A shortage of foreign currency liquidity has become the main obstacle to trade finance growth for African banks, according to a study released today by the African Development Bank (AfDB).
In the report, presented today in Brazzaville at the AfDB’s annual meeting, it is pointed out that “around 36% of banks identified the limited availability of foreign currency as the main constraint to trade finance growth between 2020 and 2024, compared to 18% in the 2015–2019 period.” For the AfDB, this is the “primary hindrance to the growth of trade finance.”
The same report estimates that, by 2024, the trade finance gap to cover the needs of African companies stood between 74 and 92 billion dollars.
Even so, the AfDB and other development finance institutions “facilitated around 32 billion dollars per year in trade finance between 2020 and 2024, representing, on average, about 3% of Africa’s total merchandise trade during the same period.”
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The AfDB warned, however, that trade on the continent “remains insufficiently served by commercial banks,” especially since, between 2020 and 2024, “commercial banks intermediated, on average, 23% of Africa’s total trade, down from the 40% recorded in the 2011–2019 period.”
Despite this, African regional commercial banks are playing an increasingly relevant role as correspondent banks serving issuing banks in Africa.
The report was presented at the annual meeting of the AfDB Group, where representatives from the 81 member countries, including heads of State, finance ministers, planning ministers, and central bank governors, will analyze the progress achieved over the past year and the major challenges ahead.
The theme of this year’s meetings, which run until Friday in the capital of the Republic of the Congo, Brazzaville, is “Mobilizing African Development Financing at Scale in a Fragmented World.”
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This year’s meetings are being marked by health measures against Ebola, which were reinforced in Brazzaville—separated from the Democratic Republic of the Congo (DR Congo) by a river—and the very format of the meetings was altered, with the Bank adopting “a hybrid format, allowing all delegates to fully participate in the proceedings, regardless of travel and logistical conditions.”
