The African Trade Finance Survey report has revealed that there were massive capital outflows from Africa, exceeding $5bn in the first quarter of 2020.
The report by the African Export-Import Bank, in collaboration with the United Nations Economic Commission for Africa, the African Development Bank and Making Finance Work for Africa Partnership surveyed 185 banks across Africa, representing more than 58 per cent of total assets held by African banks.
According to the report, as a result of the COVID-19 pandemic and inherent tightening financing conditions heightening balance of payment pressures and liquidity constraints, the supply of trade finance was affected between January and April 2020, the period covered by the survey.
The report pointed out that African trade amounted to $1,077bn but that banks intermediated $417bn of this, approximately 40 per cent, whilst the global average was 80 per cent.
Afreximbank said the survey was conducted to provide a better understanding of the trade finance landscape across Africa and how it had evolved during the COVID-19 pandemic.
In his opening remarks, President of Afreximbank, Prof. Benedict Oramah, highlighted how the tightening global financial conditions triggered massive capital outflows from Africa, exceeding $5bn in the first quarter of 2020.
He said, “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.”
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 per cent of local/privately-owned banks and 30 per cent of foreign banks reporting an increase in rejection rates respectively.
Executive Secretary at the ECA, Dr Vera Songwe, commended Afreximbank for the counter-cyclical measures it took to help countries deal with the economic and health impacts of the COVID-19 pandemic.
“The bank has also played a major role in putting together a $2bn facility to help African member states purchase up to 400 million doses of the COVID-19 vaccines,” she added.
Songwe also urged African leaders, especially Central Bank Governors and Ministers of Finance and other development partners, to further support 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.