of total assets held by African banks.

Have you read?Two new committees for private equity and venture capital market Expanded digitalisation has surprising result Ebson Uanguta, deputy governor of Bank of Namibia, said the crises was deep and government interventions needed to be bold and swift to help banks support businesses and limit insolvencies: “Most sectors of the economies were severely impacted and we took several measures to support the broader economy and trade finance in particular, including easing of monetary policy, relaxation of regulatory requirements and institution of loan repayment moratoriums to the tune of $619million.”

The report highlighted the role trade finance can play in overcoming social and economic impacts of the COVID-19 pandemic to accelerate the process of economic recovery through trade and investment growth. Songwe urged African leaders, especially central bank governors and ministers of finance and other development partners to further support institutions such as Afreximbank through capital increases. This is because such banks can leverage this capital five or six times and thus deploy more resources towards Africa’s post-COVID-19 recovery.

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