Despite tough global financial situation triggered by Covid-19 pandemic, there was massive portfolio outflows from Africa estimated to be above $5 billion in the first quarter of 2020.
A new continent-wide survey on trade finance shows that over $3.1 billion left the South African market alone. South Africa is the second largest economy in Africa, behind Nigeria.
The African Trade Finance Survey Report launched on April 21, 2021, examined how trade finance fared during the Covid-19 pandemic and highlights the role it can play in forestalling the social and economic fallout from the disease.
The survey was conducted jointly by African Export-Import Bank (Afreximbank) and Making Finance Work for Africa Partnership, which is co-hosted by hosted the UN Economic Commission for Africa and the African Development Bank.
President of Afreximbank Prof Benedict Oramah said at the launch of the report that a number of international banks had become more reluctant to undertake 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 to April of 2020 when global trade recorded its largest contraction on record. The survey 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 digitalise swiftly over the period.
To mitigate the significant outflows and mobilise for recovery Executive Secretary at the UN Economic Commission for Africa Vera Songwe urged African leaders, especially central bank governors and finance ministers and development partners to further support institutions such as Afreximbank through capital increases and deploy more resources towards economic recovery.
Chair and Managing Director at the Export Development Bank of Egypt Mervat Soltan said the bank had seen a significant increase in its digital services during the pandemic downturn.
“Digitalisation, 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 post-Covid-19,” she added.
One way to boost African trade is through the African Continental Free Trade Area (AfCFTA), which the UN’s Economic Commission for Africa estimates can improve intra-Africa trade by over 50%. Bola Adesola, Senior Vice Chairman for Africa at Standard Chartered, said the AfCFTA can provide an ideal platform to help drive new businesses on the continent, which will help accelerate trade.
- A Tell report