Financial Institutions Versus Trade and Infrastructural Development in Africa

The Addis Ababa Action Agenda and the World Trade Organization recognize trade finance as essential for a healthy trading system and vital in implementing the Sustainable Development Goals. However, one of the factors that hinder trade expansion within Africa and between Africa and other parts of the world is a trade finance gap estimated at US$ 82 billion in 2019. Filling this gap means addressing the obstacles African banks face in expanding access to trade finance. To lighten the potential impact of COVID-19 on African trade and keep market access channels open, an uninterrupted supply of trade finance by banks is vital. There are myriad models of financing infrastructure, which include but are not limited to: private financing, official development assistance; national development banks; resource financed infrastructure; public-private partnerships as well as blended finance. Chinese financing for African infrastructure has been running at levels comparable to, or higher than, financing from all G7 members and multilateral development banks combined. In their efforts to set up financial facilities to support trade and infrastructure development, development finance institutions and governments should consider setting up rapid emergency facilities coupled with risk mitigation instruments earmarked to support banks as part of the solution.