The African Export–Import Bank (Afreximbank), a pan-African multilateral trade finance institution has launched the Trade Finance Seminar for this year in Kampala.
The 3-day Seminar has brought together representatives from the Central Banks and stakeholders in the banking sector from across the African continent to among others discuss the current crises such trade financing gaps, COVID-19, Russia-Ukraine war and their implications for Africa.
The workshop introduced Afreximbank’s crises containment programmes as well as programmes to accelerate trade development and expansion in Africa.
The stakeholders also aim to discuss the essential credit and compliance risk mitigation tools to mitigate the impact of global crises such as COVID-19 pandemic and the Russia – Ukraine war on Africa’s various institutions as well as the Africa Continental Free Trade Area (AfCFTA) which is an important
pathway towards the economic development of Africa and achieving the Agenda 2063.
This year’s seminar is held under the theme “Power to Trade: Navigating an era of crisis and change” in cognisance of the crises induced turbulent global financial system that continues to adversely impact the world economy with Africa and other developing countries being the most affected.
Speaking at the opening ceremony in Kampala on Monday, the Executive Vice President, Intra-African Trade Bank – Afreximbank, Mrs Kanayo Awani said the back-to-back crises in the form of the COVID-19 pandemic of 2020 and 2021 and the Ukraine crisis of 2022 have dented major global supply chains and hence the ability of most African countries to access essential imports as well as agricultural and industrial raw materials and capital goods.
“Also, cuts to financial inflows caused by exits of international banks have placed a significant squeeze on the capacity of African countries to pull their economies out of the throes of prolonged recession and undermined African governments’ ability to diversify the sources of growth. These crises and the attendant economic consequences have brought into sharp focus the preparedness and capacity of the African financial system to roll out robust containment programmes to support the most vulnerable economies in the continent,” she said.
Mrs Kanayo added that one of the essential lessons from the global response to the pandemic and the Ukraine crisis is that the African continent’s ability to navigate these and future crises will depend on the existence of a robust, deep, and interconnected financial system.
“A robust and integrated financial system will help improve Africa’s preparedness to confront global shocks by allowing us to collectively pool Africa’s abundant-butwidely dispersed financial resources to cushion vulnerable economies and sectors from exogenous shocks. Also, a well connected financial system can accelerate intra-regional trade and investment and, ultimately, realisation of the goals of the African Continental Free Trade Agreement (AfCFTA). Innovations in an integrated financial system will be critical to developing tailor-made solutions to the most complex challenges that confront the continent,” she said.
The Afreximbank’s African Trade Report, 2022 showed that Africa remained a peripheral contributor to global trade at about 2.6% in 2021.
Similarly, the 2022 African Economic Outlook by the African Development Bank revealed significant financing gaps for Africa’s trade that betray insufficient policy support from governments and the legal, regulatory, and financial sectors.
As a result, limited access to finance continues to stunt the growth of Africa’s trade sector. The pandemic and geopolitical tensions, protectionism and trade barriers by some countries, have amplified the challenges facing Africa’s trade and trade finance. Financial flows have been hampered by heightened uncertainty and growing risk, thereby starving frontier economies of much needed liquidity.
The Deputy Governor, Bank of Uganda, Michael Ating Ego said the AfreximBank’s seminar was held at the right to find remedies to the crises, and applauded the Bank for endeavoring to close the financing gap.
“Fortunately, this rich seminar has sessions dedicated to these emerging risks and the bread and butter topics of trade finance, such as factoring,” he said.
Afreximbank has financed trade since its inception to date. In the first half of 2022, Afreximbank approved loans worth USD 20.7 billion, following on from loans of USD 18.1 billion in 2021, and USD 16.3 billion in 2020, indicating a steady rise in trade and trade-related project finance lending.
On the other hand, African financial institutions’ provision of trade finance lags behind global performance.
Data from the African Development Bank shows that from 2011 to 2019, banks intermediated about 40% of total African trade compared to the worldwide average of 80%.
Similarly, the share of small and medium enterprises (SMEs) in trade finance applications rejected by banks increased from 20% in 2013 to 40% in 2019.
Ating Ego said the pandemic is likely to have worsened the financing gaps for SMEs, given their limited scope for resilience to protracted shocks.
According to the World Bank, SMEs, which make up the more significant portion of businesses in Africa and contribute about 60% of total employment and 40% of GDP in emerging economies, remain locked out of the local and international banking systems compared to companies and multinationals.
The International Finance Corporation (IFC) calculates the finance gap (across all types of finance) for 44 million micro, small and medium-sized enterprises (MSMEs) in sub-Saharan Africa to be USD 331 billion.
“Therefore, solutions seeking to close the trade finance gap in Africa would do very well to focus on MSMEs because they offer an engine for inclusive economic growth,” said Ating Ego.
The Chairperson, Uganda Bankers Association (UBA) who doubles as Chief Executive Officer for Citi Bank, Sarah Arapta said Covid-19 clearly demonstrated the urgent need for growing cross -border trade, payment gateways and settlement systems.
In Uganda, the pandemic shock contributed to revenue shortfalls of 3.2 trillion shillings in the 2019/2020 financial year, and 2.2 trillion in 2020/2021 financial year.
There was a sharp increase in the budget deficits to 7.1% and 9.0% in 2019/2020 and 2020/2021 financial years respectively.
Debt service to revenue has increased to 30.6% in 2021/2022 financial year from 21.7% in 2019/2020 financial year.
A review of Uganda’s import versus export values indicate that between July 2021 and June 2022, the trade deficit rose from USD 314.56 million to USD 439.38 million or 39.7%.
Mrs Arapta said challenges of trade imbalances and foreign exchange risks can best be addressed via the arsenal of interventions being championed by the African Continental Free Trade Area (ACFTA) aspirations.