October 6, 2017//-Development partners have made significant efforts to support the trade finance industry over the last decade.
However, very little is known about the trade finance market in Africa. It is against this backdrop that the African Development Bank (AfDB) decided to embark on an initiative geared towards filling this knowledge gap.
In doing so, two rounds of surveys were carried out in 2013 and 2015, with the aim of enhancing understanding and knowledge about the bank-intermediated trade finance market in Africa.
In addition, the second survey goes further than the first one by exploring demand side issues including access to bank-intermediated trade finance by SMEs and first time applicants.
In December 2014, the African Development Bank produced its first ‘Trade Finance in Africa’ report. The aim was to provide policymakers and financial institutions engaged in trade finance a comprehensive insight into various aspects of trade finance supply in Africa.
In particular, the report focused on understanding the size of the bank-intermediated trade finance market, the financing gap (unmet demand), the characteristics of banks active in trade finance intermediation, and key challenges they face.
Since that last survey, however, the world economy has changed and with it the outlook for trade finance. Commodity prices, particularly oil, have fallen precipitously since mid-2014 and continue to strain the availability of foreign currency liquidity in many oil-dependent African countries.
Furthermore, the scaling back of unconventional monetary policy in major advanced economies means that excess foreign capital that was previously channeled towards emerging markets in search of higher yields has started to dry up including in Africa.
This has reduced the supply of foreign currency which is vital for the growth of trade finance markets.
For policymakers, the ability to steer trade finance resources to where they are needed the most requires taking continuous stock of progress made and tackling emerging new challenges, including demand-side related issues.
The focus of this report is to track the changes that have occurred in the trade finance market in Africa during the period 2013-2014. In addition to updating and expanding our understanding of the key issues discussed in the previous report, this report also introduces new dimensions that have hitherto not been explored.
In particular, the second survey titled ‘Trade Finance in Africa: Overcoming Challenges’ explored factors limiting SMEs’ access to bank-intermediated trade finance, including high default rates on trade finance facilities extended to the SME business segment.
The report also examines the extent to which new trade finance clients—those that have for the first time requested financing from commercial banks to export or import goods—are able to gain access to trade finance facilities ordered by banks and the concentration of trade finance assets among commercial banks’ top clients.
African Eye Report
