The African Trade Finance Survey report has shown that huge capital outflows from Africa exceeding $5bn were reported in the first quarter of 2020.
The report by the African Export-Import Bank, in collaboration with the African Development Bank, the United Nations Economic Commission for Africa, and Making Finance Work for Africa Partnership surveyed over 180 banks across the continent, representing more than 58 per cent of total assets held by African banks.
According to the report, the supply of trade finance was affected between the first quarter of 2020 due to the COVID-19 pandemic and the inherent tightening of financial conditions and the heightening balance of payment pressures and liquidity constraints.
The report further pointed out that African trade amounted to $1,077bn but banks intermediated $417bn of this, approximately 40 per cent, whilst the global average was 80 per cent.
According to the African Export-Import bank, the survey was conducted to provide a clear understanding of the trade finance landscape across Africa and how it had evolved during the COVID-19 pandemic.
In his opening remarks, the President of Afreximbank, Professor Benedict Oramah, highlighted how the tightening global financial conditions spurred massive money outflows from Africa, exceeding $5bn in the first quarter of 2020.
According to Oramah, this further exacerbated liquidity constraints and undermined the capacity of banks to finance African trade.
The report also revealed that the number of correspondent banking relationships declined across the region, and the rejection of Letter of credit 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.
However, the Executive Secretary at the United Nations Economic Commission for Africa, Dr Vera Songwe, has applauded the Afreximbank for the counter-cyclical measures it took to help countries deal with the economic and health impacts of the global COVID-19 pandemic.
Dr Songwe also urged African leaders, especially Central Bank Governors and Ministers of Finance and other development partners, to further support continental monetary institutions such as Afreximbank through capital increases as such banks could leverage this capital five or six times and deploy more resources towards Africa’s recovery.