The African Trade Finance Report (ATFR) has revealed that Africa suffered more than $5 billion capital flight in the first quarter of 2020, due to the impact of COVID-19 pandemic disease.
A statement from Afreximbank on Monday, stated that the ATFR, was commissioned by the African Export-Import Bank (Afreximbank), in collaboration with the United Nations Economic Commission for Africa (ECA), the African Development Bank and the Making Finance Work for Africa Partnership, to provide a better understanding of the trade finance landscape across Africa and how it has evolved during the COVID-19 pandemic.
The President of the Afreximbank, Professor Benedict Oramah, attributed the capital flight to the tightening of global financial conditions.
Oramah said: “The tightening of global financial conditions triggered massive capital outflows from Africa, exceeding $5 billion in the first quarter of 2020.
“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.”
It noted that the tightening of financing conditions heightened balance of payment pressures and liquidity constraints, which affected the supply of trade finance between January and April 2020, the period covered by the survey.
According to the report, the number of correspondent banking relationships fell across the region, and the rejection of L/C requests increased, with about 38 per cent of local/privately-owned banks and 30 per cent of foreign banks reporting an increase in rejection rates, respectively.
The report highlighted the role trade finance could play in overcoming the social and economic fallout of the COVID-19 pandemic to quicken the process of economic recovery through trade and investment growth.
It also pointed out that African trade amounted to $1,077 billion but that banks intermediate $417 billion of this, approximately 40 per cent, whilst the global average is 80 per cent.
The report recommended greater engagement between central banks and industry, increased digitalisation and take up of technologies as well as better data that would help better understand and price risk.
The Senior Vice Chairman for Africa at Standard Chartered, Ms. Bola Adesola, stressed during the launch of the report, the need to increase businesses on the continent in order to help drive trade extra- and intra-African trade and banks’ intermediation.
She added that the African Continental Free Trade Agreement (AfCFTA), could provide a platform to help drive greater businesses.
The Executive Vice President, Business Development and Corporate Banking at Afreximbank, Mr. Amr Kamel, highlighted the role of Development Finance Institutions during downturns, pointing out that, “Afreximbank’s Pandemic Trade Impact Mitigation Facility (PATIMFA) provided timely support to banks, which enabled them to clear payments falling due and avert payment defaults.”
The Chief Economist at Afreximbank, Dr. Hippolyte Fofack, reiterated the need to sustainably grow the supply of trade finance across the region.
“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”, he said.
