Africa’s Trade Finance Industry hard hit by COVID-19
The African Export-Import Bank (Afreximbank) in collaboration with the African Development Bank (AfDB) released a report on the 15th of April 2021, analyzing the influence of the COVID pandemic on trade and finance activities in Africa. When Covid-19 hit Africa, a sharp decrease in global trade was followed by a rapid contraction of economic output.
The International Monetary Fund (IMF), quoted in the report, found that the global economy shrank by approximately 3.5%, worse than the 2007-2008 global financial crisis. Nigeria, Africa’s largest economy, contracted by 6.1% in 2020. GDP in South Africa shrank by 7%, the first contraction in 11 years.
The report, titled Africa’s Trade Finance Survey Report surveys 185 banks from across Africa, representing almost 60% of total assets held by African banks. Previous studies found that the chasm between Africa’s trade finance need and capacity has risen over the course of the past decade, and estimates the size of the gap to be $91 billion from 2011 to 2019. However, the COVID-19 financial implications increased, with the latest data putting it around $81 billion.
According to the report, the number of correspondent banking relationships fell across the region, and the rejection of letter of credit requests increased, with about 38% of local/privately-owned banks and 30% of foreign banks reporting an increase in rejection rates, respectively.
In his closing remarks at the event held to launch the report, Dr Hippolyte Fofack, Chief Economist at Afreximbank said, “Trade finance is the lifeblood of commerce and will play a key role in the recovery and structural transformation of African economies to better prepare the region to future global crises“